Nicaragua powers up on green energy

Over the past few years, Nicaragua's energy sector has become a State priority, and wheels have been set in motion to promote its development – as well as seek large-scale renewable energy projects.

Leveraged on its richness in natural resources, the country set out to find investors interested in exploring Nicaragua's investment opportunities in the energy sector.

Official sources identified a potential of around 4,500 MW – from a combination of geothermal; hydroelectric; wind; solar; and biomass potential. Currently, only six percent of this is being exploited.

Early challenges for the country

In early 2007, the Government faced a series of challenges to lift up a weakened and deficient energy sector. Nicaragua had already endured a hefty energy crisis, including a system of energy rationing, which in 2006 encompassed up to 20 percent of the country's maximum demand – and lasted from 8 to 12 hours a day.

Insufficient investment, a lack of maintenance, together with a lack of supportive Government regulation led to several renewable energy projects being abandoned. Dependence on petroleum-based energy solutions increased, Nicaragua's renewable energy sector became practically nonexistent, and its future prognosis bleak.

However, in response to the country's inability to meet its national electricity demand, the Government embarked on its first attempt at energy revival in 2007 and 2008 – installing two emergency thermal plants that generated nearly 120 MW. And since then, the country has experienced a dramatic change in its approach towards energy generation.

Renewable energy drivers

Perhaps the principal legislation governing renewable energy generation in the country is Law 532 – for the Promotion of Electric Generation from Renewable Sources.

It promotes:

• Full exemption from taxes on the sale of carbon bonds;
• Exemption from all taxes that might exist for the exploitation of natural resources for a maximum of five years after the start of operations;
• And exemption from payment of customs duties and value added tax (VAT) on imports, machinery, equipment, and all materials intended solely for the pre-investment (and construction of) the sub-transmission line for the national interconnection system – among others.

In addition, Nicaragua's policies offer legal securities, and together with fiscal incentives this has led to around US$670 million in foreign direct investment in the sector during the 2007 − 2010 period (as of 2011, energy projects were seen as an important driver of foreign direct investment into the country).

The country's legal framework has been adjusted to strengthen the fight against electricity fraud, now allowing the transfer of license agreements at all times to finance energy generation projects, and promote investment in renewable energy projects.

In addition to the above, a high-level Government entity for the country's energy sector was created in 2007, the Ministry of Energy and Mines (MEM). Its mandate is to allocate resources to resolve the energy crisis in the country, and create an energy sector consistent with the country's long-term sustainability plan.

One of MEM's main obligations is to oversee the formulation, coordination and implementation of the strategic plan – as well as the public policies – covering the energy sector. MEM also oversees the operation and administration of companies operating in Nicaragua's renewable energy sector.

General Manager of one major project (Amayo wind park), Sean Porter has been at the forefront of the renewable energy sector in Nicaragua. He was behind the development of the country's first wind park, which represented a US$100 million investment in 2008.

Speaking about the project, Porter explains that Nicaragua has world class wind resources as well as a “particularly good regulatory framework for renewable energy”. The park, now part of AEI Energy, is located in Rivas, in the southwest region of the country. The 19 turbine, 40 MW farm has been operating for the past three years. A second phase was developed and finished in 2011, increasing the capacity to 63 MW (11 additional turbines).

Transmission build out

Additionally, to increase the capacity of energy and power transfer in the regional market, Nicaragua has engaged in the shared construction of an 1,800 km regional transmission line, which starts in Guatemala and ends in Panama, including a 310 km stretch in Nicaragua.

Known as the Electrical Interconnection System for Central America (SIEPAC for its acronym in Spanish), it is hoped that this project will enable the joint operation and development of a regional electricity market, ensuring the stability, security and quality of electricity supply, and ensuring that energy can be seamlessly interchanged between all 6 Central American countries.

The project represents a US$494 million investment, supported by the Inter-American Development Bank (IADB) and Central American Bank for Economic Integration (CABEI), among others, and has a capacity of 300 MW and 230 kV. Approximately 4,600 towers and 26 substations are being installed in the region, and two or three nodes of sub-stations will be connected to the local transmission systems in each country. The project is expected to begin operating by the end of 2012.

Investment continues

In January 2012, the National Energy Dispatch Center (CNDC, for its acronym in Spanish) recorded a maximum demand of 525 MW in Nicaragua, of which approximately 220 MW were generated from renewable energies. The country's stated goal is to be virtually fully powered from renewables by 2017 (94%). International companies that are currently operating in the country, or are in the process of developing projects, include AEI Energy, Ormat, Ram Power, Andrade Gutierrez and Queiroz Galvao.

In the next few years projected foreign investment is expected to surpass the US$1 billion mark – mainly targeted at geothermal and hydroelectric projects in the country.

Factfile: What are Nicaragua's renewable energy resources?

Nicaragua's current effective installed capacity of renewable energy generation is approximately 1,000 MW, composed of approximately 52% thermal energy and 15.72%, 13.14%, 12.23% and 7.32% geothermal, biomass, hydroelectric and wind energy, respectively.

By the year 2017, however, the country plans to reduce its dependence on non-renewable sources to 6%. Renewable energy sources will be increased:

• 40% hydroelectric;
• 34% geothermal;
• 15% wind; and
• 5% biomass energy.

Hydroelectric potential: 2,000 MW

As the country's total surface is comprised of 10% water, hydropower represents the largest energy generation potential.

Nicaragua has three lakes, including the largest lake in Central America (Lake Nicaragua), 26 lagoons and 21 large rivers. There are also abundant rivers in its central and Caribbean region that have not yet been explored for power generation.

The largest hydroelectric project underway in the country is Tumarín, of Brazilian Capital, which upon its completion will generate approximately 250 MW in La Cruz de Rio Grande in the South Atlantic Autonomous Region (RAAS, for its acronym in Spanish).

Geothermal potential: 1,500 MW

Popularly known as the land of volcanoes, Nicaragua's geothermal potential is the largest in Central America. Its volcanic mountain range “Los Maribios” formed along the regional Cocos and Caribbean tectonic plates runs parallel to the Pacific Coast and is composed of volcanoes, crater-lakes and volcanic craters with an extensive area of hydrothermal activity that indicates a strong presence of magma.

There are 25 volcanoes in Nicaragua, 6 of which remain active. Leading the geothermal sector in Nicaragua is Polaris Energy, a subsidiary of Ram Power, located in the León region, and currently expanding its project development to generate up to 72 MW by the end of 2012.

Wind potential: 800 MW

The country has a favourable wind resource, as reflected in the Solar and Wind Energy Resource Assessment's “Project Report 2006”.

It is estimated that wind potential in the Isthmus of Rivas, located between Lake Nicaragua and the Pacific Ocean, is 800 MW.

Additionally, Nicaragua benefits from the renowned Papagayo wind phenomenon, which is a north to northeasterly wind that periodically blows through Lake Nicaragua, further accelerated by the funnelling effect of the mountain gap between its Caribbean and the Pacific coastlines. The Amayo wind park is currently the largest of its kind in the country, generating 63 MW of energy.

Biomass potential: 200 MW

Nicaragua is characterised as having rich and diverse sources of biomass with high energy potential, as agricultural and forestry production waste and by-products are a major source of possible fuels. At present, such wastes are being used by two sugar cane mills in the country, Ingenio San Antonio and Ingenio Monte Rosa. Both these mills used the waste-generated energy production for self-consumption.

This exclusive article was written by PRONicaragua, the official investment agency of Nicaragua.