In El Salvador, the high cost of electricity increases the costs of products and services and prevents businesses from being competitive. An Enterprise Survey conducted by the World Bank Group in 2016 revealed that 48 percent of Salvadoran firms rank electricity as their main barrier to growth.
The sky-high electricity rates in El Salvador may finally be lowering. In late 2019, IFC led a $657 million financing package for local power provider Energía del Pacífico—the largest private sector investment in the history of El Salvador. The investment will help the firm build a power plant that will turn liquefied natural gas into electricity. When it is finished in 2022, the 378-megawatt facility will provide 30 percent of El Salvador’s power.
“Energía del Pacífico is a transformational project for El Salvador and the entire region—a shining example of the enormous opportunity that can be created, despite prior obstacles, when private initiatives have strong government support,” said Michael Polsky, the CEO of Invenergy, an American power company that is the majority owner of Energía del Pacífico.
The new plant, located in the port city of Acajutla, will enable the country to cut its reliance on pricey imported oil and reduce the amount of electricity it buys from neighboring countries. (One-quarter of El Salvador’s power comes from abroad, the highest rate in Central America.) These actions are expected to drive down the price of electricity, which will be a boon for businesses in the manufacturing and services sectors, key parts of the Salvadoran economy. Ultimately, it is expected that lower electricity prices will aid job creation and economic growth in a country where more than 25 percent of people live in poverty.
Since natural gas is cleaner than oil, it will reduce El Salvador’s sulfur dioxide (SO2) emissions—a high air pollutant—by 8,000 tons a year, and the country’s carbon dioxide emissions by 376,000 tons annually—the equivalent of taking more than 70,000 vehicles off the road.
The project will also include a 44-kilometer transmission line to the city of Ahuachapán, mooring infrastructure for a floating storage unit, and a 1.7-kilometer sub-sea and underground gas pipeline. IFC is providing $85 million in direct financing, with the rest of the funding for the project coming from other lenders.
The project has its origins in the World Bank Group’s Country Partnership Framework for El Salvador, a document that lays out the development priorities for the nation of six million. The Country Partnership Framework identified two key challenges in El Salvador—a reliance on foreign oil for power and a lack of private investment—both of which the new project is designed to address.