Electricity sector in Honduras
| Honduras: Electricity sector | ||
|---|---|---|
| ||
| Data | ||
| Electricity coverage(2006) | 69%(total),94%(urban),45%(rural) | |
| Continuity of supply | n/a | |
| Installed capacity(2006) | 1.54 GW | |
| Share of fossil energy | 62% | |
| Share of renewable energy | 38% (including hydro) | |
| GHG emissions from electricity generation (1996) | 0.105 t CO2e per capita | |
| Average electricity use (all uses, 2005) | 583 kWh per capita | |
| Distribution and transmission losses (2006) | 25% | |
| Residential consumption (% of total) | 42.5% | |
| Commercial and industrial consumption (% of total) | 53.3% | |
| Average residential tariff (US$/kWh, 2006) | 0.058; (LAC average in 2005: 0.105) | |
| Average commercial tariff(US$/kWh, 2006) | 0.133 | |
| Average industrial tariff (US$/kWh, 2006) | 0.1053(medium voltage);0.0934 (high voltage); 0.083 (LAC average, 2005) | |
| Share of metering | n/a | |
| Annual investment in electricity(US$ per capita, 2006) | 4.01 | |
| Share of self-financing by utilities | n/a | |
| Share of Government financing | n/a | |
| Share of external financing | n/a | |
| Institutions | ||
| Sector unbundling | Partial | |
| Share of private sector generation | 62% | |
| Share of private sector in distribution | 0% | |
| Competitive supply to large users | No | |
| Competitive supply to residential users | No | |
| Number of service providers (distribution) | One (ENEE) | |
| Responsibility for transmission | Integrated utility (ENEE) | |
| National electricity regulator | Yes (single-sector) | |
| Responsibility for policy setting | Energy Cabinet | |
| Responsibility for renewable energy | Ministry of Environment (SERNA) | |
| Responsibility for the environment | Ministry of Environment (SERNA) | |
| Electricity Sector Law | Yes (1994) | |
| Renewable Energy Law | Yes (2007) | |
| CDM transactions related to the electricity sector | 19 registered CDM projects; 221,730 t CO2e annual emissions reductions | |
Honduras electricity sector is characterized by the vertically integrated utility (except for generation), the increasing share of thermal generations, the questionable state of financial health of the state utility ENEE and the low electric coverage in rural areas.
Electricity supply and demand
Installed capacity
With an installed generation capacity of 1,539 MW (2006), Honduras relies on a thermo-based power system (accounting for nearly two-thirds of its total installed capacity), which is very vulnerable to high and volatile international oil prices. The generation mix is as follows: [1]
- Heavy Fuel Oil (HFO): 56% (867 MW)
- Hydro: 33% (502 MW)
- Diesel generators: 6% (91 MW)
- Biomass systems: 5% (77 MW)
Firm capacity is substantially lower than installed capacity due to seasonality (i.e. the natural uncertainty affecting hydroelectric generation, the old age of some of the plants, and mothballing of thermal capacity). As a result, while peak demand in 2006 (1056 MW) was below total installed capacity, it lied slightly above firm capacity.[2]
ENEE’s ( Empresa Nacional de Energia Electrica ) expansion plans include the addition of 1,479 MW of generation capacity in the period 2007-2015. The projected expansion by source is as follows: [3]
- Renting: 300MW
- Thermal expansion: 90MW
- Thermal MSD (Medium Speed Diesel): 300MW
- Hydro: 570MW
- Renewables: 161MW
- Coal: 600MW
- Removals: -543MW
Demand
Total electricity sold in 2005 was 4,176,357 MWh (583 kWh per capita) [4] , with an average residential use of about 200 kWh per month [5]. The peak demand has grown over 7 percent annually in recent years, reaching 1,088 MW in 2006 [6].
