Panama's power exports are firm until the reservoirs say otherwise

In mid-2026, Panama's state transmission company ETESA suspended electricity exports to Central America, citing falling levels at the Fortuna and Bayano reservoirs under El Niño conditions, per BNamericas reporting at the time. It had done the same thing in June 2024, for the same reason, during the same kind of dry spell, per Associated Press coverage then. Two cutoffs in three years is not an anomaly anyone can file under force majeure. It is a standing policy, and anyone treating a cross-border contract tied to Panamanian hydro as firm capacity should be pricing for a third.

Most of the attention this gets lands on the drought itself, the same El Niño pattern that has pushed Gatún Lake to record lows and forced the Panama Canal to ration transits. That framing misses the part that actually matters to a financed asset. The cutoff is not a grid failure. It is a choice, made inside Panama, about whose demand gets served first when the water runs short.

Why the cutoff happens at all

Panama draws roughly 60% of its electricity from hydroelectric plants, per AP reporting on the country's hydro operators, concentrated in a handful of basins that fill on rainfall rather than snowmelt and drain fast once El Niño sets in. When Fortuna and Bayano run low, ETESA does not ration exports proportionally against domestic load. BNamericas' own headline on the 2026 suspension put it plainly: Panama cut exports "to guarantee national electric supply." The export agreement did not fail on a technicality. It lost a priority fight the moment Panamanian and Central American demand competed for the same water.

Where the exposure actually sits

For a regional offtaker, that is a different risk from a domestic transmission constraint. A congestion problem shows up in a dispatch curve a lender can model and a PPA can hedge against. A cross-border supply cut is a sovereign decision made in Panama City, and an offtaker on the other side of that border has no standing inside Panama's regulatory process to contest it. Costa Rica's state utility, ICE, has itself warned that without Panamanian imports it could end up paying double or triple the going rate for power during its own dry season, per reporting carried by Semanario Universidad. That is the real cost of a resource that reads as firm on a term sheet and behaves as discretionary in practice.

A megawatt sold across a border is firm until the seller's own citizens need it more, and that clause lives in the exporting country's law, not in the contract.

The domestic capacity market hasn't repriced it either

Panama's own tenders haven't caught up to this pattern. In ETESA's most recent round of short-term supply contracts for distributors Edemet, Edechi and Ensa, running March 2023 through February 2026, 11 of the 22 awarded contracts went to hydro plants, against six bunker fuel, three light diesel and two solar. Half the fleet contracted to deliver firm domestic capacity through the next El Niño is the same fleet that has already missed its export commitments twice on exactly that trigger.

What we think follows

The Mercado Eléctrico Regional, the cross-border pool built under the SIEPAC treaty, works well on paper and has moved real power between six countries for years. What it has not been tested by is a mechanism that compensates an importing country, or an offtaker inside it, when the exporting country invokes its own supply guarantee and walks away from the trade mid-dry-season. Until something like that exists, a capital structure leaning on firm cross-border hydro imports, or a developer counting on export revenue from a hydro asset as a stable second income stream, is underwriting a right the seller can revoke by statute rather than by a force majeure clause either side negotiated.

There is a fair counterargument here. Panama has not abandoned its neighbors outright, and each suspension so far has been temporary, lifted once the reservoirs recovered. A system that protects its own population first during a genuine shortage is not behaving unreasonably, and calling that a structural flaw risks penalizing exactly the kind of domestic-first reliability regulators exist to enforce. Fair, and it still doesn't change what a financier has to do with it. A resource that is reliable except when regionally scarce is a merchant resource wearing a firm label, and it should be financed, and paid, accordingly.

Our own pipeline sits entirely inside Peru's domestic market, where COES dispatches independently of any export obligation. Different exposure entirely from a hydro asset whose output is promised to a neighboring grid it does not control politically.

The open question

I haven't found anyone who has pinned down whether CRIE, the regional market's own regulator, is building a formal priority or compensation mechanism so a cutoff like this carries a cost for the exporting system rather than landing entirely on the importer. If that reform is underway, it changes how bankable regional export revenue actually is. If it isn't, two cutoffs in three years is the baseline case for this market, not the tail risk.

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