Panama, already a climate and renewables power leader in Latin America, is targeting an accelerated clean energy transition to drive recovery from Covid-19 and generate significant economic and environmental benefits longer-term, with a longer-term hope that offshore wind and hydrogen could be a big part of its energy mix.

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“We think [the energy transition] is a great opportunity for us,” the country’s energy secretary Jorge Rivera Staff said in an interview with Recharge. That may also be the case for global investors as Panama’s next phase of its wider clean energy expansion takes shape.

Rivera Staff cited a recent study by the United National Environment Programme (UNEP) that found regardless of energy transition scenario, it would pay for itself with benefits outweighing the financial cost by a factor of “two or three”.

The report, The Energy Transition as a Key Driver of the Covid-19 Economic Recovery in Panama, provides data and economic and technical analysis that President Laurentino Cartizo’s administration plans to use to help implement a 2030 energy transition agenda (ETA) passed by his cabinet last November.

The government’s plan envisions an energy transition based around hydropower, solar and wind for electricity with storage and heat generation, as well as demand response, electrification of public transport and improved energy efficiency in buildings.

An immediate focus is the power sector where renewables led by hydro provide about 71% of the country’s electricity with thermal sources the balance. The aim is to reduce and ultimately end reliance on imported coal, diesel, and fuel oil. The country’s only coal-fired power plant is set for closure.

Covid-19 impacts caused Panama’s mainly services-based economy to contract at least 18% in 2020, slashing load demand to less than half of the roughly 3.7GW of installed generation capacity.

“We were hit hard by the pandemic but are confident we can recover from it,” said Rivera Staff, with the World Bank forecasting 9% growth this year in Panama. “We’re working on development of more renewables into the power system and confident that addition of these resources will continue with support of the ETA.”

A hint of what is possible: solar and wind each provided around 15% of power to the grid on certain days in March versus 6.5% and 3%, respectively, for all of last year. Panama has 270MW of wind capacity installations with a 66MW project in development, while solar PV in commercial operation was about 300MW.

“We expect to add 200MW of PV this year and around 41MW of panels on rooftops,” he said. “Maybe in total numbers it’s not much but for our system it’s very relevant.”

Wind and solar plants are privately-owned, and capacity auctions are periodically held. Panama provides various tax benefits and other fiscal incentives to promote development of all renewables.

As wind and solar expand share in the competitive wholesale power market, investors will likely pressure for changes in regulatory rules to provide for a more level playing field versus conventional generation including hydro. Present regulatory framework conditions are designed for dispatchable technologies, according to International Renewable Energy Agency (Irena).

Wind speeds in Panama average 5-7 metres per second at a height of 200 metres. As of February 2017, the national government had granted 662MW of permanent licences for future development of wind projects while provisional ones totalled 870MW, Irena data shows.

There is also room for additional hydro development with estimated potential of more than 11,000GWh a year or around 2.5GW of installed capacity. More than 95 sites have been identified for 1MW and above capacity power plants.

Global warming is a serious concern for Panama, the southernmost country in Central America, bordering both the Caribbean Sea and Pacific Ocean. The country experiences severe weather events such as the El Niño and La Niña phenomenon, droughts, floods, tropical cyclones, and windstorms. Other risks are rising sea levels, negative impacts on agriculture, and changes to its rich biodiversity and ecosystems.

The country is a signatory to the 2016 Paris Climate Agreement and has pledged to reduce carbon emissions 11.5% by 2030. Transportation is the main emissions source with the power sector 22%. Panama claims to be among the few nations that are carbon negative.

“Our forests absorb more carbon dioxide than total emissions from the full economy, but we don’t just want to stay there. We want to enhance and strengthen our commitments and ambitions to reduce the emissions that we have in our economy with this ETA,” said Rivera Staff.

Offshore wind is a potentially large clean energy development opportunity. With a 2,500km (1,500 mile) of coastline, the country has abundant resource although some of it is not located near load centres or heavy-duty long-haul transmission lines. Nevertheless, both the government and foreign investors see medium-term possibilities.

“We don’t have many resource studies. It’s something that we want to carry out to bring more investment for our country,” said Rivera Staff, adding his office has received expressions of interest from as many as six offshore wind developers. “Even in the middle of the pandemic. We think these could be a driver for this technology.”

Initial data suggests that part of Panama’s Pacific Ocean outer continental shelf could be a good location for offshore development. “It’s a huge area where the continental platform extends 50-60km,” he said, noting it has good wind resource and water depths that could accommodate today’s turbine foundations.

Marine energy is another resource that could be exploited, according to Irena. Panama could take advantage of the differences between high and low tides that are more than five metres in the Pacific Ocean. Waves of varying intensities, frequencies and sizes off both coasts offer immense energy potential.

The government also aspires to position the country as a logistics hub for the emerging global green hydrogen market by leveraging its strategic location on the Isthmus of Panama.

Among the assets that could play key roles in this strategy are the Panama Canal and terminal ports of Balboa and Cristobal on each end, plus other deep water ports Bocas del Toro and Chiriqui Grande (Atlantic) and Charco Azul and Chriiqui (Pacific). Also, the Colon Free Trade Zone is the largest in the Western Hemisphere.