# Integrated Country ApproachPanama

Panama is endowed with phenomenal RE resources, which it managed to harness thanks to a series of measures enhancing its attractiveness for investment. Since 2004, various policy and regulatory measures have positioned the country as a destination of choice for clean energy finance. In spite of a growing demand for electricity – linked to population and economic growth – Panama is also one of few countries in the world known as carbon negative, notably due to its large forest coverage and the low carbon intensity of its energy system.

[Navigate to Source](https://www.energia.gob.pa/)


## Planning and governance

Panama's electricity sector evolved from a rudimentary generation and distribution system in 1890, to a modern, liberalized and regulated market today.In 1961, the Government of Panama created the Instituto de Recursos Hidráulicos y Electrificación (IRHE), a state entity centralizing the management of electricity generation, transmission and distribution. This marked a turning point in the country’s power system history which paved the way to improved coverage and electrification. The country’s largest hydroelectric plants were subsequently developed in 1976 (Bayano) and 1984 (Fortuna).Law 6 of 1997 later on liberalized and restructured the electricity sector. The IRHE was dismantled as a public institution and the system was divided into three segments: generation, transmission and distribution. The Empresa de Transmisión Eléctrica S.A. (ETESA) would be in charge of transmission, while private companies took over generation and distribution, under a regulated and liberalized market model which was essential in attracting private sector investments.Panama entered the new millennium positioning itself as a leader in hydroelectric generation in the region and in recent decades, has further integrated renewable sources such as wind and solar.


## Public policy incentives

Panama’s Nationally Determined Contribution (NDC1) includes post-2020 commitments in the Energy and Land Use and Forestry sectors. The Energy sector’s contribution to climate change mitigation is embodied in the 2050 target of 30% of installed capacity coming from new renewable energy sources. This overarching target is a strong signal to clean energy investors.

Panama has put in place various incentives designed to increase RE investment attractivity, and guarantee universal energy access.Equipment and materials necessary for wind installations are exempt from import taxes, while wind project developers enjoy tax incentives.Likewise, tax and tariff incentives are established for solar photovoltaic projects equipment, while solar projects benefit from income tax exemption during the first 10 years of operation.Small hydroelectric plants are offered tax benefits and simplified access to the electricity market.Panama also encourages the participation of small-scale independent power producers (IPPs) by allowing the installation of generation systems for self-consumption as well as selling back surpluses to the electricity grid.The country seeks to reduce energy consumption by implementing policies that promote efficient energy use through tax incentives for energy-efficient projects and technologies, by promoting energy labelling for appliances and equipment, and through technical training on energy efficiency. Customers with consumption of less than 300 kWh are eligible to receive a subsidy as part of the Tariff Stabilization Fund (FET). Panama also developed tariff schedules with hourly rates for all end-customers who wish to use them.  The government has implemented specific programs to guarantee access to electricity in rural communities and hard-to-reach areas. The Rural Electrification Fund (FER) finances projects bringing electricity to rural communities through conventional and renewable systems in areas not connected to the national grid.The use of electric vehicles (EVs) is encouraged through tax exemptions for EVs imports and the exemption from road tax.


## Regional integration

Panama is a key player in the Electrical Interconnection System of Central American Countries (SIEPAC), which allows the exchange of electricity between countries in the region. Through SIEPAC, countries promote the integration and trade of regional electricity and receive benefits from energy exchange by exporting/importing electricity at competitive prices. This enhances countries’ energy security and the diversification of electricity sources while reducing costs and improving the overall investment case in generation projects.Panama is also resuming talks with the Colombian government for the electrical interconnection between the two countries. A 500-km transmission system project, with a capacity of 400 MW, would require USD 600 million of investments. It would enable energy exchange, reduce carbon emissions and strengthen the energy resilience of Central and South America.


## Impact/Outcomes

Renewable energy now makes most of Panama’s energy matrix, with 59.69% of hydroelectric generation, 12.92% of wind and solar, 17.13% of natural gas and the remaining 9.83% corresponding to traditional thermal sources.From 2020 to 2023 only, solar generation capacity tripled.Between 1999 and 2023, USD ~10.2 billion flowed into the electricity sector.Between 2022 and 2024, there was a reduction of 1,913 Mt in CO2 emissions coming from the energy sector, effectively demonstrating success in the Panamanian approach to attracting clean energy investments.


## Additional Sources

National
Energy Secretariat: https://www.energia.gob.pa/Law
6 of February 3, 1997: https://www.asep.gob.pa/wp-content/uploads/COVER_2018/Comision_Sustanciadora/Ley_No_6.pdfLaw
45 of August 4, 2004: https://www.asep.gob.pa/wp-content/uploads/transparencia/articulo_9/9_2-politicas_institucionales/marco_legal/electricidad/leyes_sectoriales/ley_45_2004.pdfLaw
44 of April 25, 2011: https://www.gacetaoficial.gob.pa/pdfTemp/26771/GacetaNo_26771_20110425.pdfLaw
37 of June 10, 2013: https://asep.gob.pa/wp-content/uploads/transparencia/articulo_9/9_2-politicas_institucionales/marco_legal/electricidad/leyes_sectoriales/ley_37_2013.pdfLaw
41 of 2012: https://www.gacetaoficial.gob.pa/pdfTemp/27093/GacetaNo_27093_20120806.pdfLaw
69 of 2012: https://www.gacetaoficial.gob.pa/pdfTemp/27145_A/GacetaNo_27145a_20121018.pdfResolution
AN No. 116 of 2017: https://www.asep.gob.pa/wp-content/uploads/COVER_2018/Autoconsumo_Renovables_Limpias/procedimiento_centrales_limpias_2017.pdfNational
Energy Plan (2015-2050): https://www.senacyt.gob.pa/wp-content/uploads/2018/12/3.-Plan-Energetico-Nacional-2015-2050-1.pdfEnergy
Transition Agenda (2020-2030): https://www.gacetaoficial.gob.pa/pdfTemp/29045_A/GacetaNo_29045a_20200611.pdfNational
Electric Mobility Strategy: https://www.gacetaoficial.gob.pa/pdfTemp/28892_A/GacetaNo_28892a_20191029.pdfNational
Distributed Generation Strategy: https://www.gacetaoficial.gob.pa/pdfTemp/29384/GacetaNo_29384_20210927.pdfNational
Strategy for the Rational and Efficient Use of Energy: https://www.gacetaoficial.gob.pa/pdfTemp/29549_B/91962.pdfNational
Innovation Strategy for the National Interconnected System: https://www.gacetaoficial.gob.pa/pdfTemp/29687_B/ae/9443.pdfGreen
Hydrogen Roadmap and derivatives: https://www.gacetaoficial.gob.pa/pdfTemp/29461_A/GacetaNo_29461a_20220124.pdfNational
Strategy for Green Hydrogen and Derivatives of Panama: https://www.gacetaoficial.gob.pa/pdfTemp/29771_B/98196.pdfNational
Universal Access Strategy: https://www.gacetaoficial.gob.pa/pdfTemp/29493_A/GacetaNo_29493a_20220311.pdfFirst
Nationally Determined Contribution (CDN1): https://cdn.miambiente.gob.pa/informe/National
Inventory Document (DIN, MiAmbiente): https://transparencia-climatica.miambiente.gob.pa/wp-content/uploads/2024/07/2024_DIN_PA_vfinal.pdfSustainable
National Greenhouse Gas Inventory System (SSINGEI): https://transparencia-climatica.miambiente.gob.pa/modulo-ssingei/


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