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Drilling Down on Geothermal Potential Central America

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Drilling Down on Geothermal Potential Central America ( drilling-down-geothermal-potential-central-america )

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El Salvador 118. El Salvador has a well-defined institutional structure that allows for a solid prioritization of power generation options via its power planning process. Power sector planning is the responsibility of the National Energy Council (Consejo Nacional de Energía—CNE), which is currently contracting the development of the plan. Whether CNE is up to the task of developing a well-structured plan remains to be seen. However, outsourcing the planning process is a step forward in countering the pervasive presence of the former national power company, CEL, which develops hydro resources; the new arrangement provides a more even-handed approach which favors other renewables, including geothermal. 119. On the regulatory front, El Salvador has an effective institution (SIGET), which has the capacity to ensure that purchase agreements with private distribution companies are conducive to minimizing operating costs. El Salvador’s wholesale market has recently migrated from a price- based short term auction to a cost-based scheme, which would assure that geothermal resources, if developed, would be base dispatched. 120. Despite the institutional constraints, La Geo is developing a geothermal inventory with its own financial resources and is expected to make requests of authorization for further exploration (drilling) and concessions based on its inventory assessment. 121. There is active private sector participation in power generation in El Salvador, primarily for thermal generation. In order to promote private participation in geothermal generation, the role of La Geo in developing geothermal prospects should be clarified. Specifically, is it financially viable for La Geo to continue to act as the sole developer or should the market be opened to other participants? This outstanding question will rely on whether La Geo’s strategic investor (ENEL of Italy) would be willing to invest resources for this purpose or whether the Government would be willing to capitalize exploration activities to reduce La Geo’s risk exposure. If both options were not possible La Geo would need additional capital for geothermal exploration; funding could be sought from private sector actors, either through joint ventures or through an auction process. La Geo has the expertise to conduct the required exploratory work and, subject to the above, would be best positioned to conduct a Master Plan. 122. In May 2011 the dispute between the Government and ENEL regarding its participation in LaGeo was settled in favor of ENEL, which will be allowed to capitalize the company and to own over 50 percent equity if necessary.26 This is a positive development which would indicate that LaGeo will continue to play the major role in the geothermal subsector of El Salvador. It is also illustrative of the risks and pitfalls which may be associated with public private partnerships and their resolution. Guatemala 123. Guatemala is well positioned to develop an inventory for renewable resources that includes hydro and geothermal resources. The generation division of the state power utility, INDE, has both a hydro and a geothermal department. The power sector planning division of the Ministry of Energy and Mines has integrated an inventory of hydroelectric sites and their 26 It should be noted, however, that despite winning an international arbitration in Paris, at the moment this study was being written, ENEL continued to be prevented from making necessary investments in LaGeo. 46

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