Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

According to Law No. 6, generation facilities may operate under a concession, a licence or a registration before ASEP.

Concession

ASEP awards concessions after completing an auction process. When ASEP identifies a possible hydro or geothermal project or a third-party requests a concession, ASEP must start an auction process to allow all interested parties to participate. After completing the auction process, ASEP awards the concession to the candidate with the highest bid and for a period that may not exceed 50 years. After expiry, the concession may be renewed once for another 50-year term.

Licence

A generator requires a licence to construct and exploit any generation plant other than those subject to a concession regime. Applicants must file a licence application with ASEP. If the licence application is approved, ASEP will issue the licence for a maximum term of 40 years. After expiry, the licence may be renewed for another 40-year term.

Registry of self-generators and co-generators

Entities that, as part of their industrial or commercial operations, own generation plants that generate electricity for their own consumption, may register such generation capacity before ASEP. Once ASEP approves the registration of these companies, these companies may sell their surplus energy into the electricity market. Self-generators may also enter into PPAs and participate in auctions. These registers are usually granted for 5 year renewable terms.

Companies competing for a concession or applying for a licence or registry must also have an environmental impact study of the project duly approved by the Ministry of Environment (MoE), a Water Concession issued by the MoE, for hydro projects, an interconnection approval from ETESA and must also have successfully completed a test run of the plant directed by the National Dispatch Centre (CND). The CND is a division within ETESA that plans, supervises and controls the integrated operation of the NIS and ensures the NIS’s safe, integrated and reliable operation.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Law No. 6 promotes a policy of free access to the NIS. Access to the NIS requires each generator to subscribe to a transmission contract with ETESA. The transmission contract will govern the relationship between the generator and ETESA and affords the generator the right to connect to the transmission grid and facilities owned and operated by ETESA for a fee.

Connection to the NIS requires the generator to accept and comply with NIS Operating Rules and the Technical Service Quality Rules, including all system fees charged by ETESA, which are set and vary according to the area.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

Approximately 72 per cent of the electricity consumed in Panama is generated by hydroelectric plants. Some of these plants were built before 1997, when the electricity sector was still owned and operated exclusively by the government, and in the absence of any special incentives. Rather, their construction was predicated on a government policy directed at using water resources that are abundant almost year round and that are not subject to cost surges or variations.

After 1998, when the government designed and implemented a privatisation programme for the electricity sector, private capital played a leading role in the development and construction of new thermoelectric plants. Though the electricity sector underwent significant legislative changes in 1997 and 1998, very few provisions dealt with or encouraged the development and use of renewable generation sources. Among those few was a provision of Law No. 6 that concedes a 5 per cent price differential over the price offered in auctions by generators that use a renewable and alternative energy source.

The first integrated and notable effort to promote generation of clean and renewable energy came to life with the adoption of Law No. 45 of 2004 (Law No. 45). Law No. 45 and its regulations target hydro, wind, biofuel and solar energy development. Law No. 45 is primarily a tax-laden body of benefits that exempts generators from:

  • import tax, custom duties, fees, contributions, encumbrances, VAT on the importation of equipment, machinery, materials, spare parts, as well as on the tools and equipment to construct, operate and maintain a generation plant; and
  • up to 25 per cent of income tax for new project developments or for increasing the generation capacity of an extant plant. The amount of income tax that may be credited will be measured by the amount of carbon dioxide emissions that are reduced annually. The income tax benefit is effective for the first 10 years, counted from the time the project commences commercial operations.

After Law No. 45, the government has enacted the following regulations regarding renewable energies:

Law No. 44 of 5 April 2011 (Law No. 44), as regulated, which creates special auctions for wind generators only, as well as tax exemptions for all wind generation companies, as follows:

  • import tax, custom duties, fees, contributions, encumbrances, VAT on the importation of equipment, machinery, materials, spare parts, as well as on the tools and equipment to construct, operate and maintain a wind generation plant. This exemption also applies when importing wind generation equipment to be sold in Panama; and
  • 15 years of exemption from all national taxes to companies manufacturing equipment in Panama for wind generation plants.

Owing to these incentives and government policies allowing for specific auctions for wind power PPAs, wind projects now account for 2.8 per cent of energy generation.

Law No. 42 of 20 April 2011 (Law No. 42) that establishes the national bio fuels policy, regulates the biomass-based energy generation, and grants fiscal credits to companies that purchase bio ethanol and bio diesel made with local products.

Law No. 43 of 9 August 2012 that amends Law No. 6 and creates special auctions:

  • based on the type of technology;
  • for future projects only; or
  • based on special characteristics that respond to the government’s energy policy.

Law No. 41 of 2 August 2012 (Law No. 41):

  • promotes the development of generation projects using natural gas; and
  • creates the following tax exemptions for projects using natural gas:
  • exemption of import tax regarding equipment and spare parts to construct, operate and maintain a power plant using natural gas; and
  • application of the accelerated depreciation method to the equipment of power plants using natural gas.

Law No. 37 of 10 June 2013 (Law No. 37) establishes incentives for the construction, operation and maintenance of solar power generation plants. Law No. 37 creates the following tax exemptions for companies involved in the construction, operation or maintenance of solar power generation plants:

  • import tax, custom duties, VAT on the importation of equipment, machinery, materials, spare parts, tools and equipment to construct, operate and maintain a solar power generation plant;
  • tax credit up to 5 per cent applicable to income tax in connection with the total direct investment on solar power generation plants already built or under construction; and
  • application of an accelerated depreciation method to the equipment of power plants using solar energy.

Finally, through Resolution AN-10206 of 2016, ASEP issued rules allowing distributed generation for clients to set up self-generation facilities for their own consumption, which can be connected to the distribution grid, following simple procedures, and an agreement with the distribution company. These regulations facilitate the establishment, among others, of substantial solar capacity to allow clients to significantly reduce the amount of power required from the grid.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

As outlined in the preceding question, Law No. 6, Law No. 45, Law No. 44, Law No. 42, Law No. 41 and Law No. 37 make up the entire body of legislative efforts aimed at promoting electricity generation from renewable and alternative sources.

Despite these initiatives, energy consumption levels have not experienced a significant variation, with a new single-day consumption record set at 1,661MW of capacity in April 2018. Current generation capacity in Panama stands at 3,251.52MW.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

No. The Panamanian government has not issued rules supporting electricity storage, or research and development of storage solutions.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

No. Panama has not implemented provisions or measures to encourage or discourage development of nuclear power plants. There are no nuclear power plants in operation in Panama at present.