Costa Rica: Energy Resources

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Costa Rica’s 98.6% electrification rate is the highest in Central America, as is its per capita power consumption of 1,611 kWh/year, which is ahead of the Latin American average as well. On average, a middle-income Costa Rican family’s electric bill takes up 2% of its income—one of the lowest rates in the region, thanks to Costa Rica’s higher per capita income and lower power prices owing to the preponderance of hydropower in electricity generation.

Energy procedure

A Jun. 30 amendment to a tax exemption act (Law No. 7400) promotes the use of renewable energies by eliminating 13% of the tax burden previously levied on solar panels and solar-powered kitchens, refrigerators and heaters, as well as on devices that run on wind and hydroelectric power. Complementing these efforts, and as part of the same Energy Plan implemented by the administration of Laura Chinchilla, the governmental Costa Rican Institute of Electricity (ICE) will provide incentives for companies and homes that install solar panels and biomass (organic waste) generation systems. Users of such technology will be able to recover their investment in an estimated three to six years, through savings in their power bills calculated at about 200 dollars a year for an average family of four. Household and company power systems will be connected to the ICE grid, enabling individual users to assign their excess power in exchange for discounts on their electricity bill. This will be done through the installation of a two-way meter that will determine whether there is a surplus of power that can be sold or if generation capacity is insufficient to cover the user's consumption and the ICE grid needs to supply additional power. This will not only make homes more sustainable and self-sufficient in terms of their power needs, but will also reduce the country's fossil fuel dependency, as the ICE will collect the excess energy and use it to cover the needs of other consumers.

Energy debates

The administration of Laura Chinchilla—who took office in May for a four-year term—has laid out more than 12 top priority bills on the legislative agenda for the remainder of the year, including a key reform for liberalising the electricity sector. The proposed modification to the general electricity law would open up the electricity generation market, currently in the hands of the state-owned Instituto Costarricense de Electricidad (ICE, the state electricity and telephone company). This proposal is focused on meeting electricity demand using renewable sources of energy production. Investment in the country's renewable energy would be encouraged and given priority and a national energy plan would be set up under the Ministry of Energy. The plan also intends to set objectives and goals for incorporating the different types of primary energy sources in order to meet future demand for electricity. A semi-autonomous market management authority would be created to help prepare the plan in conjunction with the energy ministry. The bill contemplates the establishment of centralised bidding on medium- and long-term electric power contracts, the awarding of which would be based on the prices and quantities offered by each participating power company. All contract application conditions would be standardised in order to organise the bidding process. Oversight would be given to the energy ministry, which would be authorised to grant concessions for the use of water and hydroelectric power generation sources. In addition, to control the operation of the power system, the bill would create a national control centre as a separate body from the ICE. The bill also seeks to ensure that services reach all sectors of the population—including the lowest income sectors—and guarantees rural electrification and public lighting. Current contracts would be respected, with progressive incorporation of new contracts and new energy supplies.

Energy sources

Electricity

   Total installed capacity (2008): 2,370 MW.
   Hydro: ~80%, including storage.
   Geothermal: 12%
   Other sources (oil powered plants, coal, solar and wind farms): 8%

Primary energy

   99.2% of the total primary energy supply is based on renewables.
   Geothermal: 35.7%
   Hydro: 49.4%
   Other RES such as solar, wind and biomass: 14.1%
   Unsustainable biomass: 0.6%
   Fossil fuels: 0.2%.

Costa Rica seeks to cut its net greenhouse gas emissions to zero by 2021.

Regulatory roles

One of ARESEP core mandates is to set public electricity tariffs using cost-of-service pricing. Guiding criteria for this work are economic efficiency, social equity, environmental sustainability, and resource conservation. Competition can be fostered as a way to keep prices affordable and improve public utility service quality. In accordance with current regulations ICE must present tariff schedules for ARESEP’s approval. ARESEP sets the prices for ICE’s purchases from independent generators (for a 15-year contract term) based on the system avoided costs, which is measured by the long run marginal cost (LRMC). LRMC is calculated by ICE on the basis of the least-cost expansion plan and must be presented to ARESEP for approval. LRMC as such is a parameter that represents different system products: a combination of energy (firm plus secondary) and capacity costs. ARESEP has developed tariff schedules that intend to remunerate energy and capacity charges in a way that better represents the value added to the system by these different products. Supply contracts based on such principles contain prices for peak and off-peak energy. Tariffs for power distribution are also set by ARESEP on the basis of requests by the power distributors.

Competition

To date the national model has featured heavy State involvement with limited private-sector participation bound by statutory restrictions. At present there is no competition in the local power market, only competition for the market, through ICE contract tendering and competition with other power utilities in the region on the Regional Power Market (RPM). Such competition will be heightened as the Central American Power Grid (SIEPAC) takes shape.

