julio 28, 2023

Quenching Ecuador’s Electricity Thirst

by: Carlos Espinosa Gallegos-Anda

Ecuador’s plentiful endowment of natural resources includes sources of energy such as year-long 12-hour days, vast river ways ideal for hydroelectric projects, geothermal pockets, wind corridors, and of course, oil.

Historically dependent on crude exports and refined fuel imports, Ecuador’s increasing thirst for energy faces daunting perils as commodity prices rise, inflationary exposure reduces financing and pursuant fiscal policies limit government expenditure.

Since 2010, Ecuador crafted an energy policy that benefitted large-scale hydroelectric projects such as Coca Codo Sinclair, inaugurated in 2016 with a nominal capacity of 1500 MW. Until very recently, normative and policy restrictions generated a “crowding out” effect that halted or delayed deployment of solar and wind projects.

Structural, policy and market conditions have only recently converged in favour of large-scale renewable energy projects. For example, on 19 May 2022, the Green Climate Fund approved financing for a solar energy project in the Galapagos Islands as part of a larger USD $ 117.6 climate finance bestowed to Ecuador and administered by CAF.

In late 2022, a Public Tender seeking private investors for the “Renewable Energy 500 MW Block” gathered domestic and international interest. The tender sought private participation for the provision of electricity from hydroelectric, wind, solar or biomass technologies. Successful bidders are currently negotiating their respective concession contracts and Power Purchase Agreements.

Welcomed legislative reforms between 2022 and 2023, improved conditions for private sector participation in Ecuador’s energy market. Establishment of a preferential tariff (Feed-in-Tariff) of USD $ 0.0535 cents per kilowatt / hour for Non-conventional Renewable Energy projects, highlights this trend. Energy policy reforms in recent years has, overall, improved conditions for private renewable energy projects.

Policy reforms that may proof useful, as the meteorological conditions predicted for the “El Niño” phenomenon, will prove to be an “acid test” to Ecuador’s energy infrastructure. Estimated to commence sometime during the last quarter of 2023, collateral consequences from “El Niño” include flooding, drought, and rising sea temperatures. In comparative terms, the 1997 sequels from the El Niño resulted in a 3% loss of GDP.

Ecuador has of course, improved the country’s infrastructure and energy grid since 1997.  However, the convergence of worsening weather conditions, menacing operational problems at large-scale hydropower plants, rising oil prices, and needed infrastructure for energy transmission will (most-likely) result in energy price spikes.

Despite the challenging conditions facing Ecuador’s electricity market, the existing regulatory and policy framework holds considerable advantageous for private sector investment. This of course, is in addition to the price signalling caused by foreseeable hikes in energy costs as 2023 wraps up.

Under the current conditions, Ecuador’s key export industries must limit their exposure to energy price fluctuations. Local industries supplying Ecuador’s domestic market will face the same challenges. Private investment in renewable energy projects, under current policy frameworks, may also benefit from attractive tax incentives. As any market, domestic and international conditions define investment opportunities, as such, private endeavours in renewable energies are expected to thrive in Ecuador’s (current) “niche market” conditions.

Carlos Espinosa Gallegos-Anda oversees Apolo’s renewable energy projects. His experience includes public appointments such as Undersecretary for Climate Change, Undersecretary General for Anti-Corruption, country advisor for Ecuador before the Green Climate Fund and National Designated Authority before the Adaptation Fund. Carlos holds a PhD in Politics and International Relations and an LLM on Renewable Energy Projects and Law.