Panama is one of the the fastest growing and most dynamic economy in Latin America, with GDP growth of 6.0 percent in 2015 and estimated 6.3 percent in 2016. All of this growth has become a challenge for the energy sector by demanding more electricity and new energy sources.
Panama has traditionally relied mainly on hydroelectric production to meet its energy needs. However, during the last few years it has sought to change its energy mix due to the effect of climate change on its water reservoirs. Today, Panama's energy matrix is composed of hydropower (56.6%), thermal/oil (41.34%) and other sources (2.06%) including wind and solar.
Panama expects that its energy demand will grow at an average rate of 6% until 2030 according to a proposed 2016-30 expansion plan by state power transmission company Etesa. The plan projects that annual electricity use and load demand will grow around 6%, spurred by expansion of the likes of the Panama Canal, new airport operations and new potable water and sewerage system. Forecast demand scenarios include exchange with Central America power grid Siepac and a planned interconnection with Colombia helping position Panama as an energy hub for the Central American region.
In March 2016, the Panamanian government approved the National Energy Plan 2015-2050. This new plan proposes that by 2050, 70% of the energy matrix coming from renewal energy with emphasis in solar and wind power.
Currently, there is a planned investment of:
Construction of the 4th Transmission line with capacity of 1,280 (MW) by circuit of 500 KV with a length of 330 km. Incorporation of liquefied Natural Gas (LNG) energy generation plants. The Colombia-Panama interconnection line through an underwater cable with capacity of 400 megawatts ( MW ). Construction of the large Changuinola Dam II Update and expansion of transmission and distribution network. As part of Panama's strategy to diversify the country's energy matrix, in 2011, 2012 and 2013, the Panamanian Government enacted various statutes that set forth tax and other incentives for renewable sources of energy, such as wind-based, biomass, natural gas-based and solar-based power generation facilities.
An excerpt of the tax benefits that applies to each of type of energy source follows:
Gas Based Power Generation Facilities
Tax credit applicable to the income tax of a maximum of 5% of the total direct investment value for civil works that become infrastructure for public domain...