Energy efficiency

There is an increasing need for more stringent energy efficiency measures to lower the vulnerability of the supply-demand balance in the period 2009-2011. For energy efficiency measures, specific suggestions include creating equipment regulating standards, building codes, and new energy efficiency financing mechanisms.

Capacity concerns

The country’s sustained economic growth in recent decades also has driven up electricity demand, with average annual increases of 5.23% in the 1990s and 4.4% between 2000 and 2005. The forecast 5.4% average annual rise in electricity demand means that, on the power generating side alone, Costa Rica will have to double its installed capacity every 15 years, to take it from 1,960 MW in 2006 to 3,852 MW in 2021, according to the 2005-2009 National Power Sector Development Plan. To this must be added increases in associated power transmission, control, distribution, and marketing activities. Between 2005 and 2009, 1,162 km of new transmission were addeded to the existing 1,690 km grid. ICE’s capital spending program requirement for 2007-2015 is expected to top US$4 billion. However, electricity provision is identified as a major weakness within infrastructure. The impact of the performance of the power industry on the country’s competitiveness has become relevant over the last few years due to unexpected external and internal shocks which have significantly affected the cost and quality of service. Indeed, the system is today financially and technically unsustainable. This has led to recent blackouts and rationing, dramatic tariff increases and to a lack of investments to maintain a sustainable expansion.

Government agencies

Climate Change Consultative Committee (OCIC) The OCIC, consisting of representatives of the government sector, academia and NGOs, helps promote dialogue and synchronize activities between diverse interests involved in the climate change debate. A Costa Rican Association for Joint Implementation was formed to work with OCIC to promote CDM in the public and private sectors. Biomass Users Network (BUN-CA) The BUN-CA, which operates in the entire region of Latin America, but is based in San Jose, Costa Rica, has taken an active role in identifying the barriers to renewable energy by writing reports on this topic. BUN-CA, along with Green Stream Network, helped create a Central American Carbon Finance Guide. An industry association called Asociación Costarricense de Productores de Energía (ACOPE) has also championed private generators’ interests and kept track of relevant policies.

Energy regulation role

NA

Ownership

Power system operations are largely the responsibility of state-owned enterprises: the Instituto Costarricense de Electricidad (ICE, www.grupoice.com), its subsidiary Compañía Nacional de Fuerza y Luz (CNFL, www.cnfl.go.cr), and some small municipal utilities. A handful of rural cooperatives produce, distributes, and market power in rural areas not covered by ICE or CNFL. ICE generates the bulk of the power supply (81%), provides all transmission service in the country, and is responsible for just over a third (39%) of electricity distribution. CNFL, whose main corporate purpose is to distribute and market power in the capital, San José, accounts for 4.5% of power generation. It distributes 42% of generated electricity to the country. Two municipal companies and four cooperatives cover the rest of power distribution in Costa Rica. These companies also produce 3% of the electricity. Private companies, including small hydroelectric projects, sugarcane refineries and wind plants, produce the remaining electricity in Costa Rica. All of the electricity they produce must be sold to ICE who then transmits to distributors. Changes introduced by Laws 7200 of 1990 and 7508 of 1995 permit limited private-sector participation in power generation: at 2007, around 12% of the country’s 1,960 MW of installed generating capacity was privately operated.

Degree of independence

The head of the ARESEP is appointed by the president of the republic subject to a legislative confirmation process, but has to resign at the end of the president’s term of office. This represents a clear statement of limited autonomy and political control: direct dependence on the president.

Energy debates

Costa Rica is country member of the Central American Electrical Interconnection System (SIEPAC) that will connect all Central American countries with a 230 kV line that is nearly double the current capacity.

Energy framework

National Strategy for De-carbonization of the Economy/ Stimuli for Renewable Energies The country is already working on specific agendas to stimulate the use of RES, which is principally as a result of the rise in oil prices in the past, a situation which threatens to repeat itself. In that sense, the national government has initiated the so-called National Strategy for De-carbonization of the Economy, where the use of renewable energy from hydroelectric resources, geothermal, eolic, solar and biomass is promoted. The objective is to reduce the dependency on fossil fuels and at the same time promote the electrification of land transportation methods, modernization of vehicular transportation of persons and goods, regionalization of transportation, reinforce the use of multimodal transportation and energy efficiency policies in the industry and general consumption.

Reliance

The country imported almost 18 million barrels of crude oil in 2010. Due to the increased oil prices, the cost reached 2 billion US dollars. 95% of the imported oil is used for transportation and the remainder to power energy plants. Costa Rica is among the few countries with zero oil and gas production, despite the fact that there are indications of offshore deposits.

