RENEWABLE ENERGY ROADMAP FOR CENTRAL AMERICA: TOWARDS A REGIONAL ENERGY TRANSITION

FOREWORD

IRENA’s contribution towards a resilient and more equitable world is presented in its World Energy Transitions Outlook and Post-Covid Recovery: an agenda for resilience, development and equality. Mindful that the energy transition takes different shapes according to each region and country, IRENA’s efforts are now moving towards the implementation of the energy transition at the regional level.
Inspired by the World Energy Transitions Outlook technological avenues, IRENA’s Renewable Energy Roadmap for Central America: towards a regional energy transition dives into the Central America region to contribute to the debate of implementing local energy transition pathways. With an integrated energy transition planning approach, the roadmap has a special focus on evaluating renewable energy technology options in the power and end-use sectors. It serves as an input for government policy makers and stakeholders to update or define their energy planning and Nationally Determined Contribution strategies, as well as inputs for local infrastructure plans and investment packages.

COUNTRY CODES

Key actions are needed now to implement the DES and to stabilise the increase in CO2 emissions in Central America by 2030. By 2050, the actions indicated can help to avoid around 80 million tonnes of CO2, bringing energy-related emissions down from around 55 million tonnes of CO2 today to around 30 million tonnes of CO2 in 2050, despite a growing population and energy demand needs.
Figure 1 illustrates the actions and measures that will need to happen this decade and in the following decades to accelerate the decarbonisation of the Central America region. The transport and power sectors are the key contributors to the total emission reduction by 2050.

Reduction of CO2 emissions through REmap measures in the DES by 2030 and 2050

INTRODUCTION
The World Energy Transitions Outlook, released by the International Renewable Energy Agency (IRENA) in 2021, shows that a drastic reduction in greenhouse gas emissions is needed in order to meet the Paris Agreement goal of keeping the rise in global temperature well below 2 degrees Celsius (°C). Key to this emission reduction over the coming decades will be increased investments in the energy transition, including greater deployment of renewable energy and changes in the energy infrastructure.

FOCUS OF THE REPORT
This report evaluates the integration of renewable and low-carbon technologies into the end-use and power sectors of seven Central American countries including a flexibility analysis of the regional power system. This analysis serves as technical guidance that can support the decision-making process of policy makers, energy planners, government institutions and the private sector to define low-carbon development in the region. The findings can cast light on the design, elaboration and implementation of energy plans, Nationally Determined Contributions (NDCs), national mitigation plans and investment plans that are ongoing or in the pipeline. Low-carbon development is also a cornerstone of the post-COVID-19 recovery strategies of governments in the region.

The study contributes to ongoing discussions on the energy transition in the region, and related initiatives. These include, among others: the 2030 Sustainable Energy Strategy for countries in the Central American Integration.

Central American countries considered in the REmap-FlexTool analysis

System (SICA)6 (SICA, 2020); SICA programmes related to the rational use of fuel wood, the deployment of geothermal energy and energy efficiency (i.e. regional technical codes for electric devices) (COMIECO, 2020); the MOVE platform (MOVE Latam, 2021); the geothermal programme of Germany’s Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) (GIZ, 2020); an electro-mobility programme supported by the United Nations Environment Programme; Euroclima+; as well as programmes to foster the use of biofuels, national decarbonisation plans and the NDC revision process (see the Annex for more information on these initiatives).

METHODOLOGY
The analysis of each country included four energy scenarios covering the period 2018-2050, as described in To analyse the end-use sectors, a bottom-up approach was implemented using a tool developed by the REmap team. The power sector was modelled in MESSAGE, and a flexibility assessment was performed using IRENA’s FlexTool product.

Description of the scenarios in the REmap study

Central America’s power sector is integrated through an electrical interconnection system known as SIEPAC, which entails a single 230-kilovolt circuit transmission line with a capacity of 300 megawatts (MW) covering six countries. IRENA’s power sector simulation was guided by two main questions: 1) What is the role of the interconnection system and regional integration in unlocking the potential benefits of a joint energy transition strategy, with all countries on board as a single market? and 2) How resilient would the new system be to dry periods and to the volatility of fuel prices? To the extent possible, the study focused on modelling the region’s operation as an independent power system rather than as one that is reliant on its northern or southern neighbours, given that these countries were outside the scope of the study and that such analysis would best be analysed in a fully integrated study. The power system modelling was performed to deliver these and related insights.

