Lack of legal certainty for new energy generators in Honduras

Honduras, like many developing countries, has been working on modernizing and expanding its energy infrastructure to meet the growing demands for electricity and foster economic development. However, this process is not without challenges, and one of the biggest obstacles facing new energy generators in the country is the lack of legal certainty stemming from modifications in energy contracts.

In recent years, Honduras has made significant changes to its regulatory and contractual framework in the energy sector to promote competition, attract investments, and ensure the sustainability of the electricity supply. These modifications have included the introduction of new subsidy policies, the implementation of more transparent market mechanisms, and the revision of existing energy contracts.

However, these reforms have also generated uncertainty among new energy generators, especially those entering the market with significant investments and long-term expectations. One of the main problems lies in the lack of clarity and stability in the terms and conditions of energy contracts, making financial planning and strategic decision-making difficult for investors.

Firstly, inconsistency in energy and regulatory policies can raise doubts about the economic viability of energy generation projects. Sudden changes in fiscal incentives, electricity prices, and other key aspects can drastically alter expected investment returns, discouraging potential investors and slowing down the development of new energy capacities.

Moreover, the lack of clarity in energy contracts can lead to prolonged legal disputes between generators and regulatory authorities or utility companies. Ambiguities in contractual terms, such as provisions related to energy prices, contract durations, and termination conditions, can create fertile ground for costly litigation that harms all parties involved and affects market confidence.

There have been some small advances regarding the renegotiation of energy contracts between the National Electricity Company (ENEE) and generators that began in 2022; however, no agreement has been reached. The stance to reduce the cost per kilowatt is being analyzed by the government and ENEE. Both parties are open to dialogue and listening to proposals that can benefit both parties, but there is still a long way to go and points to be agreed upon.