For the period 2006-2010, the expected annual rate of growth of energy demand is expected to be around 6% percent, while peak demand could increase at around 7%. [7]
Supply vs demand
Supply and demand projections show that the new generation capacity to be commissioned in the period 2007-2010 will not be enough to meet demand growth, which means that an energy shortfall is likely to happen in the close future. [8]
Access to electricity
Overall electricity coverage is 69%. In rural, areas reaches only 45 percent, which contrast with the 94 percent coverage in urban areas (2006) [9]. The table below presents the access data per number of households and consumers.
| Population | % | No. of Households | % | No. of Customers | % | Access Rate (%) | |
|---|---|---|---|---|---|---|---|
| Urban | 3,350,081 | 45.5% | 700,507 | 49.0% | 661,582 | 66.9% | 94.4% |
| Rural | 4,016,940 | 54.5% | 729,611 | 51.0% | 327,114 | 33.1% | 44.8% |
| TOTAL | 7,367,021 | 100% | 1,430,118 | 100% | 988,696 | 100% | 69.1% |
Source: World Bank, 2007
The Electricity Coverage Index by department shows important disparities. Cortes and Islas de Bahia enjoy almost a 100% household coverage, while Lempira and Intibuca only have 24.6% and 36.2% coverage respectively. [10]
Electrification was programmed under the 1994 Electricity Law for the Electricity Sector through the creation of the Social Fund for Electricity Development (FOSODE). The Government has set a target to increase national electricity coverage to 80 percent by 2015, giving equal priority to urban and rural. So far, the outcome has been positive, with an increase in national coverage from 43 percent in 1994 to 69 percent in 2006. [11]
Also, the government has set a target of 400,000 new connections up to 2015. However, lack of financing has slowed grid development, causing it to lag behind demand and generation growth. [12]
Service quality
Interruption frequency and duration
Power outage duration is a measure of the reliability of supply to the distribution networks. This measure decreased for most regions in Honduras from 2001. However, in 2005, a generalized increase in the interruption duration happened. While average duration of interruptions per connection has traditionally been higher in Honduras than for most of the other Central American countries, the frequency of such interruptions has been lower. [13]
Distribution and transmission losses
In the period 2001-2006, electricity losses increased from about 20 percent to 25 percent. This was mostly due to theft, fraud, and illegal connections. A recent study estimated that technical losses are about 10 percent, which implies that current commercial losses are about 15 percent, 30 percent of which correspond to fraud, 29 percent to illegal settlements and 29 percent to billing errors. [14]
ENEE has already started a loss-reduction program. One of the most recent initiatives under this program is Operación Tijera (Operation “Scissor”), which entails a substantial injection of resources from all Ministries and government agencies aiming to cut service (a) to delinquent clients, and (b) to any users detected during the operation with irregular service connections or with meters that had been tampered with. The operation has been a success as it has led to an instantaneous increase in collections.
On the other hand, transmission and sub-transmission investments keep being delayed due to financial constraints. This situation, if further sustained, would increase the likelihood of blackouts, operating costs, and electricity losses, worsening the quality of service. [15]
Responsibilities in the electricity sector
Policy and regulation
De jure situation
The Electricity Law of 1994 assigned the policymaking function to an Energy Cabinet chaired by the country’s President or to the Ministry of Natural Resources and Environment (Secretaria de Recursos Naturales y Ambiente, SERNA) as its Secretary and Coordinator. A new regulatory agency, the Comisión Nacional de Energía (CNE), was also created. [16]
De facto situation
The Energy Cabinet has met less than once a year since its creation. Also, SERNA has not been proactive in its role as the Cabinet’s Secretary and Coordinator to set the agenda and to supply the technical groundwork for decisions. In addition, CNE, the new regulator agency, has had a marginal role due to lack of political support and resources. As a result of this void at the cabinet level, ENEE has become the default point for energy expertise, sought by the Government even in matters of policymaking a regulation, which contributes to a weak separation of roles. [17]
Generation
Under the 1994 Electricity Law, generation may be undertaken by State, mixed ownership, or private entities. These entities are entailed to sell power to large consumers or to ENEE. As a result, private investors will mainly embark on new generation projects, including hydropower and alternative energy. [18]
The State is responsible of System Operations. This activity that will be carried out by ENEE’s Dispatch Center, which determines the system’s hourly marginal cost of generation. Every two years, ENEE must also submit to the Regulator system expansion plans (i.e. procurement of new generation capacity and transmission expansion), which are to be approved by the Energy Cabinet. [19]
Transmission
Transmission and distribution networks are, by law, subject to an “open access” rule. The price of usage is determined by the CNE. The National Interconnected System (SIN) remains under the ownership of ENEE, although transmission facilities in the SIN and in other systems may be built and owned by public, private, or mixed ownership operating enterprises, including ENEE. The State-owned company will coordinate, supervise, and evaluate the economic operation and maintenance program of the SIN and other systems in which the State owns a majority of the generation capacity, and will perform (directly or via third parties) central dispatch functions. In the case of isolated systems, the main generator is responsible of operating the transmission system and handling dispatch.
