Geothermal Energy in Central America

Under the Volcano

By Jacques E. C. Hymans

                               Nicaragua: Masaya Volcano in Nicaragua.

When we think about global technology leaders, Central America does not typically come to mind. But Central American countries have indeed been in the vanguard in their use of geothermal energy: an abundant, constant, efficient, renewable and low-carbon source of electric power. 

Twenty-four percent of El Salvador’s electricity comes from geothermal. That figure places it second out of all countries in the world in its level of reliance on this power source. (Iceland is tops.) Meanwhile, fifteen percent of Costa Rica’s electricity comes from geothermal, as does ten percent of Nicaragua’s and five percent of Guatemala’s. Compare those numbers with the worldwide figure of 0.3 percent. The basic reason for Central America’s geothermal energy riches can be summed up in one word: volcanoes.

Volcanos in Guatemala. Photo by Carlos Sebastían. 

Even more impressive is the amount of geothermal energy that Central Americans have under foot, but so far failed to exploit. World Bank reports indicate that the countries of the region may have up to 25 times more geothermal energy than they are currently using, and that geothermal power alone could cost-effectively satisfy their entire electricity demand. 

Yet the Central Americans have added only a relatively small amount of additional geothermal plant capacity since returning to peace and democratic governance after the end of the Cold War. The region’s geothermal production did increase approximately fivefold between 1990 and 2012—from 747 to 3,542 gigawatt-hours per year (GWh/y). But during the same time span, electricity generated from imported diesel fuel exploded from a mere 16 to 12,345 GWh/y. Overall, imported fossil fuels accounted for only ten percent of the region’s electricity generation in 1990, but today they account for over forty percent. The region’s marked shift away from renewables such as geothermal and hydroelectric power since the 1990s is highly problematic from both environmental and economic viewpoints. When oil prices spiked in the mid-2000s, the newly fuel import-dependent Central American countries faced financial shortfalls as high as three percent of GDP. 

The 1990s Washington Consensus liberalization of energy markets was a main cause of Central America’s increased dependence on fossil fuels, to the detriment of domestic renewables such as geothermal. In the Central American context, geothermal energy is very economically competitive in the long run, but profit-seeking companies are deterred by its high up-front costs and long lead times before any return on investment. Therefore they prefer to build standard thermal power plants instead. 

The Central American countries certainly did not forget about their geothermal riches after the 1990s. Guatemala, Honduras and Nicaragua tried to use exploration concessions to entice foreign companies to develop the geothermal sector, but this proved insufficient to promote significant new investment. El Salvador pursued a public-private geothermal partnership with the Italian multinational ENEL Green Power, but the company showed a strong preference for generating sure profits from existing plants over investing in green-field development, and the two sides ended up in an epic, eight-year-long legal and political battle that is only now coming to an end with ENEL’s decision to sell out and depart from the country. The only truly bright spot for geothermal—and for renewables more generally—has been Costa Rica, whose decision to defy the Washington Consensus and keep the Instituto Costarricense de Electricidad in government hands paved the way for longer-term thinking about how best to satisfy the country’s energy requirements.

Nevertheless, there is considerable momentum today for further development of the geothermal sector in Central America. The main impetus is coming from a country that sits on the other side of the “ring of fire”: Japan. Japanese companies have dominated the global geothermal plant equipment market for decades, in part thanks to strategically placed foreign aid offered by the Japanese government. Now Japan is redoubling its efforts to promote the sector worldwide. In August 2014, the Japan International Cooperation Agency extended a $550 million low-interest loan to Costa Rica to support the construction of three new geothermal power plants, which are expected to nearly double the country’s geothermal production when they go into operation around 2020. The Japanese are also providing major support for a Latin America-wide geothermal development initiative that was initially proposed by climate-conscious Germany. 

The irony is that Japan has been slow to exploit its own massive domestic geothermal potential and has barely added any plant capacity since the 1990s. Stymied at home, Japanese geothermal plant builders convinced the government to support them abroad. But today, with Japan facing persistent energy woes following the Fukushima nuclear disaster, many industry analysts are expecting a geothermal renaissance inside Japan. If that renaissance does indeed come to pass, will the Japanese still remember their plans for Central America?         

Jacques E. C. Hymans is an associate professor of international relations at the University of Southern California. His most recent book is Achieving Nuclear Ambitions: Scientists, Politicians, and Proliferation (Cambridge University Press, 2012).

See also: Energy