Remarks at the Opening of the Connect 2022 Investment Summit
December 3, 2014
By Special Representative for Commercial and Business Affairs Scott Nathan
As Prepared
Good morning. Buenos dias.
It is a privilege to be here today with so many distinguished representatives from Mesoamerican nations, regional and development organizations, and leaders from the private sector.
I want to thank President Otto Perez Molina, Minister of Energy and Mines Erick Archila, and the Republic of Guatemala for hosting the first Connecting the Americas 2022 Investment Summit. I also thank the Inter-American Development Bank and the World Bank for their support and for bringing their expertise to help inform our discussions today.
The Western Hemisphere is on a clear trajectory of greater opportunity, greater democracy, and greater prosperity. We see the consolidation of democratic values and freer and more inclusive societies. We see some of the world’s biggest and fastest growing economies. We see a growing middle class that today is nearly 300 million strong. And we know the Americas is vital to global energy markets. The Hemisphere is endowed with a significant portion of the world’s oil, gas, and coal, and a rich and diverse array of renewable energy sources, from geothermal in El Salvador and Guatemala, to wind in Mexico and Nicaragua, to hydropower in Colombia and Panama, and biomass in Honduras and Costa Rica. The Americas is a model of energy cooperation and of high renewables penetration.
Today we look to the future of our Hemisphere not with trepidation about looming conflicts and crises, but with confidence that together -- as equal partners -- we can achieve sustainable economic growth and development.
Last year the United States launched one of the most active periods of American engagement with our Hemispheric partners in a very long time, with trips to the region by President Obama, Vice-President Biden, and Secretary Kerry, as well as visits to the White House this year by the Presidents of El Salvador, Guatemala, and Honduras.
Next week our Vice President and the IDB will convene high-level officials from regional governments, the private sector, the international community, and non-governmental organizations to discuss how to address the complex issues that impact Central America’s security and prosperity.
This engagement demonstrates a conscious effort by the Obama Administration to define a shared vision for the future of our Hemisphere and outline a practical and concrete agenda for action. Today we gather here in Guatemala City to advance an important piece of that agenda – our need to transition to a more reliable, affordable, interconnected, commercially viable, and sustainable electricity network.
The Challenges
We will not reach our full potential as a region – not in economic competitiveness, not in job creation, not in education, and not in healthcare – if tens of millions of people in our hemisphere are off the grid and hundreds of millions more are limited to unreliable and expensive electricity.
The scope of the challenge is clear.
First, thanks to booming economies and a growing middle class, energy demand in our region is skyrocketing. Studies suggest that Central American countries will need to double its energy supply in the next 10 years to keep up with demand – an endeavor that will require $25 billion in power sector investment by 2030. We know public finance alone cannot close the energy investment gap, particularly as it needs resources to improve citizen security.
Second, increased demand is driving up the cost of energy. Central America pays very high prices for electricity – ranging from two to five times what we pay in the United States. Expensive electricity hurts competitiveness, undermines investment, slows job growth, and ultimately undercuts the welfare and security of households.
Third, climate change is putting us all at risk. In those countries where clean hydroelectric power has met most needs, climate change is affecting patterns and levels of water availability. Droughts and flood are driving those nations to diversify energy sources, including renewable sources of power. In other countries, continued reliance on conventional, imported heavy oil and diesel, is releasing toxins into communities and greenhouse gases into the atmosphere. Climate change also puts the region’s biodiversity at risk – and Central America is the source of 40 percent of global biodiversity.
No country can confront the energy and climate challenge on its own. It is not viable from a technical perspective, it is not viable from a business perspective, and it is not viable from a political perspective.
The Response
This is why the United States supported Colombia’s launch of the Connecting the Americas 2022 initiative at the Sixth Summit of the Americas. The goal of this initiative is clear: universal access to reliable, clean, and affordable electricity in one decade, so that families and businesses have the energy they need at a price they can afford.
To achieve this goal, we all pledged to work together to create a modern, commercially viable electricity network in the Western Hemisphere that attracts private investment and transforms power markets to incorporate cleaner, renewable, and more efficient sources of energy. Underlying this commitment is a profound vision of how we bring prosperity to this hemisphere. The leaders of the Western Hemisphere did not endorse Connect 2022 out of a commitment to energy, but rather because they recognize that energy means jobs, education, and health care for their citizens.
