One in 5 active shipping containers is stranded in China because of pandemic lockdowns, and leading U.S. companies are now rethinking these geographically extended supply chains. They are considering nearshoring, moving their manufacturing hubs to a closer location, and Central America is a natural choice.
Meanwhile, concerns about climate change have lead to mandates for renewable energy sources to support new manufacturing activities. The key then is to enable nearshoring in places like Central America with dependable, cost-efficient and sustainable energy sources. However, reliable energy generation on a 24-7 basis with renewable sources like solar, wind or water are only possible with storage systems that provide enough supporting capacity.
Is Central America ready to meet this challenge? It can be, with solutions that will also help tackle migration issues at America’s borders.
There are a number of new green energy projects coming on line, such as La Vegona II in Honduras. This innovative development has a 1,200-megawatt potential to become the most reliable and cost-efficient energy generation and storage system in the region, according to its sponsors.
With an estimated budget of $2.5 billion, La Vegona II integrates a scalable hydroelectric power plant, a hybrid solar and pump storage energy system, and a 185 km transmission line. The line will cross the Sula Valley in the Northern Industrial Zone of Honduras, connecting its industrial parks and the principal Central American port on the Atlantic Ocean with the regional electrical grid.
This addition to the power grid transmission line will connect established U.S. and Central American companies in a two-way “electricity highway,” generating and transmitting electricity as well as receiving and storing it for use when needed to power industrial growth. Its location will enable improved logistics at ports, airports and land transportation hubs.
As can be expected, the vision for combining nearshoring and sustainable reliable energy requires massive investment.
Enter the multinational HUGE Business and Investment Council. (HUGE stands for Honduras, USA, Guatemala and El Salvador.) It is a market-based and socially conscious response to a humanitarian crisis: the lack of opportunity for millions of people in the Northern Triangle countries of Central America to provide for themselves and their families.
HUGE includes many of the largest investors and businesses based in the region. Almost all of them have worked with the U.S. government’s Development Finance Corporation or the Inter-American Development Bank at one time or another. The members include some of the largest employers and taxpayers in these countries. These companies are also in the region for the long haul and see the potential of the region.
When the La Vegona II project was presented to U.S. Under Secretary of State Jose Fernández during an official visit to Honduras this past March, it was of such interest that he stopped the presentation, got up from his chair and walked toward the speaker to ask several questions.
La Vegona II is part of a growing portfolio of strategic infrastructure projects in Central America. These projects, many of which include renewable energy development, seek to promote, facilitate and connect regional investments with opportunities that arise from the competitive advantages of the Northern Triangle countries’ partnership with the U.S.
While La Vegona II is a fully private sector investment, it could benefit from some support from agencies such as the Development Finance Corporation or the Inter-American Development Bank’s “IDBInvest,” the private sector arm of the bank. There is not enough foreign aid to create jobs in the region, but the U.S. can work with the local governments, and foreign aid or development finance can provide support toward that end.
This brings us to how this and other green energy projects can help with the increasing number of Central America migrants who are going to the U.S. to look for work. In recent years, there has been an uptick in their numbers, and a report published last year said an increasingly large share of migrants from Honduras, El Salvador and Guatemala cite unemployment and other economic factors as the reason.
Central America is blessed by its location, and it is also blessed with many sources of renewable energy. La Vegona is an example of the sorts of projects that will power a cleaner mix of energy to a region that needs more energy, and it is that sort of energy that will power the jobs in the region that will encourage young people to make their future in Central America and not elsewhere.
Juan Jose Daboub, a former finance minister for El Salvador, is the president of the HUGE Business and Investment Council and serves as senior adviser at the Center for Strategic and International Studies. Daniel F. Runde is a senior vice president and William A. Schreyer chair in global analysis at the Center for Strategic and International Studies. He is the author of “The American Imperative: Reclaiming Global Leadership Through Soft Power” to be published in December by Bombardier Books.