As a result of a generous feed-in tariff (FiT), most solar PV installations in Central America in 2015 occurred in Honduras. The FiT, along with a new electricity law, has created major changes to the renewable energy sector in the country.
Honduras’s power sector is going through a period of transition. The power market has been controlled by state-owned utility Empresa Nacional de Energia Eléctrica (ENEE), which is responsible for all transmission and distribution. ENEE also generated 15% of the total 8.9TWh produced in 2016.
The Central American country approved a new electricity law that entered into force in July 2014, which will allow greater participation of private players in the power market. It also creates an independent regulatory agency, Comisión Reguladora de Energía (CREE). The new law was prompted by ENEE’s high level of debt (equivalent to 1.8% of the country’s $18.6 billion GDP in 2013), late payments and power losses. The reform process is ongoing. Honduras is part of the Central American Electrical Interconnected System (SIEPAC) and is connected to El Salvador, Guatemala and Nicaragua by transmission lines. Honduras is a net importer in the regional market.
Decree 70, published in June 2007, is the main source of renewable energy incentives. It establishes a 10% price premium for clean energy projects in the first 15 years of operation. It also grants import, income and sales tax exemption to renewable energy generators. Additionally, the FiT granted solar photovoltaic projects installed until July 31, 2015 (or until up to 300MV of installed capacity) a base price for their energy equal to by the short-term marginal cost plus USD 0.03/Kwh plus 10%. The incentive drove a total of 388MW of PV installations in 2015 alone making Honduras it the second largest solar market in Latin America. However, as of December 2016, ENEE has been reported to be delaying the payment of the bonus. The case has been taken to the Honduras’ budget control agency for the review.
Honduras has a total installed capacity of 2.4GW. Almost half (48%) of the electricity produced last year came from oil and diesel plants. Large hydro represented 14% of generation, while other renewables (biomass, small hydro, solar and wind) accounted for 36% of power production. In 2016, 3.1TWh were generated from renewable energy sources, which represents an increase of 36% compared with the previous year.
Honduras also uses auctions to contract new power capacity. In 2010, ENEE held a clean energy-only tender, which contracted a total of 250MW of capacity from 39 hydro, biomass, cogeneration and geothermal projects.
The country’s weakest performance was on Low-Carbon Business & Clean Energy Value Chains Parameter III. It tumbled 16 places to rank 48th, partly due to the absence of clean energy service providers, such as insurers and lawyers, and the scarcity of equipment manufacturers.