This same vision has to inform our continuing political determination to achieve Connect 2022 goals. There will be times when prospects for low-cost and clean energy come up against legacy investments that are dirty and expensive. The right choices for society may be clear. But that is not always how powerful interests function. And that is why the leadership of policymakers, informed by sound technical analysis, is so very important as we make choices for posterity.
This Mesoamerican region has made important progress over the past two years. My government sees this region as the leader on Connect 2022, and we encourage you to celebrate your success when leaders meet at the 2015 Summit of the Americas in Panama.
Permanent regional market rules have been in place since June 2013. These rules are essential for creating a business and legal climate that encourages investors to take capital and development risks. You need look no further than regional electricity trade statistics to see how setting clear rules can unleash powerful growth. The volume of electricity trade over the past twelve months, at 1,316 gigawatt-hours, is more than triple what it was in the twelve months ending in June 2013.
Just over a month ago, the Electrical Interconnection System of Central America, or SIEPAC completed its regional transmission line, connecting 37 million consumers in, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. Power grids are now connected from Canada to Panama.
And each government has shown a commitment to diversification with cleaner sources of electricity. From Mexico’s historic energy reform, to Nicaragua’s impressive and diverse renewables portfolio, Guatemala’s utility scale solar project and potential gas resources, to wind energy in Honduras and Costa Rica, which the U.S. Export-Import Bank helped finance, Mesoamerican energy transformation and integration is well underway.
We must build on this momentum by addressing several important challenges.
The first is, by far, the most straightforward: ensure that the physical infrastructure of the SIEPAC line is strong and resilient, that the company operating the line has the resources it needs to maintain and expand the line, and that the Regional Electricity Market develops robust interconnections with Mexico to the north and Colombia to the south. Ensure that there is non-discriminatory access to national transmission systems in order to take full advantage of power systems. As in any business, you must have a product to sell. The new Central American line is there but it is not sufficient to support the volume of trade required to meet the region’s full power needs. The market is growing. Let’s work together to achieve its potential.
The second challenge is contractual. If you are going to make a 20-year investment in power generation, then you need to know that you have access to the power line for 20 years to amortize your investment. If you need bank financing, banks need to understand the contracts. The more that contracts are built around a common model, the more competition you’ll get from financial institutions and the lower the cost. Long term financing that reduces the cost of capital will enable leaders to meet their growing electricity demand without necessarily increasing electricity prices. Interest rates reflect risk, but development banks have instruments to mitigate risk. And of course in any business that cuts across national lines, you need mechanisms to resolve disputes. These are issues we know how to solve. And that is why we are gathered here today.
The third challenge is financial. We need to leverage private capital to support the Connect 2022 initiative. Governments have their role in creating business opportunities. But the $25 billion we need in the region is not going to come from the collective Treasuries of the countries in this region. And it does not need to if we create conditions that allow businesses to make a return on capital.
This is an area where the United States can help. The Export-Import Bank and the Overseas Private Investment Corporation are able to provide excellent terms for projects that include an element of U.S. industry. Our development, energy, commerce, and trade agencies all stand ready to assist and support your efforts however and wherever we can.
Demand is real. Just last year EXIM finalized direct loans of $220 million for wind power projects in Central America. OPIC has committed $1.2 billion in support for renewable energy projects worldwide, 53 percent of which were in Latin America. Central America’s share, while small today has enormous potential. If we open the doors with the right enabling policy environment and financial conditions, private capital is ready to come in.
The IDB, World Bank and IFC, and other finance partners are equally committed to help finance these investments.
Conclusion
Now is the time for definitive action – to clear the outstanding technical, contractual, and financial hurdles…to finalize the legal, regulatory, operational, and market conditions required for greater investment… and to diversify our energy supplies.
We have the knowledge and the means to do all of these things. All we need is political will, leadership, and courage. Political will to focus our governments on this effort in the midst of competing and often urgent priorities. Leadership to change the way our governments and industries do business. And courage to innovate, take risks, and transcend our differences for the common good.
Let’s challenge ourselves to have a productive and successful day of discussions.
Thank you very much.