Overview of the regional electrical interconnection system (SIEPAC)

The power sector simulations span four pillars, as described in Figure 5. These are: 1) showing what the
planned capacity and present-day interconnection would deliver in the Base Energy Scenario (BES) and in the Planned Energy Scenario (PES) to 2050; 2) showing what can be achieved in the Transforming Energy Scenario (TES) and the Decarbonising Energy Scenario (DES) through the deployment of renewable energy projects to displace fossil fuel units, while constrained by present-day interconnection levels; 3) showing what can be achieved with higher levels of interconnection in all four scenarios; and 4) showing how the developed scenarios respond operationally to changes in the availability of renewables and in fuel prices.

ENERGY TRANSITION GOALS AND RECENT PROGRESS
In 2018, Central America was home to around 48 million people, with a regional gross domestic product
(GDP) of nearly USD 225 billion. Based on the data provided by countries for this study, by 2050 the region’s population will increase to 65 million inhabitants and regional GDP will double, increasing at a compound annual growth rate of 2.8% (Table 1).

Total final energy consumption in the region was around 1 245 petajoules (PJ) in 2018, with the buildings sector being the major consumer, followed by the transport sector (Figure 9). By country, Guatemala was the highest energy consumer, accounting for 47% of the total, while Belize was the lowest, at only 1% (Figure 10).

Per capita annual electricity consumption in the region has increased over the last two decades (Figure 11), reaching an average of 1 390 kilowatt hours (kWh) in 2018; this is around one-fifth of the per capita electricity consumption in member countries of the Organisation for Economic Co-operation and Development (OECD). Per capita total final energy consumption in the region was an estimated 26 gigajoules in 2018 and is expected to increase 7% by 2030 and 27% by 2050 under current national energy policies (the PES) (Figure 12). These demographic and energy statistics demonstrate the need for integrated energy planning not only on the supply side (to cover rising energy demand in an optimal way), but also in the end-use sectors, ensuring the rational use of energy while also considering potential environmental and socio-economic impacts.

Although countries in the region have reached high shares of electricity access (Table 2), efforts are still
needed to reach the target of 100% access by 2030, as set by regional bodies.

In the context of the COVID-19 pandemic, energy transition initiatives constitute a fundamental driver for the social and economic recovery of the region, which has also been affected by recent environmental events (hurricanes Eta and Iota, November 2020) (PAHO, 2020). This suggests the need to develop infrastructure and national plans that are resilient to climate change and are strengthened by greater regional integration of resource development and management. A joint effort to reduce regional emissions would be beneficial to all countries and could represent an opportunity to create a regional clean energy industry and enhance overall co-operation among countries.

To reduce energy-related emissions in the region, particularly in the emission-intensive transport and power sectors, countries need to promote the use of renewables and foster energy efficiency and electrification, among other steps. Figure 18 shows, at a global level, how each of these action lines would contribute to reducing greenhouse gas emissions in line with the Paris Agreement goal of keeping global temperature rise below 1.5°C (IRENA, 2021b).

Countries in Central America have been taking steps in that direction, submitting NDCs that include targets for increased renewable energy integration in the power sector, as well as decarbonisation plans for end-use sectors that aim to achieve emission reductions by 2030 or 2050. Table 3 summarises the countries’ progress towards implementing the Paris Agreement and provides an overview of the elements covered in related NDC documents submitted to the United Nations Framework Convention on Climate Change (UNFCCC) as of November 2021.

THE ROADMAP FOR CENTRAL AMERICA

RENEWABLE ENERGY ROADMAP
In the REmap analysis for Central America, a series of scenarios were developed that provide innovative
and alternative decarbonising solutions while gradually increasing country ambitions. The scenarios take into account the current situation of the countries in terms of their economic evolution, energy intensity, national and regional power sector contexts, and ongoing initiatives, plans and pledges to tackle sectoral emissions. The scenarios outline a set of measures and assess their impacts on energy and emissions while also determining the investment and costs required. The measures are grouped in five categories, following selected action lines of IRENA’s World Energy Transitions Outlook (IRENA, 2021b) that are applicable to the region. The categories are renewables in the power sector, renewables direct use in end-use sectors, electrification in the end-use sectors, energy conservation and efficiency, and hydrogen. Within these five ategories, Table 4 summarises the key indicators of the DES – the decarbonising pathway for the region’s energy sector – and compares them to current energy sector plans (the PES), with perspectives to 2030 and 2050.

