The rapid growth of Nicaragua’s renewable energy sector took another spin forward last week when British-funded company Globeleq inaugurated a 44-megawatt wind project in Rivas.
The inauguration of the Eolo wind farm, whose 22 turbines will produce 7% of the country’s annual energy demand, makes wind energy the fastest growing source of renewable power in Nicaragua. With plans to install an additional 40 megawatts of wind power from the ALBA Wind farm in 2014, Nicaragua’s total wind-power production will reach 180 megawatts—almost one-third of the country’s total energy demand during peak hours.
By next year there will be nearly 100 wind turbines spinning alongside the Inter-American Highway in Rivas, transforming the so-called “city of mangos” into the “city of windmills” in less than five years.
“Our team is very proud to be a part of Nicaragua’s transition to a more renewable technology energy matrix,” said Jay Gallegos, Managing Director of Gamesa Eolica S.L., one of the firms involved in the new Eolo wind farm.
Nicaragua’s combined renewable energy sources—geothermal, wind and biomass—are now producing around 320 megawatts of clean energy during the windiest months of the dry season. During the rainy season, hydroelectric plants substitute the wind farms by providing an additional 100 megawatts of power. Nicaragua is now covering almost half its energy demand through renewable sources—up from 20% just a few years ago. If the massive Tumarín hydroelectric project gets completed on schedule, Nicaragua appears to be on track to meet its goal of producing 94% renewable energy by 2016.
Despite the country’s dramatic switch to renewable energy technologies, some industry sources say Nicaragua’s “green energy revolution” might be maxing out.
Over the past five years, the country’s increase in renewable energy has happened much faster than the country’s demand for power, which increases at a clip of around 4-5% per annum. Due to distribution regulations that prohibit energy companies from signing long-term power purchase agreements (PPA) with buyers outside the country, Nicaragua’s renewable energy market might be reaching its saturation point.
“To a degree, Nicaragua has maxed out its potential,” says wind-farm expert Sean Porter, of Globeleq Mesoamerica Energy.
Porter says Nicaragua has made such big strides in increasing its installed capacity for renewable energy that the country is fast approaching the point where it will no longer be able to use all the power it’s producing. The problem, he says, is that transmission regulations prohibit energy companies from negotiating PPAs with anyone other than distributing monopoly Disnorte-Dissur, which is prohibited from profiting from the international resale of excess energy to other Central American countries. Without a profit motive, Disnorte-Dissur, which is operated at a $50 million annual loss, has no reason to sign power purchasing agreements for more renewable energy than it can place locally.
Though existing private energy companies can sell excess power into the regional spot market, the inability to negotiate long-term purchasing agreements with an international buyer means prospective renewable energy companies can’t get the financial backing they need to invest in new projects in Nicaragua.
If the market for Nicaraguan renewable energies doesn’t expand soon, Porter says, the future growth of one of the country’s leading investment sectors will be severely hampered in the years to come.
Gov’t eyes reforms for future growth
The government says it is aware of the challenges and is studying ways to improve Nicaragua’s legal framework to adapt to industry changes and new regional demands for power.
Javier Chamorro, executive director of investment-promotion agency ProNicaragua, says “some cooling off was expected, because the current rate of growth couldn’t go on forever.” But he says the government is looking at ways to keep the pot boiling before the market cools too much.
“The government knows we need to improve policy to create a bigger market for investment in renewable energies,” Chamorro told The Nicaragua Dispatch. “And we are looking at opportunities to do that.”
Nicaragua’s current legal framework for renewable energies is a decade old and is “quite frankly outdated,” Chamorro says.
“We now have new knowledge and information about this market and we understand that improvements have to be made to the legal framework for the sector to continue growing,” Chamorro says.
He said he thinks the government should look at the possibility of creating a wholesale energy market that would allow power companies to negotiate power-purchasing agreements directly with private buyers in Nicaragua. The government also needs to look at ways to loosen international restrictions to allow Nicaragua to develop into a regional exporter of power as part of the Central American Electrical Interconnection System (SIEPAC), Chamorro suggests. Finally, Chamorro says, the government is studying ways to reduce energy costs and increase demand in Nicaragua.
Chamorro says it’s not too late for Nicaragua to implement the reforms it needs to maintain its competitive edge and encourage continued growth in the renewable energy market.
“We are not concerned that the market is getting maxed out,” Chamorro says. “The investment flow will still be significant with the current framework, but we are aware that we need to improve policy to have more investment.”
Next: part II: Nicaragua’s baseload power problem—could a switch to coal power be the answer to Nicaragua’s soaring energy costs?