Distribution
De jure situation
The 1994 Law mandated ENEE to divide its distributions networks by regions. The partition, which was to be approved by ENEE, would be followed by the sale of those networks to cooperatives, municipalities, worker’s associations, other similar types of groups, or to private companies. The Law established that electricity distribution was to be carried out “in priority” by private companies under a concession regime. Distributors need to have a valid supply contract with generators for at least five years duration (however, the law does not mandate a minimum quantity). [20]
De facto situation
Electric power generation, transmission, and distribution are, by the 1994 Law, open to private sector participation and investment, always subject to approval by the National Congress. However, this new competitive market model has failed: the distribution networks have not been unbundled or privatized and ENEE continues its operations as a vertically integrated state-owned enterprise, being the de facto sole buyer, responsible for procuring all the new energy required to meet demand. [21]
Renewable energy
By law, ENEE has the mandate of prioritizing renewable-based generation when determining the optimal expansion plan. The condition is that the net present value of sequence including renewable-based generation must not exceed by more than 10 percent that of the least-cost expansion plan. [22]
Renewable energy resources & energy efficiency
Renewable energy
In Honduras, there is an important potential of untapped indigenous renewable energy resources. Due to the likely long-term trend of high oil prices, such resources could be developed at competitive prices. However, leaving out the large generation from hydro resources, the potential for the development of renewable energy (RE) is yet to be explored in depth. [23]
The renewable energy use and potential in Honduras - hydro, wind, solar, biomass and geothermal, is described in detail in the article Renewable energy in Honduras.
Energy efficiency
Honduras has a very large potential for developing energy efficiency programs. Large improvements could be made in the areas of air conditioning for both the residential and commercial sectors, where the implementation of measures in the area of demand management and the rational use of energy could prevent unplanned blackouts. [24]
Some progress has been made recently under the Generación Autónoma y Uso Racional de Energía Eléctrica (GAUREE) project, financed by the European Union between 2000 and 2007. The GAUREE 2 project aims at increasing the use of energy-efficient Compact Fluorescent Light Bulbs (CFLs), lowering the consumption of energy by 50 million kWh per year. The plan of action includes giving away, in a three-phased operation, a free 20 W CFL bulb to 800,000 households (the majority of Honduran households still use inefficient 60 W, 75 W, and 100 W bulbs). [25]
The Inter-Institutional Group for the Efficient Use of Energy (GIURE) has set out a plan with the objective of reducing national electricity demand by 100 MW in 2008. This would entail an 8 percent reduction of the maximum demand forecasted by ENEE. Some of the main activities included in GIURE’s program are: promotion of gas stove use, use of clean development mechanisms (CDM), educational campaigns, efficiency in he industrial and commercial sectors, etc. [26]
Overview of sector history
Phase I: Monopoly
ENEE (Empresa Nacional de Energia Electrica) was created in 1957 by means of Decree 48, the Ley Constitutiva de la Empresa Nacional de Energía Eléctrica—the Constitutive Law. Its mandate was to promote the country’s electrification through the study, construction and operation of electrification works, government representation in any company in which the Government was a shareholder, and to provide assistance to any private generator or distributor that would require it. [27]
ENEE is governed by a Board of Directors, whose institutional has varied with time. Today it is formed by the Minister of Natural Resources and the Environment (SERNA), who chairs the Board; the Minister of Public Works, Transportation and Housing; the Minister of Finance; the Minister of Industry and Commerce; the Minister of Foreign Cooperation; and a representative of the Honduran Council of Private Enterprise (COHEP).The Board appoints a General Manager, who acts as its Secretary but has no vote. [28]
