Power policy

Panama's National Energy Plan 2015-2050 included a target for 70% of installed generation capacity to come from renewable energy by 2050. The country’s efforts to promote renewables development include tax policies and duty exemptions, but it no longer holds tenders specifically for clean energy contracts. Following legislative changes, state-owned Electric Transmission Company (ETESA) announced in February 2018 that there will be no further tenders specifically to solicit bids from clean energy projects. Instead, all generation sources will compete for contracts. However, ETESA also said technologies will be evaluated based on their environmental attributes and associated costs.

Panama has had tax incentives for the construction, operation and maintenance of clean energy projects since 2004. Renewable generators up to 500 kilowatts (kW) are exempt from all tax on imported equipment as well as VAT. For renewable generators up to 10 megawatts (MW), an income tax credit of up to 25% of the project investment is provided. For generators over 10MW there is a fiscal benefit of 25% and an income tax credit of up to 50% of the project investment. The law also exempts transmission and distribution fees for smaller renewable energy projects up to 10MW, while projects between 10-20MW do not pay transmission or distribution fees for the first 10MW for 10 years.

Further incentives for specific technologies are also available. For example, solar PV related equipment is exempt from import tax and VAT, and qualifies for a tax credit of up to 5% for income tax and accelerated depreciation. Furthermore, equipment, materials and spare parts for wind generation plants are exempt from all international duties, fees, VAT and import tax. Wind project owners are also exempt from national taxes for 15 years.

A net metering policy was instated in 2016, creating the rules to set up self-generation facilities and allowing connection to the distribution grid and the sale of surplus power. Credits are accumulated in kilowatt-hours (kWh) up to a limit of 25% of annual or semiannual historic consumption, which is refunded to a customer’s electricity account.

Power prices and costs

Panama’s system operator ETESA sets the minimum and maximum tariff prices, and the transmission and distribution companies present their plans and tariff boards to ETESA for approval.

The government only subsidizes fuel if it is used for public transportation or cooking. There are several laws regarding types of electricity price subsidies, mostly focused on the population with a lower electricity monthly intake, farmers, and the retired and elder population.

Power prices rose across all of Panama’s customer segments from 2016 to 2019. However, in 2020, commercial power prices dropped from $201 per megawatt-hour (MWh) to $195/MWh, industrial prices fell from $192/MWh to $126.2/MWh, and wholesale prices plunged from $90.68/MWh to $48.45/MWh. Residential prices rose slightly from $177.20/MWh in 2019 to $186.2/MWh in 2020.

Power market

Most of Panama’s electricity generation comes from the burning of fossil fuels or from hydropower. The country had 3.86GW of installed generating capacity in 2020, with oil and large hydro serving as the main sources.

Renewables excluding large hydro accounted for 827MW in 2020. The country’s clean energy sector attracted around $1.9 billion in investment from 2010-2020. Solar and wind installed capacity jumped from virtually nothing in 2013 to 471MW in 2020.

Panama’s power market was unbundled in 1997, with generation and distribution opened to private operators. Clean energy projects with installed capacities up to 10MW can enter into direct power purchase agreements (PPA) with the distribution utility as long as power sold does not exceed 15% of the distribution company’s maximum demand.

Panama is part of the Central American Electrical Interconnected System (SIEPAC) and is connected to Costa Rica via 150 kilometers of transmission lines.

Doing business and barriers

Under Panama’s Energy Plan 2015-2050, the government is aiming for 100% of the population to have access to electricity by 2024. The national electrification rate was just under 96% in 2019.

There are few formal barriers to renewables development in Panama, and the business environment is generally positive. While hydro still represents the largest single source of clean power, solar and wind have been increasing their shares since 2014.

The Central American Bank for Economic Integration (CABEI) is running a partial credit guarantee scheme for small scale renewable energy projects under 10MW, known as Accelerating Renewable Energy Investments in Central America and Panama (ARECA).

EV market

Panama’s electric vehicle (EV) market is still premature. EVs represent just 1% of the country’s total passenger vehicle sales, however in the last three years, sales have grown by an average of 40%. In 2020, Panama’s EV fleet comprised 30 battery electric vehicles (BEVs) and 198 plug-in hybrid vehicles (PHEVs).

EV policy

Panama has a 2030 target for between 10-20% of private vehicles to be electric, 15-35% of buses to be electric, and 25-50% of the public vehicle fleet to be electric. It is also aiming for 25-40% of private vehicles sales in 2030 to be electric.

Buildings market

Panama introduced its Energy Transition Agenda 2020-2030 in 2019, which lays out the norms and procedures for improving energy efficiency. The country expects to reduce electricity consumption by 370 gigawatt-hours (GWh) per year, thus avoiding the installation of 70 megawatts (MW) of new generation capacity and the production of 1.6 million metric tons of CO2 equivalent (mtCO2e) .

Buildings policy

The government has yet to implement any substantive policy to support low-carbon heating and cooling.