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Central American economies are energy intensive and its electricity demand is expected to grow fast in the mid-term. The power sector in CA has been struggling to meet this growing demand, which is mainly being supplied by polluting thermal generation (imported diesel and HFO) and hydropower. This situation has resulted in a highly exposure to oil prices volatility, droughts and ultimately, an increasing cost of energy. In addition, Central America is the second most vulnerable region to the effects of climate change, only after Southeast Asia*. In this context, diversifying the energy matrix by increasing the use of indigenous Renewable Energy sources (RE) is key for a sustainable development, but power systems are not prepared for this challenge yet.

The World Bank, in collaboration with ESMAP and other donors, is supporting Central American countries to progressively increase the share of indigenous Variable Renewable Energy (VRE) sources in the generation matrix, by smoothing the integration of these technologies in the broader power sector. A larger share of indigenous RE in the energy matrix will improve the energy security of supply (reducing the exposure to Oil price volatility and droughts), limit Green House Gases (GHG) emissions in line with committed NDCs at COP21 and contribute to reduce the cost of energy in the region.