In its initial two and a half decades, the expansion of ENEE was boosted by the technical and financial support of the international financial organizations. Hydroelectric projects abounded and the transmission network expanded to incorporate all economically active areas of the country into the national grid, which was interconnected with Nicaragua (1976), Costa Rica (1982) and Panama (1986). The largest project, the hydroelectric plant of El Cajón (300 MW) was commissioned in 1985. However, the demand growth projections did not materialize, which left the country with a large excess capacity and ENEE with a heavy debt burden. The electricity sector’s financial crisis led to a broader energy crisis in 1993 fueled by a severe drought that coincided with a lack of generation reserve capacity. [29]
Phase II: 1994 Electricity Law
The 1994 new Electricity Law was born as a response to the crisis. It contained the provisions for the establishment of a competitive power market (vertical unbundling, freedom of entry to all sector activities, open access to transmission and distribution networks, and freedom of choice for large users); the separation of the roles of policymaking, regulation, and provision of electricity services; application of cost-recovery tariffs and targeted subsidies; and private provision of electricity services. [30]
The establishment of the new competitive market failed: the distribution networks were not unbundled and privatized, and ENEE continued operating as a vertically integrated state-owned enterprise that maintained its central role in energy planning and policy making. In addition, the principles of cost covering tariffs and targeted subsidies were not properly implemented due both to inadequate political commitment and to an important dependency on imported oil for power generation, which led to high and volatile generation prices that were not passed on to retail tariffs. [31]
In the last decade, thermoelectric generation has come to lead a system that was dominated by hydro in the mid-1990s. As a consequence of that, Honduras currently depends on imported fuels for about 70 percent of its power generation. Nevertheless, renewable resources are still seen as a vital element of the strategy to diversify energy supply, reduce vulnerability to external shocks, and mitigate the environmental impacts of energy production. [32]
The development of large hydropower projects and the provision of further incentives for the grid-connected renewable projects are the present priorities of the government in the renewable energy sector. This leaves the potential for development of off-grid and small renewable sources largely unexploited as specific incentives and policies are lacking. [33]
Phase III: Renewable energy
Decrees No. 85-98 and 267-98 were approved in 1998 by the Honduras Congress with the aim of promoting the development of renewable energy-generating plants. The new legislation contemplates tax breaks to developers and a secure buyer for energy at prices equivalent to the system’s short-term marginal cost. ENEE, who is the default buyer, must pay a premium (10 percent of the same short-run marginal cost) for the electricity generated when the installed capacity is below 50 MW. This framework has facilitated the negotiation of about 30 public/private partnerships with ENEE for small renewable energy plants. In addition, Decree No. 85-98 also establishes tax exemptions in favor of developers: import and sales taxes on equipment, and a five-year income tax holiday. [34]
The penetration of renewable energy technologies into rural electrification programs is still lagging behind due to a lack of clear and consistent policy framework in the field. As a result, most of the rural electrification activities are still grid extensions. [35]
Tariffs, cost recovery and subsidies
According the law a tariff reflecting generation and transmission costs, would be the regulated power price for distributors. The tariff, to be published in the official Gazette in order to become effective, had to be calculated yearly by the generators and approved by the regulator, who would also decide on any subsequent adjustments to it. However, ENEE has failed to apply this 1994 Law’s provision for the calculation and implementation of cost-covering tariffs and of focalized subsidies. [36]
Residential, commercial and industrial tariffs
Average tariffs for industrial and commercial consumers already cover economic costs and are one of the highest in the region. However, the average tariff for the residential category is 60 percent of the economic cost of supply, and only 54 percent after deducting the Government’s direct subsidy. [37]