RENEWABLES IN THE POWER SECTOR
12 Total direct electricity consumption comprises electricity demand in the buildings, transport and industry sectors and does not account for indirect electricity demand, i.e. for hydrogen production.
Increasing the use of renewable energy to generate electricity is key for decarbonising the power sector and for using renewables to electrify energy services in the end-use sectors. Two key solutions are available in the region: increasing renewable energy capacity and improving regional power system integration.

Renewable energy offers the chance to meet rising electricity demand while driving local economic growth, unlocking some of the lowest-cost electricity sources today and achieving carbon neutrality goals. Total direct electricity consumption12 in the region is set to increase at least 50% by 2030 and between 300% and 400% by 2050 from 2018 levels (Figure 26, PES). Under planned conditions, annual power sector emissions double from 2018 levels by 2050, but the TES and DES show that this need not be the case. The TES and DES show how emission reductions of 80% can be reached while simultaneously achieving significant cost savings per unit of electricity through the increased use of domestic renewable energy resources.

ELECTRIFICATION IN THE END-USE SECTORS
When the electricity generation mix is predominantly renewable, the electrification of certain energy services in the end-use sectors could trigger numerous benefits, as described in the following sections.

The electrification of energy services in the end-use sectors will result in a greater share of electricity in total final energy consumption, compared to fossil fuels, as shown in Figure 32.

ELECTRICITY USE IN THE TRANSPORT SECTOR
In the DES, 77% of the passenger fleet and 53% of the cargo fleet are electrified by 2050, which requires average annual sales of around 190 000 electric vehicles by 2030 and 1.1 million by 2050. With this, transport sector emissions decrease 72% in 2050 in the DES compared to the PES. Fossil fuel demand of around 8 exajoules is avoided between 2018 and 2050 in the DES compared to the PES, equivalent to 17 times the transport fossil fuel demand in 2018.

RENEWABLES DIRECT USE IN THE END-USE SECTORS
19 Direct use of modern renewables includes the following energy carriers: bagasse, biodiesel, bioethanol, biogas, biomass, charcoal, geothermal and solar thermal. 20 Modern bioenergy includes the following energy carriers: bagasse, biodiesel, bioethanol, biogas, biomass and charcoal. 21 Traditional biomass refers to the traditional use of biomass for cooking and heating purposes in buildings.
For certain energy services, electrification may not be the only available – or optimal – solution to reduce the use of fossil fuels. In some cases, the direct use of renewables might represent a more adequate and efficient solution. The direct use of modern renewables19 can help reduce fossil fuel use in the end-use sectors today and would reach an 11% share in 2050 in the DES. Across the region, the share of modern renewables in 2018 as well as in the DES in 2030 and 2050 is highest in Belize, Costa Rica and El Salvador, due to the use of bagasse and modern biomass in the industry sectors of these countries (Figure 42).

Modern bioenergy20 could represent 7% of the total energy demand by 2050 under the DES. The region has potential to use its bioenergy resources as part of the decarbonisation energy policies, with applications in all end-use sectors, provided that the bioenergy is produced in a sustainable manner to avoid environmental damages and effects related to changes in land use.

RENEWABLES DIRECT USE IN BUILDINGS
The introduction of solar water heaters in buildings would contribute to a higher share of renewables direct use in the end-use sectors. The number of installed units in the PES and DES and their related costs for the2018-2050 period are shown in Table 10. The upfront costs for covering the water heating needs are higher in the DES due to the higher costs of solar water heaters compared to current technologies, mainly LPG boilers. However, the technology mix proposed in the DES brings fuel savings in water heating of USD 6.7 billion compared to the PES over the study period, compensating the upfront costs needed. The introduction of solar water systems would also bring increased local employment, energy security and access to water heating services.

Additionally, the use of modern biomass in buildings could be a feasible option to provide a clean and
efficient solution for cooking. In response to the widespread burning of fuel wood in the region, countries are considering a sustainable bioenergy supply, mainly for Indigenous communities or hard-to-reach areas. Under the DES, charcoal accounts for 1% of the total final energy consumption in buildings by 2050.

