Honduras (2012)

Degree of reliance on imported energy:

In 2002, Honduras imported about 420 GWh of electricity (more than 10% of its consumption) without any exports, thus making it a net importer of electricity. 
 
The Honduran electricity grid is interconnected with the grids of its neighbours Nicaragua, El Salvador and Guatemala. However, the capacity of the interconnections is limited. It is expected to be expanded as part of the Central American Electric Interconnection System (SIEPAC) through a 230 kV transmission line with a capacity of 300 MW, eventually connecting Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. 
 
So far, SIEPAC has taken steps to securing the right of way for the transmission line, whose allocation has been negotiated in 100% of its length. Construction began in early 2008, and it has been programmed for completion in 2010. 
 
In December 2011, the construction of the transmission line reflects a development of 90.9%, and is in operation since December 2010.

Main sources of Energy:

Total installed electricity capacity (2010): 1,610.4 MW 
Heavy fuel oil: 56% 
Hydro-electricity: 33% 
Diesel-generator: 6% 
Biomass systems: 5%.

Country:

Honduras

Extent of the network:

National electrification rate (2010): 81.3% 
Urban rate: 95% 
Rural rate: 45%. 
 
The Electricity Coverage Index by department shows great 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. 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% by 2015, giving equal priority to urban and rural. So far, the outcome has been positive, with an increase in national coverage from 43% in 1994 to 69% in 2006. 400,000 new connections are expected to be made by 2015. However, lack of financing has slowed grid development, causing it to lag behind demand.

Capacity concerns:

In the period 2001-2006, electricity losses increased from about 20% to 25% percent, compared to 8% in Chile and almost 30% in Nicaragua. This relatively high level of losses is mostly due to theft, fraud, and illegal connections. A recent study estimated that technical losses are about 10%, which implies that current commercial losses are about 15%, 30% of which correspond to fraud, 29% to illegal settlements and 29% to billing errors. Transmission and sub-transmission investments keep being delayed due to financial constraints. This situation, if further sustained, would increase the frequency of blackouts and would make it hard to reduce operating costs and technical losses. 
 
Expansion has been characterized by investments under emergency conditions, with debatable outcomes and by lack of reserve capacity. The government has not been able to meet the financial conditions that are necessary to invest in large size projects, which has resulted in the signing of last-minute contracts with private investors to provide small capacity increments.

Potential for Renewable Energy:

There is great 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, except for the large hydro projects, the potential for the development of renewable energy - hydro, wind, solar, biomass and geothermal - is yet to be explored. 
 
Two build–operate–transfer (BOT) schemes for medium hydro projects are being developed in Honduras. In 2006, a Brazilian construction firm expressed interest in building Janito and Jicatuyo projects on the Ullúa river, in the West. It is estimated that both projects will add a total of 271 MW. As of 2009 pre-feasibility studies are being conducted. Financing from the Central American Investment Bank has already been requested. The Brazilian government has provided technical support. The projects include transmission and distribution investments. Ownership of the facility will be transferred to the state after 25 years. The second BOT involves the government of Taiwan in building and operating Patuca 3 project, expected to add 100 MW. Ownership of the facility will be transferred to the state after 30 years. 
 
In January, 2011, the Congress approved the Decree for the construction of hydroelectric dams Patuca I, Patuca II and Patuca III, Olancho, and Los Llanitos and Jicatuyo in Santa Barbara, with the aim to generate 1000 MW of energy. 
 
It is expected that in three years Patuca III (or Piedras Amarillas), is generating the first 104 MW of power. The construction of Patuca II (or Valencia) and Patuca III (or La Torrosa) are scheduled for later. Besides the five dams approved by the Decree, the construction of the Energy Complex of the Aguán Valley (hydropower, biomass and solar) located in the department of Yoro has been aproved, under the coordination of the Empresa Nacional de Energía Eléctrica (ENEE). 
 
In November 2007, the Law for Biofuels production and consumption was approved. In November 2008 its Decree which was published in February 2009. 
 
Biomass 
The Sistema Interconectado Nacional currently has 60 MW of total installed capacity with biomass resources contributed by private developers. It is contemplated an additional 125 MW in the future. 
 
Geothermal 
There is a pioneering initiative called Platanares Geothermal which has been developing actions at the level of study and so far it is believed it will produce about 35 MW in the Platanares community. It is expected that the geothermal project will be in operation in 2013. There is an estimated geothermal potential of 125.3 MW in Honduras.

Potential for 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. 
 
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 aimed at increasing the use of energy-efficient compact fluorescent lamps (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 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 forecast 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 the industrial and commercial sectors, etc.

Ownership:

Due to energy shortages in the 1990s, Honduras allowed the privatization of its energy markets, opening the sector to foreign investment. Almost all thermal electricity generators, including biomass generators, are private. 
 
The hydro-electric sector is almost totally controlled by the state-owned Empresa Nacional de Energía Eléctrica (ENEE). 
 
ENEE still controls the transmission markets and is the sole power purchaser. 
 