Households consuming less than 100 kWh per month pay a tariff which only covers 22 percent of cost, while those consuming between 0 and 300 kWh—84 percent of all residential clients— only pay 39 percent of cost. Even clients consuming more than 500 kWh per month pay only 82 percent of the cost of supply. Tariffs for municipalities are equivalent to about 77 percent of cost. The table below shows the average cost of supply and the current final price (after direct subsidy) for the different users: [38]
| Average Cost of Supply (kWh) | Current final price (after direct subsidy) ($/kWh) | No. of Users | |
|---|---|---|---|
| Residential Block (kWh/month) | |||
| 0-50 | 0.224 | 0.039 | 174,338 |
| 51-100 | 0.158 | 0.04 | 132,804 |
| 101-150 | 0.147 | 0.047 | 128,361 |
| 151-300 | 0.141 | 0.066 | 242,723 |
| 301-500 | 0.137 | 0.089 | 83,368 |
| 501- | 0.134 | 0.109 | 43,747 |
| Industrial medium voltage | 0.107 | 0.105 | 134 |
| Commercial | 0.13 | 0.133 | 59,700 |
Source: World Bank, 2007
The average residential tariff in the LCR by the end of 2005 was US$ 0.105 per kWh, while the weighed average industrial tariff was US$ 0.083 per kWh. Clearly, residential tariffs in Honduras are below the regional average, while industrial ones lie clearly above the region’s average. [39]
Cost recovery
The overall result of the distortions in the tariff structure is that just 81 percent of economic costs of supply are covered, leading to a financial situation that is not sustainable in the short term and that could lead the country to face a severe energy crisis by 2010. [40]
Direct subsidies and cross subsidies
A direct subsidy was established in 1994 to compensate for any tariff increase to eligible residential users (those consume less than 300 kWh per month). In the period (2001-2005), the Government paid about US$ 75.6 million in direct tariff subsidies to residential consumers. [41]
The explicit cross-subsidy incorporated in the current tariff does not respect the caps set by the 1994 Electricity Law as it has benefited most residential consumers, making the compensatory surcharges to other consumer categories (i.e. commercial and industrial) also exceed the mandated limits. Also, the generalized subsidy and the direct subsidy paid by the Government are poorly targeted and regressive. Non-poor consumers (i.e. those consuming above 150 kWh/month), have been the most benefited by the cross-subsidy as they currently pay between 50 and 80 percent of economic costs. This has resulted in one of the lowest residential tariffs in the region and also to a high consumption (about 200 kWh per month in residential use). This figure doubles the average residential use in El Salvador and Guatemala, whose per capita income is more than double that of Honduras. Inefficient interfuel substitution is another result of low electricity prices, particularly for cooking and water heating, since electricity, although a more inefficient and economically expensive option, is cheaper for the consumer than, for instance, liquefied petroleum gas (LPG). [42]
Investment and financing
Investment by sub-sector
In the period 1997-2006, ENEE has invested about US$ 189 million in its activities, the areas that have receive the largest amount of funds being distribution and transmission. [43]
Financing
Since 1994, private developers have invested some US$600 million in about 800 MW of medium speed diesel and gas turbine capacity. As a result of this new investment focus, hydropower plant capacity has gone from 90 percent to only 30 percent. The reasons for this shift in investment were twofold. First of all, hydroelectric development became significantly expensive when funding for its development from International Financial Institutions (IFIs) was cut. In addition, the lower risks and shorter maturity of thermal generation projects, as perceived by private investors, directed generation expansion towards the use of heavy fuel oil and medium speed diesels. Private investors have also invested about US$70 million in 110 MW of small hydro- and bagasse-fired capacity. Therefore, reliance on the private sector has become the norm for generation capacity expansion. [44]
