Firm Capacity in Central America: definitions and implications for Variable Renewable Energy

In 2015, IRENA developed The Clean Energy Corridor of Central America (CECCA). The initiative promotes the accelerated deployment and cross-border trade of renewable power in Central America, in the context of the regional electricity market and the regional transmission network (SIEPAC). CECCA is built around key pillars of implementation: power system operations and regulatory frameworks for increasing VRE shares; country and regional power system planning with renewables; zoning and renewable resource assessment; and capacity building and information dissemination.

Worldwide, Firm Capacity is a commercial attribute that allows generators to use it as a trade asset in an electricity market or offer it as guarantee to the system in exchange for a regulated payment; the signing of long-term contracts with distribution companies and large consumers is also an option for commercialisation.

Rising concerns for project developers and investors in the region relate to a quickly saturating power market, limited abilities to trade into the regional market, and Purchase Power Agreements (PPAs) for wind and solar PV that vary extensively from country to country depending on national circumstances and affecting their structure and scope.

In this context, the regulatory component of CECCA focuses on assessing solar and wind PPAs to ensure a leveled playing field for renewables vis-à-vis conventional generation, given that under current frameworks, there appears to be limited investment incentives for Variable Renewable Energy (VRE). To support this work, IRENA developed the guidebook Firm Capacity in Central America: definitions and implications for Variable Renewable Energy to provide an overview on the use of Firm Capacity across countries in the region and its use for contracting power generated by renewables.

IRENA hosted a virtual event on August 8 at 09:00 h (GMT -6) to present this report that explores the key factors that affect the estimation of a more equitable firm capacity valuation that truly represents the financial viability of VRE projects, along with compiling experiences and best practices from regional and international perspectives.