The 1994 electricity law stipulates that ENEE should be unbundled both vertically and horizontally. The country would be divided into economically viable distribution zones. ENEE has prepared a plan to create 4 distribution companies from its existing business activities (to be privatized) and submitted it to CNE for review. Although the law does not expressly forbid vertically integrated companies, it does specify conditions under which vertical integration can exist, and limits ENEE’s participation in distribution activities to theoretically 30% of the market. This has not been done yet and in 2009 distribution activities were still controlled by ENEE.

Structure / extent of competition:

Although the 1994 Electricity Law 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), ENEE has continued operating as a vertically integrated state-owned enterprise with total control over transmission and distribution. 
 
As for generation, Independent Power Producers (IPPs) started to sign Power Purchase Agreements (PPAs) with ENEE as early as 1993. Today, IPPs account for over 60% of generation capacity, most of it thermal, in Honduras. 
 
Under the 1994 Electricity Law, generation may be undertaken by State, mixed ownership, or private entities. These entities are entitled to sell power to large consumers or to ENEE. 
 
Private companies built mostly coal and diesel-fired thermal plants because their construction process and rate of return were more advantageous than those of hydropower plants. As a result, thermal generation has grown more than hydropower generation.

Existence of an energy framework and programmes to promote sustainable energy:

Decree 9-2001 on Wind Energy Private Pilot Projects. 
 
Decree 267 for the Promotion of Projects Based on Renewable and Sustainable Resources. 
 
Framework Law of the Energy Sector 158-94 of 1994. 
 
Legal Framework and Reforms of the Energy Sector Law and Incentives Law for Renewable Energy Generation of 1998 which provides incentives to the development and generation of energy by means of new and renewable sources. Decrees No. 85-98 and 267-98 promote the development of renewable energy-generating plants. The decrees include tax breaks to developers and a secure buyer for energy at prices equivalent to the system’s short-term marginal cost. The national integrated utility ENEE, which is the default buyer, must pay a premium (10% of the same short-run marginal costs) 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 favour of developers: import and sales’ taxes on equipment, and a five-year income tax holiday. 
 
In 2007 a Law promoting Electricity Generation with Renewable Resources was approved. The approval of its Decree is in process.

Current energy debates or legislation:

An Energy Efficiency Bill is being discussed by the government.

Major energy studies:

The SIEPAC project will integrate the electricity network of the country with the rest of the Central American countries, which is expected to improve reliability of supply and reduce costs. 
 
Proponents of SIEPAC expect that interconnecting the nations' electrical transmission grids will alleviate periodic power shortages in the region, reduce operating costs, optimize shared use of hydro-electric power, create a competitive energy market in the region, and attract foreign investment in power generation and transmission systems. It has been claimed that the cost of energy for consumers could go down as much as 20% from US$0.11 per kWh to US$ 0.09 per kWh as a result of the project. A feasibility study undertaken in 1995 by Power Technologies Inc. outlined various scenarios for the expansion of power demand and supply in the region and associated investments. The median scenario foresaw that SIEPAC would induce annual investments of US$700m over a 10-year period once the regional electricity market had begun operating. 
 
SIEPAC is expected to create a 1,125-mile 230 Volt transmission line, with a planned capacity of 300 MW between Guatemala and Panama, as well as improvements to existing systems. SIEPAC likely will involve upgrading links and building 230 kV links between Guatemala and Honduras, and Honduras and El Salvador.  It is expected to be operative by the end of 2009. 
 
In December 2011, the construction of the transmission line reflects a development of 90.9%, and is in operation since December 2010.

Role of government:

The 1994 reform established the Energy Cabinet, headed by the President and coordinated by the head of the Secretariat of Natural Resources and Environment, Secretaría de Recursos Naturales y Ambiente (SERNA). ENEE remains host to technical capacity, exerting an unofficial planning role. Particularly with regard to the advancement of renewable energy, promotion and planning have been split between ENEE and SERNA. For example, the know-how for project application for CDM credits is in the hands of SERNA, while ENEE approves and follows technical development. 
 
SERNA 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. 
 
Within the General Energy Division there are three Departments: Renewable Resources; Rational Use of Energy; and Hydrocarbon.

Government agencies in sustainable energy:

Private electricity generators using renewable energy have formed a National Association - Asociación Hondureña de Pequeños Productores de Energía Renovable (AHPPER) - to promote the use of renewable energy.

Energy planning procedures:

In February 2007, ENEE initiated a program to reduce arrears and commercial losses under the heading Operación Tijera (Operation “Scissor”). 
 
Expansion plans include the net addition of 1,479 MW of generation capacity in the period 2007-2015.  
 
Every two years, ENEE must submit an expansion plan to the regulatory agency. The action plan must be approved by the Energy Cabinet. By law, ENEE has the mandate of prioritizing renewable-based generation when determining the optimal expansion plan. However, the system never worked.

