Energy Sector Planning in the Context of VolatilePrices, Financial Crisis and Global Climate

Change Initiatives

Juan A. B. Belt

Presented at the Platts 12th Annual Conference on Private Powerin Central America

Guatemala City, Guatemala, June 11-12 2009

Director, Office of Infrastructure and Engineering, US Agency for International Development (USAID). The opinions expressed in this presentation are those of the author and do not

represent the views of the US Government. The author appreciates comments by Silvia Alvarado (Globeleq) and the support of the International Resources Group (IRG) who provided many of the

slides related to MARKAL/TIMES. They are not responsible for any errors.

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Outline

1. The present context: rapid increase in crude oil prices in 2008, financial crisis, Global Climate Change

2. MARKAL/TIMES: description of model & potential uses in Central America

3. US Government support for the power sector in Central America & Colombia– Past & on-going support– Potential Support under the Energy and

Climate Partnership of the Americas

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Will Prices Increase Again as the World Economy Bounces Back?

Saudi Light CrudeUS$ per Barrel

$0

$20

$40

$60

$80

$100

$120

$140

1970

1971

1972

1973

1975

1976

1977

1978

1980

1981

1982

1983

1985

1986

1987

1988

1990

1991

1992

1993

1995

1996

1997

1998

2000

2001

2002

2003

2005

2006

2007

Annual data for 1970 - 1996 and Quarterly data from 1997 - 1008

US

$ p

er B

arre

l

Nominal US$

Constant 2000 US$

Source: Energy Information Association, US Department of Energy

Crude price doubled in real terms from the previous peak

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Central America: Vulnerable to Oil Price Variability

Hydrocarbon Imports as a Percentage of Exports of Goods and Services

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35

Nicaragua

Guatemala

El Salvador

Honduras

Costa Rica

Panama

Central America

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Financial Crisis & Private Infrastructure Projects

• Closure of private infrastructure projects Aug-Nov 2008 40% lower than same period 2007

• Projects impacted through higher cost of financing, delays & cancellations

• Local public banks, multilateral, bilateral & export credit agencies have been key finance providers

• Investors’ appetite for new deals seems to be declining

• Conclusion: Governments may need to further improve the environment for private investment

• World Bank, Ada Karina Izaguirre, Financial Crisis Affecting New Private

Infrastructure Projects

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Havana, October, 2005, Ravaged by Wilma

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Bolivia: Retreat of the Chacaltaya Glacier

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MARKAL/TIMES Model: Basic StructureBased on International Resources Group (IRG)

Demand Conversion technology

Primary energy

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Central America: Why Use of MARKAL or Other Models

• Identify policies to:– Reduce risk associated with

volatile prices– Exploit economies of scale at

the regional level– Reduce carbon emissions

efficiently

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Central America & Colombia: Past & On-Going Programs

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Past Programs in Central America: Promoting Reform and Integration in the Midst of Conflict

• Panama: demand side management

• Costa Rica: law to permit co-generation

• Support to reforms in Nicaragua & Honduras

• Comprehensive reform of the power sector in Guatemala and El Salvador

• Central America regional power pool: USEA support to ACERCA

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Colombia: “fine tuning” the reforms

• Fine tuning a system working relatively well; the most sophisticated power market in LAC

• EGAT staff, consultants, FERC, Texas regulator• Auction system for capacity payments

• Strengthening market surveillance

• Rationalizing subsidies & universal access program• Regulation for commercialization companies• Results: over $2 billion in investment that will

increase the reliability

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Nicaragua: Support for Sector Governance and Efficiency

• Donor coordination• World Bank• IDB• USAID

• Other bilateral donors

• Strengthening regulator

• Texas PUC / NARUC Partnership

• TA to measure losses

• Energy efficiency

Momotombo Volcano

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Global Climate Change: Some Principles

• The reduction of poverty is a moral imperative

• Going “with the grain of the market” is more efficient than going against it

• USAID can be most effective in supporting developing countries if it works at the policy level where effects can be systemic

• Energy efficiency, renewable energy, demand side management will not work if the power sector is “sick”

• Therefore, further reforms are necessary to promote investment in clean energy by the private sector & convert climate change issues into a solid business opportunity for the region

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“Most of the required investment, however, must come from the private sector. In order to mobilize that investment, major policy and regulatory reforms are needed in many countries. Neither public nor private utilities and their investors can generate the capital required to expand access to clean, sustainable energy supply, for example, when regulatory regimes prevent them from recovering their direct and indirect operating costs.”

Secretary of StateHillary Clinton

Answer to Question for the Record Posed by Senator Lugar

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Energy & Climate Partnership of the Americas

• “By increasing green energy cooperation, we will set our economies on a clean energy growth path and curb global greenhouse gas emissions”

• …a voluntary and flexible framework for advancing energy security and combating climate change. Countries will be encouraged to suggest tangible ideas for cooperation, including on energy efficiency, renewable energy, cleaner fossil fuels, and energy infrastructure.

• President Obama expressed his commitment to working with his regional counterparts toward a strong international climate agreement at Copenhagen.

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SICA: political body; Unidad de Coordinación Energética del SICA

(UCESICA) ES

CRIE: regional regulator GU

ACERCA: “club” of

regulators

P CR N ES GH

Ente Operador Regional: Independent System Operator ES & other GRIDCOs

Empresa Propietaria de la Red GRIDCO CR

Key CA Institutions

NARUC: OPSI or OMS

DOE: FERC

NARUC: State regulators

USEA: ISO

USEA: GRIDCO

PURC: training all market participants

Possible alliances

IDB/USG conference to

launch CA market

IDB & World Bank significant support for regional power market

MARKAL/TIMES

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Conclusions

• Energy planning models like MARKAL do not provide forecasts but are useful for determining the costs & benefits of different strategies/policies

• MARKAL & similar tools can be used to model energy policies such as:– Reduction in the reliance on liquid fuels and the importance of

promoting fuel diversification & a well-balanced energy matrix– Reduction of carbon emissions

• Governments must provide an investor-friendly environment• Full integration of the Central American power market, including

Mexico & Colombia, can lead to:– Reduced exposure to crude oil price variability– Cheaper power & optimization of the use of renewables &

other domestic sources of energy• Partnerships with appropriate US institutions, IDB & World Bank

can contribute to the consolidation of the regional power market

Any questions?

Juan A. B. BeltDirector

Office of Infrastructure and Engineering (I&E)Bureau for Economic Growth, Agriculture, &

Trade (EGAT)US Agency for International Development

(USAID)E-mail: jubelt@usaid.gov