The electricity sector enjoys several tax exemptions: import tax exemptions for fuels used by ENEE and other power companies for electricity generation, import and sales taxes on equipment and materials for rural electrification projects, import taxes on equipment and materials for power plants using renewable energy sources, and sale tax on electricity sales. The total average annual tax exemptions are estimated at about US$ 108 million, mostly fuel taxes (US$ 64.8 million) and sales taxes on electricity consumption (US$ 37.8 million). [45]
Distribution and transmission investment has been partially financed with expensive revolving loans from local banks and credits from thermal generators on the payment of energy purchases that amounted to US$ 124 million in 2003–05. Debt service coverage and contribution to investments have been negative during the past five years. [46]
The largest investments in social electrification have been made by FOSODE, which has proven largely successful in raising funds through development resources and from external financing (i.e. concession loans and donations), which add to the budgetary resources that the Government provides every year as required by law. The Fund receives additional financing from fees municipalities impose on electricity companies in their jurisdiction. Between 1995 and 2006, FOSODE invested US$91.4 million in rural electrification. [47]
Responsibility for the environment
SERNA, the Ministry of Natural Resources and Environment, holds the responsibility in environmental issues, including climate change. This government agency is in a weak position due, among other reasons, to limited budgets and to the weakness of the civil service system. Also, the Ministry staff faces a total turnover whenever a new government takes over (i.e. every four years), which slows down its operations. [48]
Greenhouse gas emissions
The most recent GHG emissions figures for Honduras date back from 1996. Due to the large share of hydro at the time, the GHG emissions from electricity/heat production were relatively low. Updated figures are expected to be higher due to the increase of thermal generation in the energy mix.
- Total GHG emissions (1996): 18.4 MtCO2e (including land use change and forestry)
13.8 MtCO2e (excluding land use change and forestry) [49]
- GHG emissions from electricity/heat production: 0.6 MtCO2e (3.3% and 4.35% of total) [50]
CDM projects in electricity
Currently, there are eleven CDM registered projects related to electricity generation. Nine of those projects are hydro plants, which represent 80% (177,636 tCO2e) of the total estimated annual emissions reductions. The two remaining projects are one on cogeneration and another one on biogas recovery and electricity generation. [51]
External assistance
World Bank
Currently, the World Bank is contributing funds and assistance to three projects related to the energy sector in Honduras, one for Rural Electrification, another one for the construction of La Esperanza hydro power plant and a third one on Rural Infrastructure
IDB
Currently, the Inter-American Development Bank is contributing funds and assistance to two projects in the energy sector in Honduras, one for Rural Electrification and another one for a geothermal feasibility study in Platanares
Others
Electrification projects have been carried out with resources from financial organizations such as the Central American Bank for Economic Integration (Banco Centroamericano de Integración Económica), and with cooperation from countries like Finland, Japan, Korea, and Norway. In addition, there is an agreement in place with the Fondo Cafetero Nacional (FCN) for the electrification of coffee-producing regions. [52]
Between 2000 and 2007, the European Union (EU) has financed the Generación Autónoma y Uso Racional de Energía Eléctrica (GAUREE) project, which aims at increasing the use of energy-efficient CFLs. The total cost of the project is Euro 6.68 million (US$ 9.06 million), with a total contribution from the EU of Euro 5 million (US$ 6.785 million) [53]
Sources
World Bank, 2007. Honduras. Power Sector Issues and Options.
Notes
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ Benchmarking Data of the Electricity Distribution Sector in Latin America and Caribbean Region 1995-2005
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007. Benchmarking analysis of the electricity distribution sector in the Latin America and Caribbean Region)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ ENEE, Estadisticas 2006
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ (World Bank, 2007)
- ^ UNFCCC. Non-Annex I National Communications
- ^ UNFCCC. Non-Annex I National Communications
- ^ UNFCCC
- ^ (World Bank, 2007)
- ^ EU