Reality Check for Guatemala’s Energy Plans

Alex Koberle
Thursday, June 7, 2012

Efficiency and Renewables Could Forestall Dams, Study Shows

In 2008, International Rivers’ staff visited communities that would be affected by Xalala Dam in Guatemala. We began documenting threats posed by more than 20 dams planned for Guatemala’s rivers. Guatemala also has a legacy of poor social and environmental standards on its past large dams. As with many developing countries, energy planning in Guatemala was marked by unrealistic expectations for growth in energy use, political pressure to develop large projects, and incomplete analysis of alternatives to meeting energy needs. Energy analyst Alex Koberle was commissioned to research how Guatemala could meet energy requirements while maintaining the health of its rivers. Here he summarizes his key findings.

Guatemala's electricity sector was heavily reliant on imported oil when the government of former President Alvaro Colom set in motion a plan to diversify its power supply in 2008. The plan, revised but still in place, raised concern from community groups and NGOs for their reliance on large coal and hydropower projects with high potential to cause social conflict and environmental degradation. Proposed dam projects have revived the memories of violence that marred the relocation of Mayan communities caused by the construction of the Chixoy hydroelectric dam in the 1980s.

The original plans made future electricity demand forecasts based largely on estimated GDP growth, but the projected GDP growth rates and the resulting demand projections were overestimates. Although two recent updates to the plan revised yearly peaks downward, the annual growth rates remain high, at an average of 70 to 90 megawatts (MW) per year. Based on these projections, the national energy commission, CNEE, and the government are proposing the construction of several dams and coal plants, many of which are already under construction.

The purpose of this study was to critically examine the government’s electricity development plans and to determine if there is a more sustainable and economically efficient solution to meet the country’s future electricity needs. We found that Guatemala’s energy needs until 2022 can be met with a combination of energy efficiency measures and renewable energy, eliminating the need for new coal or hydro capacity. Such an approach would guarantee Guatemala’s future energy supply at lower cost than what is being currently proposed, with the final result being cheaper electricity for the Guatemalan consumer. Here is a summary of some of the key findings.

Electricity demand growth forecasts: To assume GDP growth has a one-to-one relationship with electricity demand growth neglects potential savings from energy efficiency measures that allow the same economic output to be generated from less electricity. Neither the original 2008 plan by the Guatemalan energy commission nor the 2010 update made any reference to energy efficiency to meet future demand. The 2012 update provided one scenario in which significant energy efficiency savings would replace some 450 MW of hydropower. In fact, CNEE claims on its website that there is potential for about 250 MW of savings, an amount comparable to the capacity of Chixoy, the largest hydroelectric plant in the country. Our report uses the 250 MW reported by CNEE and identifies another 145.5 MW of economically viable measures that could be deployed by 2022 at a profit. These are conservative figures reflecting "low hanging fruit" totaling about 395.5 MW that is technologically and economically viable today. The true total potential is likely to be much higher, especially if an aggressive energy efficiency program was to be launched.

Energy efficiency: This growing and complex field is often misunderstood, and so it is in Guatemala, where public perception associates it with simply changing light bulbs or turning off lights. Although residential lighting makes up a large portion of the potential savings, enormous contributions can come from sectors such as public street lighting and industry. Proper sizing of electric motors or the use of variable drives in industrial applications, for example, can reduce peak demand in significant ways while at the same time increasing the profitability of the enterprise.

So why don't businesses take advantage of this? There are several barriers to the deployment of energy efficiency measures in the private sector and these include informational barriers (managers simply don't know about it), financial barriers (high up-front costs despite short payback periods) and regulatory barriers (electricity tariffs that reward utilities for ever-growing sales). Solutions exist to counter these barriers, including public information campaigns and workshops, creation of special credit lines, and redesign of tariff methodology to reward increased efficiency.

CNEE has proposed a national energy efficiency plan to fund and promote energy efficiency, but the plan has remained stalled in Congress for over a year. A lot hinges on the approval of this plan. For example, a credit line from the Inter-American Development Bank (IDB) for US$100 million for energy efficiency measures is being prepared but it cannot be used until the plan is approved. A smaller IDB loan has funded several pilot projects in the country that show encouraging results. More importantly, a mandate from Congress could force CNEE to include energy efficiency gains as tantamount to new capacity. In other words, when making projections of demand growth, CNEE should be made to include the megawatts saved into its forecasts as if they were megawatts generated by a new power plant.

Renewables potential: Guatemala also has ample renewable energy potential, such as wind, solar and geothermal. Electricity is already produced at utility scale by sugar mills using bagasse biomass to drive turbines. Although there are no utility-scale wind or solar facilities, the first wind farm is currently under construction and should provide about 50 MW of clean capacity by 2014. Feasibility studies are underway for new geothermal plants that would add to the 44 MW currently installed. The cost of solar electricity is still an obstacle at large scales here, but for communities not connected to the grid, solar PV remains a viable alternative to building costly transmission lines. The same can be said of small rooftop wind turbines or micro-hydro power plants. A 165-KW small hydro plant built by the community of Chel has turned the village into an economic hub for the surrounding regions with minimal environmental impact. These distributed generation alternatives may be better solutions to bring electricity to rural communities still off the grid rather than building large, centralized power plants requiring expensive transmission lines.

As a method for providing new capacity, improving energy efficiency is the least expensive, has the fewest socio-environmental impacts (if any), and is faster to come online than building new infrastructure of any technology. Reducing demand makes the unused capacity available for other uses, just as a new power plant would. There are numerous examples of highly successful energy efficiency programs in Latin American. The Organización Latina-Americana de Energia reports that recent energy efficiency programs in Brazil, Mexico, Costa Rica, Peru and Cuba have yielded notable results and avoided the need for expensive new power plants. In 2005 alone, Brazil invested US$52.7 million in energy efficiency initiatives that generated savings of 2158 GWh in electricity and $960 million in postponed new capacity construction. In the same year, Mexico saved 1,301 GWh, equivalent to the consumption of the state of Baja California Sur. In Mexico, the cost to conserve 1 kW through energy efficiency measures was found to be 75% less than the cost of adding 1 kW of capacity by building new infrastructure. Efficiency measures also resulted in a reduction of 347 MW in capacity and 1,962 GWh in energy demand. It is noteworthy that two of the most successful energy efficiency programs in Latin America – those of Mexico and Costa Rica – have treated the savings resulting from energy efficiency programs as tantamount to new capacity and have included them in their future energy plans and forecasts. 

The potential for energy efficiency savings is significant in all sectors of the Guatemalan economy. Therefore, we propose a freeze on construction permits for new generation projects through 2015 while an aggressive energy efficiency plan is launched and implemented. This would ensure that any new projects that come online would provide the most benefit for its economic, social and environmental cost. Only after aggressive energy efficiency programs have been implemented should new generation projects be given consideration. By that time, new generation and storage technologies may become available and costs will be lower for renewables, meaning a different playing field that is more likely to be better aligned with the realities of electricity generation in the 21st century.

The author is an energy consultant specializing in Latin America. 

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