GUATEMALA: An Introduction to Energy & Natural Resources

The Guatemalan electricity market has evolved significantly since its beginnings in the 1880s, with the current regime dating from the enactment of the General Electricity Act of 1996. That Act, and the institutions and regulations derived therefrom, was a fundamental milestone, replacing the country’s mainly state-centred system that had proved insufficient to keep up with the needs of a growing country.

The new legal framework allowed the private sector to take part in the generation, transportation, distribution and commercialisation of electric energy and power, within a system seeking to favour free competition and economic efficiency in relation to the provision of different services and the design of relevant infrastructure. In addition, the Act also requires that all distribution companies purchase energy and power through mandatory bidding processes, encouraging competition for low prices and sector efficiency.

The Act also created a regulator, the National Electric Energy Commission (CNEE), acting as an independent technical office of the Ministry of Energy and Mining (MEM) in charge of sector oversight, approving fees for regulated transmission and distribution activities, dispute resolution among subsector agents and enactment of technical regulations and rules to guarantee the grid’s safety and service and product quality. Another new institution created by the Act was the Wholesale Market Administration (Administrador del Mercado Mayorista; AMM; the operator), a private non-profit entity in charge of the dispatch and co-ordination of commercial operations and transactions in a free-contract framework, the setting of short-term market prices for power and energy transfers outside of long-term free contracts and guaranteeing the safety and supply of electricity.

The CNEE and AMM have been able to act under their legal mandate, avoiding the pitfalls of undue political influence. This has permitted successful development of the electric sector in Guatemala, serving as a case worthy of study and imitation. This success was also achieved by privatising – through an international bidding process – the three main distributors through an international bidding process, namely EEGSA, DEOCSA and DEORSA, which were acquired by the Spanish conglomerates Iberdrola and Unión Fenosa.

The sale of DEORSA and DEOCSA was conditioned to the construction of new transmission and distribution infrastructure, as detailed by the Guatemalan government in their rural electrification programme (PER) designed to increase electricity coverage. At the time, coverage was around 50%.

The proceeds of the sale were placed in trust to finance and manage the construction and funding of the new infrastructure. When the trust ended, electricity coverage had reached 92%, with 41 new substations, 1,175.5 km of new transmission lines and around 266,415 new end users, all constructed/achieved by the newly acquired distributors DEORSA and DEOCSA under government supervision. PER is one of the most successful examples in the world of extending electricity coverage to isolated areas through network expansion.

The mandatory bidding for energy purchases and privatisation of distribution brought about a transformation through investments in power generation plants and the grid in general, leading to regular investments in Guatemala.

Among the various factors at play in the Guatemalan electric sector, the following are of vital importance.

• The privatisation of distributors: As mentioned in the foregoing, privatisation and PER changed the country’s overall electric energy sector.
• Private investment in generation: By allowing the private sector to invest in electricity generation, and through government leadership aimed at modifying the energy matrix, Guatemala has transitioned from a predominantly fossil fuel-based matrix to one made up mostly of renewable energy. Since 1996, private investment in the subsector has exceeded USD10 billion, with a specific focus on renewable energy. By the end of 2024, the installed power was 48.10% hydroelectric, 0.66% natural gas, 3.47% wind, 1.34% solar, 2.24% geothermic and 27.71% biomass, with a total of 83.53% renewable energy being reported by the regulator. Local and foreign investment in the Guatemalan electricity sector has not only allowed national demand to be met but also the export of energy.
• Generation expansion plan (plan de expansión de generación; PEG) tender procedures: PEG has been implemented by Energuate (DEOCSA and DEORSA) and EEGSA through four tender processes seeking long-term contracts for new power generation plants, emphasising renewable energy. In 2023, the fourth tender (PEG-4) resulted in the award of 16 contracts to 15 companies to provide distributors for Energuate (DEOCSA and DEORSA) and EEGSA for 15 years, starting in 2026 and 2028, with around USD400 million of investment in new and existing plants. New projects will use hydroelectric, solar, wind and natural gas power.

Demand for electricity in Guatemala continues to increase by an average of 3% each year, so further investments will always be necessary. The PEG-5 tender process, expected to launch in the second quarter of 2025, aims to achieve an electricity supply of around 1,400 megawatts. The bidding processes allow for a 15-year power purchase agreement for new renewable power plants, granting an additional term of up to 5 years for plant construction. New and existing plants are also allowed to bid, including those using renewable and non-renewable energy sources. The benefits of PEG implementation, including job creation, extend to the entire energy sector, and to related activities such as construction, operation and maintenance and project finance, among others.

Besides the main rules contained in laws such as the General Electricity Act of 1996 and the Environmental Protection and Improvement Act of 1986, Guatemala has other important legislation in the energy and natural resources sector, including the Framework Climate Change Act of 2013, the Incentives for Development of Renewable Energy Projects Act of 2003, and the more recent Incentives to Electric Mobility Act of 2022.

The Framework Climate Change Act of 2013 emphasises the use of renewable natural resources. This theme has been developed through the country's Energy Policy 2019-2050 and the National Energy Plan 2018-2032, which seek to diversify the energy matrix and promote the financing of renewable energy and energy efficiency projects. Furthermore, expansion of the generation system through increasing production, storage and supply capacity is a component of energy security and resiliency. In addition, the Incentives for Development of Renewable Energy Projects Act of 2003 grants tax benefits to renewable energy generation plants, such as full exemption from customs duties when importing equipment for construction and complete VAT and income tax exemption for ten years when in operation.

The Guatemalan electric sector, including its authorities, private investors, generators, distributors and other participants, has been at the forefront of projects that have greatly increased the coverage of services, diversified the national energy matrix and bolstered investment in renewable sources of energy. The recent success of PEG-4 tenders and the upcoming PEG-5 tenders are a sure sign that this sector will continue to drive growth, investment and job creation in the near future.

Last but not least, it should be noted that, in 1997, the governments of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama signed a framework treaty for the creation of a regional electrical market (mercado eléctrico regional; MER). MER was designed to be a seventh wholesale market, overlapping with those of the member states but having its own regional regulations. It includes a Regional Electrical Interconnection Commission (CRIE; the regulator) based in Guatemala City, which is responsible for regulating transactions within MER by agents connected to the regional transmission grid (RTR), and a regional operating entity (EOR; the operator) based in San Salvador responsible for dispatch and energy exchange between MER members, acting as the administrator of the regional market.