Rafael Pérez-Pire, General Manager, Unión Eólica Panameña: Interview

Interview: Rafael Pérez-Pire

What role do you expect wind energy will play in Panama’s future energy mix?

RAFAEL PÉREZ-PIRE: Wind energy is playing an important role in Panama’s future energy mix. It is changing the current paradigm, where you have an energy mix composed primarily of hydro- and thermal-generated power. In May 2015 Panama reached an all-time high for energy demand – 1607 MW – and wind energy is the third-largest source to supply this demand, an indication of just how relevant wind energy is becoming. In fact, it is expected to become the second-most important source during the summer of 2016, after only hydro power. In terms of obstacles, there are not any for the development of wind energy in Panama, except for the limited size of the electricity sector. As the electric systems grows, so will wind energy in Panama.

What regulatory amendments need to be implemented in order to incentivise the development of wind energy in Panama?

PÉREZ-PIRE: There is a regulatory framework in place that incentivises the development of wind energy projects, allowing players to compete fairly despite differences in the technology they may use. However, the current framework is based on an older framework that was implemented at a time when the technology in the sector was different. Hence the current model is not appropriate for a sector that is constantly evolving in terms of technology.

How will the suspension of the Barro Blanco project impact private investments in energy projects? What can be learned to prevent similar cases?

PÉREZ-PIRE: The fact that a simple administrative issue was one of the two reasons (poor community relations management being the other one) for a project that was 95% complete to be stopped sends the wrong message to investors. One of the main strengths of Panama for foreign investors is the legal security the country offers. Thus, we must strive to maintain the country's competitive edge.

There are several lessons to consider. First, before implementing a project of such magnitude a socioeconomic study evaluating its impact must be carried out. There always needs to be an open dialogue with communities to involve them in a project. Furthermore, if a project will affect a community, appropriate compensation should be awarded.

What roles should the government and private sector play in developing renewable energy?

PÉREZ-PIRE: Panama is a transparent market with a level playing field for everyone participating in the electric sector. This means that regardless of what technology a player may use, any firm can theoretically win a contract without any incentives to any other technology. Law 45 exempts renewables from paying tariffs and value-added tax for imported materials, in order to prevent their prices from increasing. Having said this, as long as the framework for the electric sector is transparent, if renewables can be efficient, competitive, and mature, incentives are not needed. This is the case in Panama, so the government should protect transparency, leaving private companies to develop the sector.

In what ways are multilateral financial institutions – like the World Bank – involved in the development of renewable energy in Central America?

PÉREZ-PIRE: The role played by such institutions is key, since local banks lack the resources and expertise to finance large renewable energy projects or projects that use new technologies alone – although they do efficiently finance small- and medium-scale projects, especially in hydro. Multilateral institutions are the only option to back such developments. We must take into account that such institutions can bring together a number of banks to participate in syndicated loans, in which local banks also participate.