A four-month drought has crippled Panama’s electricity supply, prompting the government to close schools and impose strict limits on electricity use on Wednesday—a day after declaring a state of emergency in four of the country’s nine provinces.

In addition to closing schools, new restrictions curtail operating hours for late-night businesses such as supermarkets, bars and restaurants, forcing them to close between 10:00 p.m. and 6:00 a.m. Wednesday’s restrictions come after orders on Monday for businesses to cut air-conditioning use by four hours each day, among other measures.

Current restrictions will last through Sunday, when officials will determine whether the electricity supply will allow for a loosening of restrictions and re-opening of schools next week.  However, a rainless forecast hints of little relief in the coming days. 

Panama relies on hydropower for 60 percent of its electricity supply and the dry-spell that began in December has dried up two of the largest basins that feed hydroelectric plants.

In recent years, electricity demand has grown sharply.  Between 2011 and 2012, electricity consumption increased nearly 6 percent, according to government statistics, yet supply has hardly grown.

Panama is Latin America’s fastest growing economy with growth exceeding 10 percent in 2012, according to the government.  This growth has resulted in the construction of new business, office buildings and shopping centers throughout the country, taxing the energy supply.

Officials hope current measures will cultivate more conservative energy use even after the restrictions are officially lifted.  Besides emergency restrictions, Panama has focused on diversifying its electrical grid to incorporate more geothermal sources of electricity to complement existing hydroelectric sources.  It is also pursuing initiatives to integrate its electricity grid with other countries in the region, including an ambitious project to connect the transmission networks of six Central American countries and a separate bilateral effort that would link Panama and Colombia with one large power line.

The drought and power rationing have not affected trade on the Panama Canal, which produces its own energy.

The Brazilian Senate approved an agreement late Wednesday night to triple the amount Brazil pays for surplus electric energy from Paraguay's share of the joint Itaipu hydroelectric dam. Brazil’s annual payments jumped from $120 million to $360 million due to growing concerns that Paraguayan President Fernando Lugo could get a better price for its surplus energy from Argentina or Uruguay or on Brazil's unregulated energy market. Brazil’s state-controlled utility company, Eletrobras, will be responsible for payment.

Under the 1973 Itaipu Treaty, both countries have rights to 50 percent of the electric energy from the 14,000 megawatt dam—the second largest hydroelectric dam in the world. Yet Paraguay’s total population is only 3 percent that of Brazil’s and therefore sells 95 percent of its electricity share to its larger neighbor.

The agreement was originally proposed by former President Luiz Inácio Lula da Silva. It was approved by the lower House in April, and now that it has passed the Senate, it does not need President Dilma Rousseff’s signature to go into effect. Wednesday’s Senate vote comes two days after southern Chile’s Environmental Assessment Commission of Coyhaique approved the $3.2 billion HidroAysen hydroelectric project in the Patagonia region. Brazil also plans to develop the Belo Monte hydroelectric dam in the Amazon, costing between $11 billion and $17 billion.

To date, the Itaipu project has displaced over 10,000 families living beside the Paraná River and flooded the Guaíra Falls National Park. Chile’s HidroAysen is projected to flood 5,900 ha (14,580 acres) along the Baker and Pascua Rivers. Environmental groups claim that Belo Monte could displace up to 50,000 indigenous Brazilians. Despite controversy, all three projects represent a larger movement in Latin America to invest in renewable energy and lessen the regions dependence on oil and coal.