Role of the government

The electricity sector is regulated and guided by two government ministries: Ministry of the Environment and Energy – MINAE The MINAE (Ministerio de Ambiente y Energía) provides the guiding vision and sets goals for the national electricity sector through policy documents. It must also approve plans for new generation plants according to environmental criteria. Regulatory Authority for Public Services – ARESEP The ARESEP (Autoridad Reguladora de los Servicios Públicos) determines the tariffs that ICE and the distribution companies charge their clients, as well as the tariffs that ICE pays private companies to buy electricity. Secondary actors in the electricity sector include industry organizations such as ACOPE, the Costa Rican association of private energy producers, and LAICA, a sugar industry organization; environmental groups, such as Aprefloflas; university departments that work on energy research, including the National University’s Solar Research Lab; the press, particularly La Nation daily newspaper; civil society, including unions, university students as well as consumers. Over the past five years there has been tremendous civil society response to electricity policy.

Regulatory framework

The Public Utilities Regulatory Authority (Autoridad Reguladora de los Servicios Públicos - ARESEP) seeks a new methodology to set the prices of electricity generation by means of renewable and alternative sources of energy (RCR-246-2010 - 02/12/2010, decreed on April 15, 2011 under Directive No 15, article 1). The methodology will improve market conditions to enable the competition of RETs. The spot price of electricity from RETs will be fixed at a set rate instead of varying in accordance with demand fluctuation. The prices will be published in 2011. A tax amendment was made to promote the use of RE by eliminating the 13% tax levied from solar-powered kitchens and solar panels, as well as heaters, refrigerators, and other products powered by renewable energy. Since 2010, as part of the amendment to the National Energy Plan 2008-2021 (Plan Nacional de Energía 2008-2021), the Institute of Electricity provides further incentives for companies and residences that choose to deploy solar panels and biomass generation systems. Further, the National Energy Plan 2008-2021 will focus on enabling the biofuels market, diversifying the energy matrix by introducing RETs and reducing dependency on fossil fuel, promoting a more efficient transportation system based on clean energy, installing over 1500 PV generators, and developing a national education strategy to improve energy efficiency and consumption awareness among the population.

Regulatory barriers

A hurdle for the development of renewable projects in the country is the control that ICE has on the market, prohibiting private generators from comprising more than 30% of the market and having installations above 50 MW. Those renewable generators that do want to penetrate the market have the limitation of being owned at least 35% by Costa Ricans. Also, the lack of competitive market means that private generators must wait until new capacity is solicited. Then, they can offer a bud, but it must be accepted by ICE before they are assured that their generation will be bought. ICE is not required to accept this generation. Despite the fact that Costa Rica has abundant renewable energy resources, more than 25% of the national territory has been designated as natural protected area, limiting the possibility to explore and exploit these renewable sources. No legal provision currently exists to grant water concessions to IPPs as the previous prevision did prior to 2000. Consequently, as PPAs terminate and water concessions expire, about 120 MW of hydro capacity will be gradually phased out. Four proposed legal solutions have been blocked in Congress, while the last proposal advanced by the Ministry of Energy, Environment, and Telecommunications (MINAET) is now pending Congress approval.

Energy regulator

The Public Services Regulatory Authority (ARESEP), a multi-sector agency, is in charge of regulating the power and other sectors (telecommunications, hydrocarbon, irrigation, public transportation, maritime and air services, rail cargo transportation and waste disposal).  http://www.aresep.go.cr/

Renewable energy

Hydropower While Costa Rica has used 1271 MW of its hydropower resources, there are 4531 MW more that could be exploited. Hydropower dams are the leading source of electricity in the country, accounting for 78% of electric power, and making Costa Rica the region's leading producer of clean energy. Geothermal Costa Rica has installed 145 MW of geothermal capacity and has the potential for 90 MW more. Solar In Costa Rica, depending on the place, this country receives energy equivalent to 1300–1700 kW h/m2 yr. Taking 1500 kW h as an average, the total energy received on the Costa Rica terrain (50,000 km2) in 1 year will be 75,000 TWh, whereas the total energy consumed is about 28 TW h (103,350 TJ), that means the solar potential on Costa Rica is about 2600 times the energy consume in 1 year. The use of solar energy is still negligible, but the aim is for alternative power sources to expand significantly over the next decade. Wind There are 600 MW of unused wind potential. In 2010, a 49.5MW wind farm was inaugurated by the German project developer JUWI as part of the government’s goal to derive all of its energy from RES. The wind turbines installed in the Guanacaste region by JUWI and its partners GDF Suez Energy Central America, a subsidiary of the French-Belgian GDF Suez Group, and the local company BC y Asociados, will contribute to the country’s renewable energy objective. The 49.5 MW Guanacaste wind farm was completed in 2009 and consists of 55 E-44 wind turbines from German manufacturer Enercon and produces around 240 million KWh of electric energy per year.