To date, Panama’s clean energy policies have focused particularly on wind and solar, and have included technology-specific auctions plus exclusive tax benefits for both. The country also supports small-scale projects through a range of tax incentives.
In the first half of 2014, Panama relied primarily on fossil sources to meet its power needs due to a prolonged drought that affected the country. 57% of the 4.5TWh generated in the first half of the year came from oil, diesel and natural gas; 34% came from large hydro plants, with small hydro accounting for another 6.6%; and the remaining 2% generated from clean energy plants. The first half of the year also saw a substantial rise to 176GWh in Panama’s electricity imports from the Central America Regional Market (MER) given a severe drought that hit the country. Hydro generation picked up later in the year, but it raised a flag for the need of diversification of power generation sources.
State-owned Empresa de Transmissión Eléctrica (ETESA) is Panama’s sole transmission company and also responsible for organizing tenders to purchase power. Following other Latin American countries, Panama has adopted auctions to contract renewable capacity. Utility regulator Autoridad Nacional de los Servicios Publicos (ASEP) sets tender guidelines and ETESA conducts the auction. Panama held its first wind auction in 2011, awarding contracts to 158MW of projects. The country held a second wind auction in 2013 that awarded a total capacity of 125MW scheduled to be online by 2019. The wind sector also receives exclusive incentives, such as accelerated depreciation for relevant equipment and a 15-year tax exemption for Panama-based companies manufacturing wind equipment.
In 2014, Panama held its first tender for solar power contracts, awarding contracts to five projects with a total generation of 90GWh per year, scheduled to be commissioned by 2017. In 2015, the country organized one additional tender, but to contract natural gas capacity – a 350MW power plant.
For small projects up to 0.5MW in size, the Panama government offers value added (ITBMS) and import tax exemptions. Another benefit for small renewable energy projects is an exemption from transmission and distribution taxes for projects up to 10MW in size. Projects 10MW to 20MW receive an exemption on their first 10MW capacity. In June 2012, net metering regulation was adopted by the country. Under the regulation, retail electricity consumers who have renewable energy installations up to 500kW will be able to connect to the national grid, deliver surplus generation and get paid for the excess electricity provided.
The country established in 2011 a mandatory ethanol blending mandate in conventional gasoline of 10% by 2016. The legislation established yearly benchmarks to be achieved starting from 2013, in order to fulfill the mandate by 2016. However, the mandatory ethanol blending mandate was suspended in August 2014 due to lack of ethanol supply in the market. In spite of the blending mandate suspension, the government still offers a tax credit of USD 0.60/gallon to fuel blenders purchasing biofuels.
Score Summary
Panama’s 1.31 overall score in Climatescope 2015 placed it 21st among all countries, up from 28th position in 2014, when it scored 1.11.
The country’s ascent was powered by gains on both Clean Energy Investment and Climate Financing Parameter II and Low-Carbon Business & Clean Energy Value Chains Parameter III. Panama’s strength in the Growth Rate of Clean Energy Investments Indicator of Parameter II was instrumental, as was its performance on Parameter III’s Financial Institutions in Clean Energy Indicator.
On Enabling Framework Parameter I, Panama finished 13th, down two places from 2014, with a score of 1.48. Its 2014 score was 1.339.
On Clean Energy Investment and Climate Financing Parameter II, Panama scored 1.39, up from 0.89 in 2014. Its Parameter II ranking was sixth in 2015 versus 11th in 2014.
On Low-Carbon Business & Clean Energy Value Chains Parameter III, Panama’s 33rd-place finish in 2015 was seven places above its position. The country’s 2015 and 2014 Parameter III scores were 1.27 and 1.02, respectively.
On Greenhouse Gas Management Activities Parameter IV, Panama slipped three places to 36th. Its 2015 and 2014 Parameter IV scores were 0.93 and 0.91, respectively.