Regional Electricity Market and Guatemala’s exit

Written by Salvador del Valle

 

Origin

The Central American Integration System, SICA, enabled the Central American countries to sign the Regional Electricity Market Treaty (hereinafter the “Treaty”). Among the purposes enumerated in the Treaty, it was provided that it should establish the conditions for the growth of the regional Electricity Market, which would supply in a timely and sustainable manner the electricity required for economic and social development.

 

During the more than 20 years that the Treaty has been in force, the Regional Electricity Interconnection Commission (CRIE) and the Regional Operator Entity (EOR) have been in charge of executing the policies and guidelines to harmonize both the regulatory framework and the technical systems and equipment.

 

Guatemala has been one of the main exporters within the MER and thanks to this, they had guaranteed supply while other countries were able to develop energy projects to cover domestic demand.

 

Current status

Energy exports during 2020 reached 2,820,000 MWh, which represents 5.9% of regional consumption, with Guatemala, Costa Rica, Panama and El Salvador injecting the most into the system and El Salvador, Nicaragua and Honduras withdrawing the most, Guatemala having been a net exporter to the system during the last decade. 

 

The Regional Electricity Market could be much more efficient in terms of the energy that can be traded through the agents registered in each of the countries, but there are some flaws that prevent this agility:

  • There are agents in the different countries that concentrate the injection or withdrawal of energy, so the price does not promote a market value but a prefixed price;
  • There are different markets in all countries, some open and others centralized, the former with efficient costs and the latter with assigned costs;
  • There are limitations in transmission capacity within the countries because they have not fulfilled their commitments to reinforce their networks as required by the MER, which increases operating costs;
  • When there are unscheduled departures of generating agents that affect the supply of each country and consequently market operations.

 

Guatemala’s complaint

On July 12, 2021, Guatemala filed, before the General Secretariat of the Central American Integration System, the denunciation of the Framework Treaty of the Electricity Market in Central America and its First and Second Protocols. According to the same Treaty, the denunciation may be presented by any of the parties, with a ten-year notice.

 

The reasons for Guatemala’s denunciation of the Treaty are various, but the most important are the following:

  • The lack of consolidation of the CRIE and the EOR as institutions, with processes and policies defined and aligned to the interests of all members;
  • There is no appeal instance to appeal the decisions of the regional regulator in order to resolve disputes. Even though there is no review instance within the Treaty and its Protocols, Guatemala went to the Central American Court of Justice and it issued rulings in favor of Guatemala, neither the CRIE nor the EOR acted on these resolutions;
  • As a proposal to improve the institutional framework and operability of the MER, Guatemala, through the Ministry of Energy and Mines, proposed a modification to the Framework Treaty to integrate all the changes in the Third Protocol, but it was an agenda item that was not given the time or importance and did not advance in any way.

For Guatemala to effectively leave the Treaty, there is still a long time to go, and the consequences are unpredictable, but in the short term it would be unacceptable for there to be retaliation by the States parties or the MER authorities (CRIE or EOR) against Guatemalan agents that generate exports or imports or agents that want to develop new projects in Guatemala. In any case, it should be a reflection for all states and institutions to rethink the model that is being followed and make a new path for the integration model with which the Treaty was signed at the beginning.

 

Finally, it will be necessary to take into account what will happen in relation to the Central American Electrical Interconnection System (SIEPAC), of which the National Institute of Electrification (INDE) is a shareholder and this project is not terminated as a consequence of the denunciation and termination of the Treaty, it will continue to be a shareholder of the System, but without Guatemala having participation in the decisions of the MER that may affect it.

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