Panama Energy Sector – Overview Of Incentives

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, like highways, road, bridges, sewage systems, schools, health centers and other of similar nature, previous to an evaluation by the Public Entity that receives the corresponding work, in coordination with the Ministry of Economy and Finance. The referred credit cannot be subject of compensation, cession or transfer.
• Exoneration of customs duties that could be caused due to the importation of equipment, machinery, materials, spare parts and others necessary for the construction, operation and maintenance of the plants.
• Right to use an accelerated amortization method to depreciate fixed assets.
• The exemption of all national taxes, for a period of 20 years, for companies dedicated to the manufacturing of natural gas generation equipment within Panama. Equipment includes mechanical, electronic, electromechanical, metallurgical and electrical type of equipment.

Wind 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, like highways, road, bridges, sewage systems, schools, health centers and other of similar nature, previous to an evaluation by the Public Entity that receives the corresponding work, in coordination with the Ministry of Economy and Finance. The referred credit cannot be subject of compensation, cession or transfer.
• Exemption of all taxes pertaining to the importation (which includes customs duties, introductions fees and VAT) of equipment and materials for the construction, operation and maintenance of wind powered generation plans. The exemption applies also to any natural or legal persons who import equipment for the construction, operation and maintenance of wind-powered generation plants with the purpose of promoting and selling this type of equipment.
• The application of the accelerated depreciation method for equipment used for wind-powered generation.
• The exemption of all national taxes, for a period of 15 years, for companies dedicated to the manufacturing and installation of wind-powered generation equipment within Panama.

Biomass Power Generation Facilities (Applicable for a period of 10 years) 

• Full income tax exemption.
• Payment exemption of commercial or industrial license tax.
• Exemption on taxes, fees, contributions or any other municipal charges.
• Exemption from VAT on importation.
• Full exemption of custom duties, applicable to equipment and materials used for the development of the power generation project

Solar-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, like highways, road, bridges, sewage systems, schools, health centres and other of similar nature, previous to an evaluation by the Public Entity that receives the corresponding work, in coordination with the Ministry of Economy and Finance. The referred credit cannot be subject of compensation, cession or transfer.
• Exemption of all taxes pertaining to the importation (which includes customs duties, introductions fees and VAT for specific items) of equipment and materials for the construction, operation and maintenance of solar-based generation plans.The application of the accelerated amortisation method to depreciate fixed assets.

In addition to the tax incentives previously mentioned, there are additional tax benefits that applies to other renewable power projects, such as mini and small hydro generation facilities.

Progress of green energy corridor very different on paper and on ground: Mercom Capital

My View:

The Government should take necessary step to promote green corridor. It will help to reduce transmission losses and improve the quality of power if renewable power travels through green corridor. There are various Power transmission companies which will be interested to invest in green corridor if the tenders come out in faster pace and the policies become more business friendly.


News:
The critical green energy corridor, which is important to evacuate renewable energy, is still far from reality and solar power project developers believe the current grid infrastructure is inadequate to handle the increased capacity, solar sector research firm Mercom Capital today said in a report.

“For a project that has already had its share of delays and is being touted as the cure-all for grid issues, the renewable energy sector is skeptical if it will get done in time to make an impact,” Mercom said.

The solar power sector is expected to add close to 9 Gigawatt capacity in 2017 as against 4 GW added in 2016 and this more than double capacity addition would require a better transmission infrastructure.

“The infrastructural development under the green energy corridor is slow; it is not at par with the pace of tenders coming out. Over the next three quarters, solar projects of approximately 9 GW are expected to be commissioned, but the grid is not ready to handle the power produced. The progress of green energy corridor on paper and on the ground is very different,” the report said.

Mercom said the government should provide compensation for projects on standby after they have been commissioned or developers will pay the price.

The project is under implementation in Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, and Tamil Nadu. Once complete, the green energy corridor is expected to facilitate evacuation from solar parks and large-scale grid-connected solar and wind projects.

The report further said solar project developers across the country are struggling with evacuation and transmission issues which account for huge losses and contributes to increased project costs.




