El Salvador’s National Energy Policy aims to diversify its power matrix and reduce its oil dependency by adding more renewable capacity. The country conducts technology-specific renewable energy tenders and offers income and import tax exemptions to clean energy projects.
With 1.6GW of installed capacity in 2014, oil, hydro and geothermal are El Salvador’s main sources of electricity. Out of the 5.8TWh produced that year, 42% came from oil-based generation (using bunker fuel, a heavy oil), 30% from hydro and 25% from geothermal. The remaining power is generated by biomass plants.
The National Energy Council (Comisión Nacional de Energía, or CNE) oversees the electricity sector in the country, while the Superintendencia General de Electricidad y Telecomunicaciones (SIGET) is the power sector regulator. State-owned Empresa Transmisora de El Salvador (ETESAL) is charged with transmission; Unidad de Transacciones (UT) regulates the wholesale power market and acts as the system operator. El Salvador is also part of the Central American Electrical Interconnected System (SIEPAC) and is connected to Guatemala and Honduras by 286km of transmission lines.
El Salvador’s power market has been unbundled and generation is open to private operators. Around 13 independent power producers (IPPs) are active. One of the largest generators in the country is LaGeo, which initially was a joint-venture between Enel Green Power and El Salvador’s state-owned Inversiones Energeticas (INE). After a long litigation process, El Salvador will acquire Enel Green’s stake in the project (36.2%) and will become the single owner of LaGeo.
In the country, electricity is contracted between generators and distributors. Tenders have been introduced to replace expiring bilateral power agreements and encourage renewable energy contracts. The first auction for renewable capacity happened in 2014, and contracted 94MW of solar PV capacity that is expected to come online in 2016. Capacity was contracted at a $116.2/MWh average price under 20-year power purchase agreements.
Import tax exemption is available to renewable projects up to 20MW. The sale of credits under the UN’s Clean Development Mechanism (CDM) for projects up to 10MW is not subject to income tax.
Score Summary
El Salvador’s 1.03 overall score in Climatescope 2015 placed it 30th among all countries, down from 27th in 2014, when it scored 1.12.
The country’s ranking change was driven largely by a decline in the Clean Energy Investments Indicator of Clean Energy Investment and Climate Financing Parameter II. As a result, El Salvador also was penalized by its scoring on Parameter II’s Growth Rate of Clean Energy Investments Indicator.
On Enabling Framework Parameter I, El Salvador finished 23rd, down from 14th in 2014. Its Parameter I scores were 1.27 in 2015 and 1.33 in 2014.
On Clean Energy Investment and Climate Financing Parameter II, El Salvador retreated from its fifth-place score of 1.12 in 2014 to 21st in 2015, when it scored 0.64.
On Low-Carbon Business & Clean Energy Value Chains Parameter III, El Salvador improved to 35th place in 2015, with a score of 1.22. In 2014, the country’s Parameter III score was 0.84, placing it 46th.
On Greenhouse Gas Management Activities Parameter IV, El Salvador improved four ranks to 32nd, with a score of 0.98. Its 2015 metrics were 36th place with a 0.85 score.