“Accelerating Renewable Energy Investment in Central America through CABEI”  

Background.  
The current maximum 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 result of a lack of project 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 largely depend on thermal generation, which involves elevated operative costs because of the high price of petroleum. In addition, more than 20% of the region’s inhabitants do not have access to electricity. For these reasons, it has become necessary to promote the development of renewable electrical generation projects, particularly those that do not cause serious harm to the environment.  

Project description.

The purpose of the ARECA project, “Accelerating Renewable Energy Investment in Central America through CABEI”, is to strengthen CABEI´s role as a catalyst in the energy sector. Through this project, the Central American Bank for Economic Integration (CABEI) is promoting the financing of small and medium scale renewable energy projects of less than 10 MW. The objective is to increase the number of regional inhabitants with access to electricity while simultaneously reducing the emission of greenhouse gases. 

The ARECA project will benefit the Central American region’s six countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. These countries have a combined population of 35.5 million inhabitants, where thermal energy generation currently accounts for 45-50% of installed capacity.  

The project has been designed to reduce the financial barriers that currently impede robust development of small scale renewable energy 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 financing to developers of renewable energy projects under 10 MW since part of the guarantees required by commercial banks will be provided by ARECA.  

The Central American Bank for Economic Integration (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.  

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. 

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.