“Developers are concerned about solar park integration into the grid as the evacuation system and infrastructure is not yet ready. Due to inadequate transmission lines and grid infrastructure, planning for the next batch of auctions has yet to begin and developers don’t know where these projects will be located,” the report said.

It added that according to some developers, tenders are released in some states without consulting the state electricity regulatory commissions. When power purchase agreements go to regulatory commissions for approval they are getting held up because the SERC is citing a lack of transmission infrastructure.

The Power Grid Corporation of India is developing the inter-state transmission corridor and the state transmission utilities are responsible for setting up and strengthening the intra-state transmission infrastructure. The MNRE will be providing 40 per cent of project costs in the form of a grant. The PGCIL has estimated that the cost to develop the corridor comes to Rs 380 billion.

The green energy corridor is expected to boost the inter-state sale of renewable energy, and coupled with the waiver of Inter State Transmission System charges, renewable energy costs are forecast to come down enough to help states fulfill their renewable purchase obligations and meet energy demand.

The corridor is expected to address certain limitations of renewable energy like intermittency and variation in power quality. Under the project, renewable energy management centres are being set up to predict renewable power generation and demand. These centres will also be interconnected with load dispatch centers to gather real-time information, as well as monitor and control capacity addition, according to CEA.

The GEC is also expected to address the curtailment of renewable energy in the future, Mercom Capital said.

RInfra exits IEX, sells 4% stake for Rs 103 cr to an FPI

My View:

IEX being No. 1 power exchange in India provides competitive price of electricity. Rinfra sold it's stake in IEX by 10 times higher than the purchase price. IEX has evolved the Power Market and now contributes almost 9%. Rinfra on other side sold its stake to reduce its debt burden.




News:
Reliance Infrastructure has sold its entire 4.12 % stake in India Energy Exchange (IEX) for Rs 103 crore, about 10 times higher than the purchase value, to a foreign portfolio investor, sources said.

IEX is the country's largest power exchange. This comes after Jindal Steel & Power sold 4.12 % in IEX to Motilal Oswal PE in March and global investment firm Bessemer selling its stake in two separate deals, to TVS Capital and the Dalmia group.

IEX has nine % of the total power market and R-Infra was a primary investor. It bought the 4.12 % stake in 2007 for Rs 1.25 crore.

It had said discussions were in an advanced stage to monetise its entire road portfolio.

The company is reportedly in talks with Canada-based Brookfield Asset Management to sell its entire portfolio in that segment. This is part of the company's strategy to restructure its heavy debt by exiting from capital-intensive businesses.

R-Infra is also present across the value chain of power businesses i.e. generation, transmission, distribution and power trading. It also provides engineering, procurement and construction services for developing power and road projects.

It reported a 33.8 % rise in consolidated net profit at Rs 570 crore for the quarter ended September, from one of Rs 426 crore in the same period a year before.

The company is targeting projects worth Rs 2 lakh crore planned by the government across infra segments, it had earlier said.

R-Infra's Mumbai Metro (Rail) earned a revenue of Rs 61 crore in the September quarter, an increase of 13 % over the same period a year before.

Haryana discom reports Rs201 crore profit in first half of 2016

My View:

It can be said that this is the result which Power ministry was expecting from UDAY scheme. Dakshin Haryana Bijli Vitaran Nigam Ltd has done significant work to come out of loss making DISCOM to profitable DISCOM. However the Uttar Haryana Bijli Vitaran Nigam Ltd has been incurring losses. Lets see whether the states which have accepted UDAY can bring some good news like this in future.




News:

One of the two state-owned power distribution companies in Haryana, Dakshin Haryana Bijli Vitaran Nigam Ltd, has become the first power utility to turn around under rescue scheme Ujjwal Discom Assurance Yojna (UDAY), rolled out in November 2015, raising hopes that fortunes of the entire electricity value chain including of coal mining and power generation will benefit from better electricity demand in coming days.

An analysis of the financial health of the utility released by the power ministry on Thursday said the company has reported “remarkable achievement of turnaround” from a loss of Rs479 crore in 2015-16 to a profit of Rs201.35 crore in the first half of 2016-17.

