Mobilizing renewable energy investment
drives down Central American emissions

A US$ 7 million GEF grant is helping mobilize more than US$ 80 million in cofinance investment for a project that could contribute to Central America’s economic development, while at the same time reducing the region’s CO2 emissions by an estimated 172,000 tons per year. The five-year project, implemented by UNDP, is designed to promote investment in electricity generation from renewable energy which can be connected to the conventional electric distribution grid.

The project, which began this year, will work through the Central American Bank for Economic Integration (CABEI) to remove financial barriers that currently impede the large-scale development of renewable energy projects. Small-scale renewable energy lending strategies will be introduced at the bank, including a pro-active small-scale renewable energy pipeline in its lending portfolio.

Accelerating Renewable Energy Investments through CABEI in Central America has been designed to support between 12 and 20 renewable energy demonstration projects in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama and Belise. Projects will represent the various different renewable energy technologies (such as mini-hydroelectric and biomass) available and suitable for use in the region.

Central America’s annual energy demand is expected to increase by about to 6 percent over the next five years requiring an estimated US$ 7 billion of investment. Although hydroelectric power has historically dominated Central America's electricity sector, privatization of the energy market and increasing demand has led to substantial investment in thermal (mainly oil) generation plants over the past two decades. The amount of electricity generated by hydropower has fallen from 80 percent in 1980 to approximately 53 percent in 2000, while fossil fuel generation has risen to 43 percent.

The region has abundant and diversified natural and renewable resources (hydroelectric, wind, geothermal, biomass) these only account for four percent of Central America’s current generated capacity. Private sector participation in the renewable energy sector has so far been modest, especially for small projects, and, although CABEI has financed many large-scale, a few medium and small size renewable energy projects, the bank has not so far been directly engaged in the financing of the types of micro projects being conduced under this project.

Although CABEI has previously only acted as a financier, under the project, the bank will now take a more pro-active role in project identification, formulation, appraisal and preparation as well as offering tailor-made financial products to accelerate future investment in smaller projects.

CABEI’s mission is to promote the progress and integration of the Central American region, to encourage equitable economic growth while respecting environmental concerns. It supports public and private projects that generate jobs and raise human development indicators, as well as contributing to the productivity and competitiveness of beneficiary countries.