Energy regulator Date of creation:

The National Energy Commission was established in 1998. 
<a href="http://www.cne.gob.hn">http://www.cne.gob.hn</a>

Degree of independence:

The CNE board is composed by five officials (included a President and a Vice-president) nominated by the Secretary of State of Communications, Public Works and Transport on the propositions of the following institutions: 
- Boards of Civil Engineers of Honduras 
- Boards of Mechanic, Electric and Chemical Engineers of Honduras 
- the Council of private companies; and jointly by the Confederation of the workers of Honduras, 
- the General Office of workers and the Unitary Confederation of workers. 
 
The National Energy Commission (Comisión Nacional de Energía) has unable to become a relevant player due to lack of political support and funds. This is related to the fact that CNE was intended to be the institution responsible for handling a vertically disintegrated market, a mandate of the 1994 law which has not been accomplished. The continuity of CNE was therefore uncertain until its restructuration in 2010 that marked a new era for institution that will focus primarily on the process of modernization of the electricity sector in Honduras.

Regulatory framework for sustainable energy:

<ul>
<li>
Law for the Promotion of Electricity Generation with Renewable Resources was approved in 2007. The approval of its Decree is in process.</li>
</ul>

<a href="http://www.serna.gob.hn/portal%202010/Transparecia/regulacion/Leyes%20Am...
<ul>
<li>
Decree 9-2001 on Wind Energy Private Pilot Projects.</li>
</ul>

<a href="http://www.serna.gob.hn/recursosnaturales/Energía/documentos/decreto9-2001.pdf">http://www.serna.gob.hn/recursosnaturales/Energía/documentos/decr...

 
<ul>
<li>
Decree 267 for the Promotion of Projects Based on Renewable and Sustainable Resources.</li>
</ul>

<a href="http://www.serna.gob.hn/recursosnaturales/Energía/documentos/decreto267-98.pdf">http://www.serna.gob.hn/recursosnaturales/Energía/documentos/decr...

 
<ul>
<li>
Legal Framework and Reforms of the Energy Sector Law and Incentives for Renewable Energy Generation 1998.</li>
</ul>

<a href="http://www.serna.gob.hn/recursosnaturales/Energía/documentos/MARCO%20LEGAL%20REFORMAS.pdf">http://www.serna.gob.hn/recursosnaturales/Energía/documentos/MARC...

Regulatory roles:

National Energy Commission functions are: 
 
- Price regulation; 
- Approval of quality, reliability and security guidelines to be included in the system expansion plans 
- Supervises compliance with legal and regulatory guidelines; 
- Submits energy sale and purchase contracts to be signed by the state owned firm ENEE to the Environment and Natural Resources Secretariat for approval.

Role of government department in energy regulation:

In June 2007, President Manuel Zelaya declared an "energy emergency" in order to buy additional electricity and to overcome the country's energy crisis. The Minister of Defense was charged with resolving the crisis, and was put, together with the Minister of Finance, at the Head of an "Intervention Board" of ENEE. The mandate of the "Intervention Board" was extended until October 2008.

Regulatory barriers:

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. 
 
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. Both SERNA and CNE are in weak position.. 
 
As a result, the national utility ENEE (Empresa Nacional de Energía Eléctrica) has become the default point for energy expertise, sought by the Government even in matters of policymaking and regulation, which contributes to a weak separation of roles among utility, regulatory agency and the ministry.

References:

ECLAC. Centroamerica: Estadisticas del subsector electrico 2010. Available at: <a href="http://www.eclac.cl/publicaciones/xml/1/44831/2011-Estad.subs.elect.-L.1... [Accessed 18th September 2013] 
 
Empresa Proprieta de la Red website. Avances Relevantes. Available at: <a href="http://www.eprsiepac.com/avance_relevantes.htm">http://www.eprsiepac.com... 18th September 2013] 
 
La Prensa.hm. CN da luz verde a represas Patuca, Llanitos y Jicatuyo. Available at: <a href="http://archivo.laprensa.hn/Ediciones/2011/01/18/Noticias/CN-da-luz-verde... [Accessed 18th September 2013] 
 
CEPAL. Istmo Centroamericano: Las Fuentes Renovables de Energia y el Cumplimiento 
de la Estrategia 2020. 22 December 2009 Available at: <a href="http://www.ceaconline.org/oldsite/pdf/CEPAL_FUENTES_RENOVABLES.pdf">http... 18th September 2013] 
 
Government of Honduras. Ley de Promocion a la Generacion de Energia Electrica con Recursos Renovables. 2 October 2007. Available at: <a href="http://www.poderjudicial.gob.hn/juris/Leyes/Ley%20de%20Promocion%20a%20l... 18th September 2013] 
 
CEPAL. Informe de la Reunion de Expertos Sobre Energia y Cambio Climatico en Centroamerica. Available at: <a href="http://www.cepal.org/mexico/publicaciones/xml/0/44710/2011-057-_Informe-... 18th September 2013] 
 
Asociacion Hondurena de Productores de Energia Renovable. <a href="http://www.ahpper.org/">http://www.ahpper.org/</a> [Accessed 18th September 2013]

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