Demand analysis of emerging PV markets: Panama of Central and Southern America
March 17, 2020 PV InfoLink
Panama, whose population is estimated at 4.17 million, leads Latin and Central American economic growth. In 2018, the country posted a GDP growth rate of 3.677%, and this economic success can be ascribed to several factors: the Panama Canal expansion, offshore banking unit, and free trade zone. Following the general election held in May 2019, the newly-elected government pledged to tackle the country’s debt burden. Against this backdrop, Panama’s economy stands to stabilize. Moody’s has raised Panama’s credit rating to Baa1, which indicates a stable economic outlook.
Geographically, Panama is characterized by a narrow strip of land linking Central and Southern America. Spanning an area of some 75,500 square kilometre, the country borders Colombia to the east and Costa Rica to the west. Climatologically, Panama has a tropical marine climate. Its annual temperature ranges from 23 to 27 °C, and has an average annual solar radiation of 1,600 kWh/m2.
Renewable energy development in Panama
Under the National Energy Plan 2015–2050 (Plan Energético Nacional 2015–2050), Panama aims at achieving—by 2050—70% of renewable energy generation capacity and a 77% share of installed renewable capacity that combines solar, wind, and hydropower.
Fossil fuels, thermal power, and hydropower supply much of Panama’s energy consumption. Hydropower makes up the majority of the country’s total energy production and represents the highest share of the country’s installed renewable capacity. The power generated in the raining season can meet over 60% of domestic electricity use. In recent years, the government has developed renewables covering natural gas, solar PV, and wind power, in order to diversify the nation’s energy mix and achieve a well-balanced energy supply nationwide.
In 2018, wind power and solar PV accounted for a combined 19% of installed renewable energy capacity in Panama. While Panama is coming close to its 2050 goal of installed renewable capacity, its renewable energy mix is, however, dominated by hydropower. With wind power and solar still in their nascent stage of development, Panama needs to take a step further in developing wind and solar systems to further diversify its energy use.
Solar policies and outcomes in Panama
Since the introduction of the National Energy Plan 2015–2050, Panama’s PV industry has attracted growing attention. Much of its PV policy revolves around net metering, which compensates distributed systems for the electricity it supplies to the grid. Under the policy, large-scale PV systems at home are mostly built through independent power producers (IPPs). The majority of PV systems in Panama are built by foreign developers because its supply chain is patchy.
Net metering used to target only distributed projects with a capacity of under 500 kW. But after some amendments made between 2016 and 2017, the scheme now covers projects with a capacity of ≦ 500 kW, 500Kw ≦ 2.5MW, and those with a capacity of over 2.5 MW as well. Since then, Panama has seen many more distributed systems mushrooming. According to the government, around 7 MW of new capacity was added in the form of distributed generation systems in 2017, nearly double the addition in the preceding year.
Large-scale PV projects in Panama materialize through IPPs instead of auction. Developers of such projects sign PPAs with utility firms or electricity purchasers to undertake construction. Foreign developers such as Enel, Avanzalia, Tsk, and Elecnor have their shares of the pie. Most of these projects range from 40 to 150 MW in capacity and will come online within 2020.
Panama-China trade: Module import and export
In 2019, China exported 245 MW of modules to Panama, 1.5 times the volume it exported in the year earlier. The higer volume of Chinese modules exported to Panama in 2019 are probably to supply the IPP projects that need to get commissioned in 2020.
With no policy framework designing for the deployment of large-scale PV, the Panamanian government depends on foreign developers for building IPP projects. This heavy dependence leads to uncertainty over how local PV demand will change: if Panama sees fewer foreign developers, the demand will inevitably stagnate.
The National Energy Plan 2015–2050 is aimed at diversifying Panama’s energy use by increasing the shares of wind power and PV in the mix, so that it can eventually reduce its heavy dependence on hydropower. The Panamanian PV market has been growing since the plan’s launch. The PV policy focuses much on the development of distributed systems and promotes the construction of large-scale ones mainly through IPPs.
Without a mature supply chain to leverage, the Panamanian government enlists foreign developers to build most of the PV projects at home. Many foreign PV firms have established a foothold in the local market. While the government is working to make PV a major renewable source in Panama, it does not provide enough incentive to get developers to build large-scale projects. Therefore, if foreign developers’ presence diminishes, Panama’s PV demand will come to a halt.
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