Power policy

Panama's National Energy Plan 2015-2050 included a target for 70% of installed generation capacity to come from renewable energy by 2050. The country’s efforts to promote renewables development include tax policies and duty exemptions, but it no longer holds tenders specifically for clean energy contracts. Following legislative changes, state-owned Electric Transmission Company (ETESA) announced in February 2018 that there will be no further tenders expressly to solicit bids from clean energy projects. Instead, all generation sources will compete for contracts. However, ETESA also said technologies will be evaluated based on their environmental attributes and associated costs.

Panama has had tax incentives for the construction, operation and maintenance of clean energy projects since 2004. Renewable generators up to 500 kilowatts are exempt from all taxes on imported equipment as well as value-added tax (VAT). For renewable generators up to 10 megawatts, an income tax credit of up to 25% of the project investment is provided. For generators of more than 10 megawatts, there is a fiscal benefit of 25% and an income tax credit of up to 50% of the project investment. The law also exempts transmission and distribution fees for smaller renewable energy projects up to 10 megawatts, while projects between 10 and 20 megawatts do not pay transmission or distribution fees for the first 10 megawatts for 10 years.

Further incentives for specific technologies are also available. For example, solar PV equipment is exempt from import tax and VAT, and qualifies for a tax credit of up to 5% for income tax and accelerated depreciation. Further, equipment, materials and spare parts for wind generation plants are exempt from all international duties, fees, VAT and import tax. Wind project owners are also exempt from national taxes for 15 years.

A net metering policy was instated in 2016, creating the rules to set up self-generation facilities and allowing connection to the distribution grid and the sale of surplus power. Credits are accumulated in kilowatt-hours up to a limit of 25% of annual or semiannual historic consumption, which is refunded to a customer’s electricity account.

Power prices and costs

Panama’s system operator ETESA sets the minimum and maximum tariff prices, and the transmission and distribution companies present their plans and tariff boards to ETESA for approval.

The government traditionally only subsidizes fuel if it is used for public transportation or cooking. There are several laws regarding types of electricity price subsidies, mostly focused on the population with a lower electricity monthly intake, farmers, and the retired and elder population. In 2021, Panama launched a Covid-19 energy subsidy covering 92% of customers consuming up to 750 kilowatt-hours. The subsidy varies based on consumption.

Power prices rose across all of Panama’s customer segments from 2016 to 2019 before dropping across the board in 2020. However, in 2021, changes in prices varied across segments. Commercial power prices dropped from $195 to $177 per megawatt-hour, industrial prices fell from $126 to $153 per megawatt-hour, and wholesale prices rose from $48 to $71 per megawatt-hour. Residential prices fell slightly from $186 in 2020 to $177 per megawatt-hour in 2021.

Power market

Most of Panama’s electricity generation comes from hydropower or the burning of fossil fuels. The country had 3.85 gigawatts of installed generating capacity in 2021, with large hydro and oil serving as the main sources.

Renewables excluding large hydro accounted for 1,076 megawatts in 2021. Solar and wind installed capacity jumped from virtually nothing in 2013 to 716 megawatts in 2021.

Panama’s power market was unbundled in 1997, with generation and distribution opened to private operators. Clean energy projects with installed capacities up to 10 megawatts can enter into direct power purchase agreements with the distribution utility as long as power sold does not exceed 15% of the distribution company’s maximum demand.

Panama is part of the Central American Electrical Interconnected System (SIEPAC) and is connected to Costa Rica via 150 kilometers of transmission lines.

Doing business and barriers

Under Panama’s Energy Plan 2015-2050, the government is aiming for 100% of the population to have access to electricity by 2024. The national electrification rate was just under 96% in 2019.

There are few formal barriers to renewables development in Panama, and the business environment is generally positive. While hydro still represents the largest single source of clean power, solar and wind have been increasing their shares since 2014. However, tenders are no longer held by generation technology.

The Central American Bank for Economic Integration (CABEI) is running a partial credit guarantee scheme for small scale renewable energy projects under 10 megawatts, known as Accelerating Renewable Energy Investments in Central America and Panama (ARECA).

EV market

Panama’s electric vehicle (EV) market is still premature. EVs represent less than 1% of the country’s total passenger vehicle sales; however, in the last three years, sales have grown by an average of 90%. In 2020, Panama’s EV fleet comprised 120 battery EVs (BEVs) and 218 plug-in hybrid EVs (PHEVs).

EV policy

Panama passed an electric mobility law in 2022. It states that starting in 2025 at least 10% of publicly owned vehicles need to be BEVs, with the percentage increasing to 25% by 2027 and 40% by 2030. For mass transit, BEVs should make up 10% of the fleet by 2025, 20% by 2027, and 33% by 2030. Purchase incentives include a five-year waiver for license plate costs.

Buildings market

Panama does not have any energy efficiency or buildings policies in place.

Buildings policy

The government has yet to implement any substantive policy support in this sector.