Among the technical limitations related to electric power, perhaps the most important one is the difficulty to store enough quantity to meet the demand, which is why systems are built, in order to allow its transmission once it has been generated. Benefits of electricity go as far as the system allows them, hence the importance of having an adequate infrastructure for the generation, transmission, distribution and marketing, in an aligned method that ends primarily in the user, who receives the supply in exchange of a payment. This means transfers between different points or nodes of the system operators, through links called Interconnections.
Due to their link to production processes, electricity markets naturally tend to expand. During the eighties decade, the national systems of the Central American countries interconnected, making transactions under bilateral schemes established through binational treaties submitted to different requirements and restrictive of the two interconnected markets, as if exportation was a demand at the border and importation a generation, both belonging to their own market.
REGIONAL ELECTRIC MARKET
In November 30th, 1996, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, signed the CENTRAL AMERICAN ELECTRIC MARKET FRAMEWORK TREATY (the “Framework Treaty”), supplemented by two Protocols, under which the “Electrical Interconnection System for Central American Countries” project (SIEPAC for its Spanish initials) was executed, with a transmission capacity of 300 MW, which creates the so-called Regional Electric Market (MER for its Spanish initials), taking advantage of the similarities of national markets with independent transmission companies and operation, management and strengthened regulations institutions.
The Framework Treaty establishes an innovative multilateral integration scheme, which not only interconnects the six markets or national systems, but also forms a seventh market related to those self-regulated, where the authorized officials will conduct international transactions of electric power, aiming to reduce energy costs, improve supply reliability, implement scale economies, generate higher levels of competition in domestic markets and attract foreign investment, as was demonstrated by the subsequent incorporation of Mexico and Colombia as extra regional partners of SIEPAC.
Governments have made the necessary investments to develop, design, finance, build and maintain the regional transmission system, creating a mixed capital company governed by Private Law, called Empresa Propietaria de la Red (EPR). Moreover, the Framework Treaty creates the following regional organizations: (i) Regional Operating Agency (EOR for its Spanish initials), as an administrator with technical and economic criteria in MER; and (ii) Regional Electric Interconnection Commission (CRIE for its initials in Spanish), as a regulator of MER.
CRIE issued the REGIONAL ELECTRIC MARKET REGULATION (RMER), which became effective as a valid regulation, enforceable and binding in the territory of the Framework Treaty member countries.
BUSINESS OPPORTUNITIES IN THE REGION
Countries in the region have a peak demand of 7,500 MW, which is why SIEPAC intends to grant access to less expensive energy, such as that recently offered in Mexico, after achieving policy reforms it can sell surplus energy.
SIEPAC has a million dollar infrastructure and its regulation continues to adjust to reduce the costs of energy exports, just as it occurs with the last CRIE proposal to implement Firm Supply Contracts. These contracts relocate the energy from the seller’s national market and locate it in the buyer’s national market, considering it as “regional generation”, which prioritizes “regional supply”. In my opinion, this translates into attractive business opportunities for companies in the power sector, for anyone who requires legal advice in Central America, Energy Law Advice and representation with the regional vision that Central Law offers: “One region, one firm”. Contact us.
By Jonathan Menjívar
CENTRAL LAW El Salvador