In 2005, Central America had total installed electricity generating capacity of 8.5 gigawatts (GW), mostly consisting of hydroelectric stations. Power consumption and generation in Central America have grown rapidly in recent years, spurred on by economic expansion and increased electrification of many rural areas. In 2005, the region generated 34.2 billion kilowatthours (Bkwh) of electricity and consumed 29.5 Bkwh, both about 80 percent higher than a decade ago. The largest consumer of electricity in the region is Costa Rica (7.8 Bkwh), while the smallest is Belize (0.2 Bkwh).

Hydropower has historically dominated electricity generation in Central America, representing 51 percent of total electricity generation in 2005. However, conventional thermal capacity has become increasingly important. Facing energy shortages in the mid-to-late 1990s, Central American countries began privatizing their energy markets, allowing foreign investors to develop new power plants. Many of the new power plants are conventional thermal types, as construction time is shorter than hydropower plants. Thermal power plants also offer increased independence from the cyclical, seasonal nature of hydropower production. As a result, thermal generation, especially powered by oil products, has been growing faster than hydropower generation.

In December 2001, the seven Central American countries signed the Plan Puebla-Panama (PPP), an effort to better integrate the infrastructure of the region, with particular focus upon electricity markets and transmission grids. Supporters of the plan hope that PPP will increase security of supply, reduce the cost of electricity, and attract foreign investment. PPP calls for the creation of a regional wholesale electricity market, the Mercado Electrico Regional (MER); construction of the Sistema de Interconexion Electrica de los Paises America Central (SIEPAC), an 1,100-mile transmission line linking Panama, Costa Rica, Honduras, Nicaragua, and El Salvador; and the construction of interconnectors connecting Mexico, Belize, and Guatemala with the SIEPAC.

The first phase of the plan is the completion of the SIEPAC, and the member countries created an independent company, Empresa Propietaria de la Red (EPR), to achieve this goal. In 2006, Guatemala began construction on a portion of the SIEPAC that will extend into Mexico, while Instalaciones Inabensa began work on the SIEPAC in Panama. The Inter-American Development Bank is funding the majority of the project ($170 million), while Spain is funding an additional $70 million. EPR estimates that the SIEPAC development will be operational by late 2008.