ENERGY CONSERVATION AND EFFICIENCY
The use of energy-efficient technologies in the DES could help the region meet the same level of energy needs as in the PES, but with a lower energy demand. The establishment of energy efficiency standards would play an important role in fostering the use of efficient technologies. Energy efficiency costs increase from USD 2.2 billion in the PES to USD 8.7 billion in the DES, to reduce energy intensity 43% by 2050 (measured as total final energy consumption per unit of GDP) (Figure 47).

To restrict the imports of less efficient products in the remaining countries, regional organisations have
worked on developing the Central American Technical Regulations (RTCA in Spanish), covering the main loads such as air conditioners, refrigerators and motors. The approved and planned regulations of countries were modelled in the PES, TES and DES, specifically covering the energy services of space cooling, refrigeration and lighting in the buildings sector. The reduction in energy intensity is achieved through the introduction of space cooling and refrigeration units with lower power consumption, as well as the replacement of conventional light bulbs (such as incandescent, halogen and fluorescent) with LEDs. For the transport sector, an improvement in fuel consumption during the study period was modelled assuming further developments in the efficiency of the automotive industry under the PES, TES and DES. Electric vehicles are already more efficient than internal combustion engine vehicles (using less energy per kilometre). However, this is accounted for in the fleet electrification modelling, as the efficiency improvement is embedded in the technology change.

HYDROGEN AND ITS DERIVATIVES
22 The model invests in solar PV due to its higher potential in the region compared to other technologies, lower installation costs and easy deployment. Off-grid projects are considered to guarantee the renewable/green production of hydrogen. Optimal storage is added assuming steel storage tanks at a price of USD 500/kilogram. 23 Electrolyser specifications: alkaline unit with an efficiency of 49 MWh/tonne, off-grid installation in a dedicated facility, investment cost of USD 480/kW and fixed costs of USD 9.6/kW/year. Several hard-to-abate sectors, such as heavy-duty cargo shipping by truck, might require the use of more innovative technologies to achieve decarbonisation. Hydrogen and its derivatives could serve as alternative fuels in these sectors. Green hydrogen serves as an alternative solution for decarbonising heavy cargo road transport in the region, as well as an opportunity for a cleaner supply in international shipping. Hydrogen and its derivatives provide an alternative avenue to further decarbonise sectors such as specific industrial processes, long-haul transport, shipping, and aviation, as presented in IRENA’s World Energy Transitions Outlook (IRENA, 2021b). In the analysis of Central America, considering the low-to-medium energy intensity of the region’s industries, hydrogen was only introduced in the road transport sector of countries that are currently considering green hydrogen as an innovative solution for the cargo fleet. It is considered as a solution mainly to reach remote or isolated areas where a robust power distribution grid for electric vehicles is unfeasible and there is a need for high-capacity chargers. The DES of selected countries, namely Costa Rica and Panama, included hydrogen as an alternative carrier for large trucks, in addition to intensive electrification. This hydrogen use starts with a small share of conventional units, reaching 1.3% of the regional heavy-duty fleet by 2050. The assumption in both countries was that hydrogen heavy-duty trucks could constitute 20% of the fleet by 2050, which follows the vision of the Hydrogen Council (Hydrogen Council, 2017). These shares in the DES translate to higher stocks of hydrogen trucks, electrolysers and storage by 2050, as shown in Figure 50.

With respect to the power sector, Figure 51 shows the installed capacity of renewables (solar PV22 in this case) and the electricity generation required for the hydrogen production process in the period 2020-2050. In total, 698 MW of capacity and 1 100 GWh of electricity are required for 2040, and 1 250 MW and 1 973 GWh23 for 2050, representing only 1% of the total electricity demand in the region.

As a result of the fuel switch replacing conventional units in the cargo fleet, the share of hydrogen in the total final energy consumption of the transport sector rises from 0.6% in 2040 to 1% in 2050.

SECTOR ACTION NEEDED NOW
In the section, the energy demand in 2018, as well as the energy demand in 2030 and 2050 in the DES (positive axis) and the differences relative to the PES (negative axis), are presented for the three end-use sectors of buildings, transport and industry, as well as for the power sector. This is accompanied by a set of proposed measures that enable the decrease in energy demand for each sector. These measures serve as an overview of the different “actions” that would need to be taken as soon as possible to foster the decarbonisation of the energy sector and enable the sustainable energy transition.

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