When Panama’s schools shut down unexpectedly in May of 2013—along with supermarkets, movie theaters, clubs, and many businesses—the culprit was one of the worst droughts in history. Record low rainfall that year wreaked havoc on the national electricity system, which depends heavily on hydroelectric power, and the government declared a drought emergency in one-third of the country.
Energy crises have played out similarly in Brazil, where hydropower accounts for approximately 70 percent of total electricity generated. It, too, has been regularly afflicted by long dry spells with disastrous outcomes: a recent drought lasted from 2014 to 2017.
To mitigate the risk of electricity shortages, many officials throughout Latin America are turning to Liquefied Natural Gas (LNG) as a new source of energy when there are disruptions to hydro supplies. LNG is a cleaner backup to hydro than diesel or heavy fuel oil—an appealing selling point to governments already battling against climate change. LNG also helps mitigate the intermittence of wind and solar power—ultimately acting as an enabler of renewable energy.
IFC is helping governments in the region promote development of natural-gas-based power generation, demonstrating how the private sector can help governments make this transition to more dependable energy. In Panama, IFC’s recent $144 million investment helped build the first LNG-to-power facility. In Brazil, IFC is supporting two significant investments. The Port of Sergipe thermal plant—which received $200 million in financing from IFC—is Brazil’s first large-scale infrastructure venture that is sponsored in full by the private sector. And at the Port of Açu, IFC has invested $288 million to finance initial stages of the first fully-integrated private LNG hub in Brazil (one of the few in Latin America).
These projects are expected to spur private investment in lower-carbon, highly efficient backup power capacity plants that displace existing inefficient and polluting thermal power plants based on heavy fuel oil and diesel.
Around the world, the economic costs of droughts are four times greater than that of floods. A single water outage in an urban business can reduce its revenue by more than 8 percent. And if that business is in the informal sector, as many are in the developing world, sales decline by 35 percent, ruining livelihoods and stagnating urban economic growth.
That’s why the transition to LNG-fired generation is important for Latin America. Panama, one of the fastest growing economies in the region, is well-positioned for this leap. Despite Panama’s recent economic growth, investments in new electricity generation have lagged. This results in energy shortages—which increase prices for citizens and businesses and restrict future growth.
IFC’s support helps Panama implement a long-term strategy to increase power generation (both thermal and renewable) and increase transmission capacity. This project is feasible because of the availability of LNG-to-power solutions for smaller markets, particularly emerging economies—thanks to the abundant global gas supply as well as changes in LNG technology.
Panama’s LNG-to-power facility, which started commercial operations in September 2018, is the first in Central America. It comprises a 380 megawatt (MW) combined-cycle gas-fired power plant and an onshore LNG import and regasification terminal with a 180,000-cubic meter LNG storage tank. As it mitigates the risk of electricity shortages, it offers stable, cleaner fuel to fire power plants. This enables Panama to advance its strategy to incorporate more renewable energy into the matrix.
Brazil Moves to Modernize
Brazil’s shift to LNG comes as officials have been promoting development of natural-gas based power generation through auctions that encourage private sector participation in the energy sector. IFC’s investments back this strategy to diversify Brazil’s energy matrix while introducing resilience and reliability to the system. This clears a path for renewable energy and at the same time reduces the carbon intensity of power grids.
The Port of Sergipe—which is being built and will be operated by Centrais Elétricas de Sergipe (CELSE)—comprises an LNG terminal with a 170,000-cubic meter floating storage regasification unit, a 6.5-kilometer natural gas pipeline, a 1,516 MW combined-cycle power plant, and a 33-kilometer electricity transmission line. Its annual electricity generation will be equivalent to reaching approximately 1 million individual residential consumers. It will be Latin America’s largest and most efficient thermal plant when it begins operating in the first quarter of 2020.
CELSE turned to both bond buyers and multilateral lenders to raise $1.46 billion for the power plant. The innovative financing structure included a bond guarantee from the Swiss export credit agency SERV, which helped the distribution of the bonds to investors across the world.
The Gas Natural Açu I project, developed in Port of Açu, involves the design, construction, and operation of an integrated LNG-to-power facility comprising a 1,297 MW combined-cycle power plant, a floating LNG import terminal including pipelines connecting the jetty to the power plant, and a 51-kilometer transmission line connecting the power plant to a substation. It also includes the expansion of an existing substation’s capacity in the port. It will be one of the first LNG private natural gas hubs in Latin America.
Both of these terminals help modernize the gas supply infrastructure and demonstrate the potential for the financing and power project models to be replicated across Latin America.
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Published in May 2019