Electricity sector in Honduras
The electricity sector in Honduras has been shaped by the dominance of a vertically integrated utility; an incomplete attempt in the early 1990s to reform the sector; the increasing share of thermal generation over the past two decades; the poor financial health of the state utility Empresa Nacional de Energía Eléctrica (ENEE); the high technical and commercial losses in transmission and distribution; and the low electric coverage in rural areas The key challenges in the sector include financing investments in generation and transmission in the absence of either a financially healthy utility or of concessionary funds by external donors.
In 2007, the percentages of electricity sold by consumer type were:[1] Peak demand has grown over seven percent annually in recent years, reaching 1,088 MW in 2006.
It is expected to be expanded as part of the Central American Electric Interconnection System (SIEPAC) through a 230 kV transmission line with a capacity of 300 MW.
The Electricity Law of 1994 assigns the policymaking function to an Energy Cabinet chaired by the President of the Republic with the Ministry of Natural Resources and Environment (Secretaria de Recursos Naturales y Ambiente, SERNA) as its secretary and coordinator.
A regulatory agency, the Comisión Nacional de Energía (CNE), was created to take charge of, among other functions: The Energy Cabinet has met less than once a year since its creation.
[2][full citation needed] By law, ENEE has a mandate to prioritize renewable-based generation when determining the optimal expansion plan.
[2][full citation needed] Some progress has been made recently under the Generación Autónoma y Uso Racional de Energía Eléctrica (GAUREE) project, financed by the European Union between 2000 and 2007.
The GAUREE 2 project aims at increasing the use of energy-efficient Compact fluorescent lamps (CFLs), lowering the consumption of energy by 50 million kW·h per year.
[2][full citation needed] The Inter-Institutional Group for the Efficient Use of Energy (GIURE) has set out a plan with the objective of reducing national electricity demand by 100 MW in 2008.
Some of the main activities included in GIURE's program are: promotion of gas stove use, use of clean development mechanisms (CDM), educational campaigns, efficiency in the industrial and commercial sectors, etc.
Hydroelectric projects abounded and the transmission network expanded to incorporate all economically active areas of the country into the national grid, which was interconnected with Nicaragua (1976), Costa Rica (1982) and Panama (1986).
[6] The demand growth projections did not materialize, which left the country with a large excess capacity and ENEE with a heavy debt burden.
[2][full citation needed] The 1994 new Electricity Law, passed under the administration of President Carlos Roberto Reina, was born as a response to the crisis.
[2][full citation needed] The establishment of the new competitive market failed: the distribution networks were not un-bundled and privatized, and ENEE continued operating as a vertically integrated state-owned enterprise that maintained its central role in energy planning and policy making.
EMCE and Lufussa managed to sign new contracts with the government of Carlos Flores (1998–2002), which included tax exemptions for up to five years and the payment of fixed and variable charges, the former independently of whether energy was actually being produced, as it is typically the case in PPAs.
The new legislation included tax breaks to developers and a secure buyer arrangement for energy at prices equivalent to the system’s short-term marginal cost.
ENEE, which is the default buyer, must pay a premium (10% of the same short-run marginal cost) for the electricity generated when the installed capacity is below 50 MW.
[2][full citation needed] According to the World Bank, the potential for the development of off-grid and small renewable sources is largely unexploited due to a lack of incentives and a clear and consistent policy framework.
As for the infrastructure, EPR (Empresa Propietaria de la Red S.A.) is in charge of the design, engineering, and construction of about 1,800 km (1,100 mi) of 230kV transmission lines.
[11] In February 2007, ENEE initiated a program to reduce arrears and commercial losses under the heading Operación Tijera (Operation Scissor).
In an attempt to address ENEE's delicate financial situation, the government intends to raise tariffs for certain consumers, those whose bills are the highest.
The tariff, to be published in the official Gazette in order to become effective, had to be calculated yearly by the generators and approved by the regulator, who would also decide on any subsequent adjustments to it.
[2][full citation needed] Average tariffs for industrial and commercial consumers already cover economic costs and are some of the highest in the region.
[2][full citation needed] A direct subsidy was established in 1994 to compensate for any tariff increase to eligible residential users (those that consume less than 300 kW·h per month).
[2][full citation needed] Distribution and transmission investment by ENEE has been partially financed with expensive revolving loans from local banks and credits from thermal generators on the payment of energy purchases that amounted to US$124 million in 2003–05.
The largest investments in rural electrification have been made by FOSODE, which has been successful in raising international aid funds (both concessionary loans and grants), which complement the budgetary resources that the Government provides every year as required by law.
[2][full citation needed] Although the 1994 Electricity Law contained provisions for the establishment of a competitive power market—vertical unbundling, freedom of entry to all sector activities, open access to transmission and distribution networks, and freedom of choice for large users—ENEE has continued operating as a vertically integrated state-owned enterprise with total control over transmission and distribution.
None of the current donor-funded projects supports large hydropower development, expansion of fossil energy generation or major investments in transmission, which are necessary to ensure that supply keeps up with demand and to maintain service quality.
[20] Between 2000 and 2007, the European Union (EU) has financed the Generación Autónoma y Uso Racional de Energía Eléctrica (GAUREE) project, which aims at increasing the use of energy-efficient CFLs.
[2][full citation needed] The president of the CBEI announced in July 2007 that the Bank would provide "strong" financing, consisting of a "first disbursement" of US$100 million.
