Central American economies are energy intensive* and the region’s electricity demand is expected to grow rapidly over the medium term, at about 5 percent per annum for the next 10 years. In this regards, the main challenge for the power sector is how and from which sources the sector will secure sufficient energy supply to meet this growing demand, which currently is being supplied by polluting thermal generation (imported diesel and HFO) and hydropower. This situation has resulted in a high exposure to oil price volatility, droughts, and ultimately, an increasing cost of Energy. In addition, Central America is the second most vulnerable region to the effects of climate change, only after Southeast Asia**.
In this context, diversifying the type of different generation sources by increasing the use of indigenous Renewable Energy sources (RE) as solar or wind power is key for sustainable development. However, power systems are not yet prepared for this challenge as it requires methodologies and advanced technologies to manage the variability of these renewable sources to ensure security of supply during all types of weather conditions and times of day, including when there is a lack of wind or sun.
The World Bank, in collaboration with ESMAP, KGGTF and SFLAC***, is supporting Central American countries to progressively increase the share of energy supplied from Variable Renewable Energy (VRE) sources such as wind or solar power, by smoothing the integration of these technologies in the broader power sector. This includes, for example, fostering the use of the latest technologies in weather forecasting that can anticipate wind or sun variability. A larger share of indigenous RE in the energy matrix will improve the security of energy supply (reducing the exposure to Oil price volatility and droughts), limit Green House Gases (GHG) emissions in line with the Nationally Determined Contributions (NDCs) at the Paris climate Conference (COP21) and contribute to reducing the cost of energy in the region.
* Defined as energy consumption per unit of gross domestic product
** According to the United Nations Office for Disaster Risk Reduction (UNISDR)