San José, Costa Rica, since 1956

Rising Energy Needs Prompt New Bill

Less than a year before President Oscar Arias’ departure from Casa Presidencial, the Ministry of the Presidency has proposed a bold new bill that would spell drastic changes for Costa Rica’s energy market.

The general electricity bill, which arrived at the Legislative Assembly two weeks ago, proposes to create a National Electrical System (SEN) and establish a Market Administrative Authority (AAM). These entities would create a wholesale electricity market and open energy production to competition.

The AAM would be a public institution which would operate a bidding process under which all potential energy producers would compete to enter the energy market.

The authority would supervise all electricity producers, regulate the auction process to ensure fair prices to consumers and ensure equal treatment of both private and public electricity producers.

If approved, the Costa Rican Electricity Institute (ICE), the country’s long-standing government monopoly, would lose control over the electricity market.

“If we want to guarantee the availability of energy at the best costs and quality to Costa Rican families in the future, we must analyze and make decisions right now about this great national issue,” said Rodrigo Arias, minister of the presidency, in defense of the bill last week.

The Presidency Ministry cited a rapidly growing demand for electricity and, as a consequence, a need for additional investment in energy production beyond the means of ICE as justification for the bill.

According to the new bill, as demand rises the market could require investments of more than $700 million per year to meet the nation’s energy needs. ICE is equipped to invest about half of this amount, and proponents of the bill believe that private investment is the best way to satisfy the rest.

The summary of the bill states that the country “hasn’t realized the sufficient levels of investment that are required to achieve an infrastructure of production, transmission and electrical distribution that permits the use of national energy advantages.”

The details of the bill still have a long way to go before approval, and the 256-page document will likely be slimmed down and reworded. It also could face stiff opposition from supporters of the ICE monopoly.

In its current form, the bill would launch a “National Plan to Meet Electricity Demand,” controlled by the AAM. The overseeing body would administer market transactions and instate regulations in a market that currently has none.

ICE, on the other hand, would be in charge of administering the technical aspects of the electricity grid through an office called the National Control Center (CECON).

Currently, ICE is the only entity that is permitted to sell electricity to consumers. However, several concessions have been granted over the years to private companies who fill local needs that ICE can’t meet easily.

For example, in Heredia, north of San José, the Public Services Company of Heredia (ESPH) distributes power. In Cartago, the capital city’s eastern neighbor, the Administrative Electricity Service of Cartago (JASEC) plugs the holes.

These private companies buy energy from ICE and distribute it in their respective regions. However, their distribution contracts are temporary and must be reissued every 10 to 20 years. This renewal process can be long and painstaking.

The AAM would eliminate the need for short-term concessions and allow these companies to buy directly from energy producers.

If the bill becomes law, the AAM would also determine the percentage of electricity to be generated from particular sources each year. While these details have yet to be firmly established, a communiqué from the Ministry of the President said the idea is to provide incentives for private companies to invest in renewable sources of energy.

According to the statement, the goal is to provide the market incentives and regulatory guidance necessary to meet all of the nation’s electricity needs from renewable sources such as hydro, geothermal, wind, solar and biomass. Increased energy production of these resources also could fuel a shift to cleaner modes of transportation, such as electric trains and cars.

Upwards of 90 percent of Costa Rica’s electricity comes from a combination of hydroelectric, geothermal and wind energy every year. But between 2005 and 2007, the amount of power produced by thermal (fossil fuels-based) energy has crept up from 3.5 to 8.2 percent.

Several private electricity generation companies exist in Costa Rica, but the laws that created the ICE monopoly have limited their growth and expansion.

Many private producers of renewable energy claim that the laws limiting the amount of power they can generate, coupled with ICE’s lack of investment in new sources of renewable energy, have led to the increase in reliance on fossil fuels to generate energy.

By law, only 15 percent of the country’s electricity can be fed by private generators. Furthermore, the law limits the size of private power plants to 20 megawatts of output.

If a company is to build a plant larger than 20 megawatts, it must be built under a Build-Operate-Transfer (BOT) agreement with ICE. This means that a company can build a plant of any size, but after 20 years it must hand over ownership to ICE. These rules would become null and void if the bill passes.

While the bill seeks to amp up the amount of electricity the country produces, it will not change the distribution of electricity. The ICE, ESPH, Jasec and other electricity distribution companies will still be in charge of doling out power to residents in their regions.

Pablo Soto, an engineer for ESPH, said that ICE most likely will dominate the distribution market for at least another decade because of the number of plants and the amount of equipment it has acquired over the years, with most of the laws having been created to sustain the monopoly.

The Tico Times contacted ICE regarding the new bill but did not receive a response by press time this week. ICE press officers said the company’s higher-ups will need more time to analyze the bill before offering a firm position.


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