Turnaround of distressed state power distribution firms is crucial for the health of other segments of the electricity value chain which depends on power offtake. Better power demand from distribution firms will help generation companies, especially thermal power plants, to step up their capacity utilisation which is currently at about 60%. Coal demand, too has been sluggish in the past as loss making distribution firms were not able to cater to the actual energy demand.

Monthly coal production recovered from a contraction and grew for the first time in three months in November, indicating improving power demand during winter.

As per data from state-owned monopoly Coal India Ltd (CIL), monthly production grew 5.3% to 50 million tonnes in November from a year ago, after a bearish trend in mining since August when output had shrunk by 10%.

The power ministry analysis said that the Haryana utility still has to improve upon its performance in meeting the target of lowering losses on account of billing inefficiency and power theft.

The UDAY scheme rolled out last November gave performance and efficiency improvement targets to loss making utilities in order to narrow their gap between cost of power supply and the price realised from consumers. Their accumulated debt up to September 2015 was allowed to be taken over by respective state governments to make available low cost credit.

Haryana’s second distribution firm, Uttar Haryana Bijli Vitaran Nigam Ltd, however, continued to make losses in the first half of this year. It reported a loss of Rs1,233 crore in the first half against the loss of Rs336 crore in the full year of 2015-16, said the analysis.

Procuring wind energy through bids a positive for sector:ICRA

My View:

With the procurement of wind power through auction route will help the developer to get the offtakers.

The proper implementation of UDAY will help to get the timely payment from the DISCOM to wind developers.

If the auction goes well,it will help to achieve the target of wind power of 60 GW by 2022.



News:

The scheme for procurement of wind energy through auction is a positive for the sector but receivables (payment delays by discoms) remain an area of concern, says ICRA.

"In ICRA s view, continuing delays in the payments by the state-owned distribution utilities (discoms) in key states such as Maharashtra and Rajasthan pose a challenge for the wind energy sector, although some improvement has been seen lately," ICRA said in a statement.

On the positive side, however, ICRA believes that the MNRE scheme for procurement of 1 GW through the auction route would facilitate the offtake for wind energy players, it added.

ICRA Ratings Senior VP Sabyasachi Majumdar, said in the statement, "While there has been some improvement in payment pattern by utilities in Rajasthan, with the implementation of UDAY (Ujwal Discom Assurance Yojana) as well as by the utility in Maharashtra in the last three month, a build-up in receivable position is seen, which varies from 8 to 12 months as on November 2016 and thus remains quite significant.

In addition to payment delays by state utilities, wind energy projects remain vulnerable to the risk of non-signing of power purchase agreements (PPAs) by the utilities as seen in Maharashtra and forced back down by utilities in Rajasthan and Tamil Nadu."

Further, implementation of forecasting and scheduling framework, as approved by State Electricity Regulatory Commission (SERC) in Karnataka and in other states where draft regulations are in place, poses regulatory challenges for the sector, given the variable and intermittent nature of wind power generation and limited experience available with IPPs in forecasting and scheduling as of now, the statement said.

Also, the sector continues to face challenges due to the limited compliance of renewable purchase obligation (RPO) norms by the obligated entities as well as the variance in RPO norms across the states, it added.

Notwithstanding these near-term challenges, the long-term demand potential for wind power remains strong, given the large untapped potential, fairly attractive feed-in tariffs and relatively lower execution risks.

ICRA notes that the incremental wind-based energy capacity requirement by FY2022 is estimated at about 46 GW as against the current installed capacity of 28.1 GW.

This is assuming annual energy demand growth of 6 per cent, non-solar RPO at 12.5 per cent by FY2022 and wind as a renewable energy (RE) resource contributing to a dominant share (75%) in meeting the non-solar RPO requirement on an all India basis, it said.

"ICRA further favourably notes that the scheme for award of 1 GW through the auction route by the Ministry of New and Renewable Energy (MNRE) would facilitate the consumption of wind-based generation by distribution utilities in states with limited wind energy resources.

"This, apart from reducing the offtake risks for wind energy players, would enable the distribution utilities in such states to honour their non-solar RPO requirement to some extent , Majumdar added.