Background.  
The current demand for electricity in Central America is approximately 6,250 MW, and while the region’s installed capacity is about 9,300 MW, a significant shortfall is experienced as a consequence of project under-development. Due to the region’s high levels of demographic growth, the demand for electricity is expected to grow between 7% and 10% annually. The majority of Central American countries depend on thermal generation (45-50% of installed capacity), which currently involves elevated costs because of the high price of oil. In addition, more than 20% of the region’s inhabitants do not even have access to electricity. For these reasons, it has become necessary to promote the development of environmentally-friendly renewable energy projects. 

Description of the Project

The project for “Accelerating Renewable Energy Investment in Central America” (ARECA) is designed to strengthen the Central American Bank for Economic Integration’s (CABEI) role as an energy sector catalyst. Through this project, CABEI will promote the financing of small and medium scale renewable energy projects of less than 10 MW. The central objective is to increase the number of Central Americans who have access to electricity while simultaneously reducing the emission of greenhouse gases. The ARECA project is expected to benefit the region’s combined population of 35.5 million.

The Global Environmental Fund (GEF) will provide US$ 7.0 million, of which US$ 5.0 million will be used to create the partial risk guarantee mechanism for renewable energy projects. CABEI will provide more than US$ 25.0 million to the projects thru financing lines and technical assistance. CABEI will act as the project’s executing agent, while the United Nations Development Program (UNDP) will be in charge of project follow-up through its Tegucigalpa office.

It is expected that the projects will result in the installation of a minimum of 30 to 40 MW of renewable energy,along with a reduction of 172,000 tons of carbon dioxide emissions per year

Program for “Partial Credit Guarantees for Small Renewable Energy Projects”

This mechanism is designed to reduce financial barriers that currently impede robust development of small projects. This will be achieved by creating and implementing a partial-risk guarantee system that mitigates risk to commercial banks. Mitigating this risk will facilitate access to financing for developers of small renewable energy projects since part of the guarantees required by commercial banks will be provided by ARECA.

The Partial Credit Guarantee Program will complement the guarantees issued to Intermediary Financial Institutions (IFIs). This mechanism will provide a guaranteed amount for up to:

• 35% of the amount of credit granted by the financial institution
• US$ 1 million per project

Partial credit guarantees are valid for up to one year and are renewable for similar periods, according to the conditions established with CABEI in the credit line contracts.

Eligible Projects

All small projects that seek to generate renewable energy through natural means are eligible. This includes hydroelectric, geothermal, wind, bio-mass, and solar (among others).

Eligible projects must posses a generation capacity of under 10 megawatts and be located in the following six countries:

• Guatemala
• El Salvador
• Honduras
• Nicaragua
• Costa Rica
• Panama