POLICY UPDATE
the six national markets. Its basic
operating strategy is to engage in
electricity trade through long-term
contracts and spot transactions,
allowing power producers and
power traders to purchase and
sell electricity while accessing
the regional transmission system.
Power companies could then
install plants in any of the member
countries and sell energy at a
regional level, creating a market
with its own rules and institutions
independent of—and parallel to—
national markets.
A fully functional MER would
increase system reliability, reduce
reserve capacity and lead to optimal
use of the renewable sources that
currently constitute 61 percent of
the electricity generated for the
region’s transmission networks.
Moreover, according to the Consejo
de Electrificación para América
Central, operating costs could be
reduced by 4 percent, with the
potential 23 percent drop in average
generation costs likely to transfer
to customers. Interconnections
with Mexico (already operational)
and Colombia (expected to be
operational by 2014) would further
increase the benefits of a MER.
WOULD A REGIONAL
MARKET WORK?
Both the size of the market and the
availability of resources suggest
that MER could be a successful
integration experience. Although
the individual electricity markets
are not large, together the six
countries have an installed
generation capacity of more than
10,000 MW and annual energy
generation of nearly 40,000
gigawatt hours (GWh). Regional
electricity demand, on the other
hand, has also seen sustained
growth—posting an average annual
increase of approximately 4 percent
over the last decade.
On the resource front, Central
America has a large, untapped
potential for renewable power
generation. Most of it is
hydroelectric power, which is
estimated to have a potential of
25,000 MW, less than 20 percent
of which has been installed. And
looking ahead, renewables account
for more than 50 percent of
likely capacity additions in Costa
Rica, Guatemala, Nicaragua, and
Honduras.
Despite this potential, in recent
years the region has seen a steady
decline in the volume of electricity
trade. At the end of 2009, less than
1 percent of disposable energy
was traded among countries. The
reasons: restricted transmission
links and relatively minor gaps
between the supply and demand of
electricity in most countries. Here
is where SIEPAC and MER would
make the greatest difference.
Recent market performance also
reflects low generation capacity in
some of the national power systems.
Because of market segmentation,
producers have increasingly relied
on thermoelectrical generation
(power obtained mainly by burning
fossil fuels) with its share growing
from 30 percent in 1990 to 46
percent in 2008 at the expense of
more efficient hydro generation.
With a regional market, these short-term solutions to meeting the needs
of national energy markets would
optimally be replaced with a broader
vision and long-term strategy.
But challenges remain for a re-
gional power grid. Chief among
them will be exploiting the full po-
tential offered by the transmission
line and the now-integrated market
power demand. To attract more en-
ergy projects, the region must main-
tain its political commitment to the
integration process and the institu-
tions that oversee it. Most important,
electrical regulatory and supervi-
sory bodies must be strengthened,
especially their technical and legal
capacities, to guarantee the enforce-
ment of market rules and fairness in
market transactions.
Jorge Mercado is an energy
specialist at the Inter-American
Development Bank.
Mining
THE U.S. GETS TOUGH ON SAFETY
KRAY LUXBACHER
In 2010 the eyes of the world were drawn to the mining industry. On April 5, an explosion at the
Massey Energy Upper Big Branch
Mine in West Virginia resulted in
the deaths of 29 miners. Six months
later, on October 13, live TV cameras
captured the rescue of 33 miners in
Chile who were trapped for 69 days
in the San José copper-gold mine.
These incidents have again
raised the issue of mine safety.
In the U.S., the Upper Big
Branch Mine tragedy—although
still under investigation—
has already led to changes in
occupational health regulations
and safety policy for miners.
Immediately following the West
Virginia accident, the Mine Safety
and Health Administration (MSHA),
an agency of the U.S. Department
of Labor, beefed up its enforcement
arm. In response to criticism that it
