San José, Costa Rica, since 1956

Energy Bill: Mixed Model or Mixed Message?

Costa Rica’s new energy bill isn’t perfect. The text tallies 140 pages, and it discusses competition regulations, tariffs, market strategies, and the roles of public and private enterprises. The wording clarifies legal parameters in some spots, while it muddies them in others.

And the words it uses to justify the need for the new law are alarming. The draft says that in the next 12 years, the country will need to install the same generating capacity that it has built in the past 50 years. This means $9.2 billion in investment, according to the bill.

Union workers, who have thrived on the government’s electricity monopoly for decades, have attacked this figure, claiming it is an exaggerated attempt to undermine their jobs. But the administration of President Laura Chinchilla has given congress one year to round off the bills’ rough edges.

Less than two weeks ago, Chinchilla and company submitted their version of the general electricity bill to the Legislative Assembly during congress’s extraordinary sessions – a period during which the Executive Branch determines the legislative docket.

To study the bill, Chinchilla has assembled a nine-member commission which includes legislators from each of the assembly’s five major political parties. The team is charged with reaching a consensus on the bill and sending it to the floor for a debate and a vote within a maximum of 365 days.

Opinions in the commission are split, predictably, along party lines.

The left-wing Citizen’s Action Party (PAC) opposes a full opening of the electricity market. Their counterparts to the right, the Libertarian Movement (ML), are pushing for a complete opening of the energy sector.

The Social Christian Unity Party has claimed the middle ground, advocating a balanced opening of the market, and Chinchilla’s National Liberation Party (PLN) lawmakers are doing as the boss instructs.

Chinchilla’s energy bill, the third attempt in a year to crack open the energy market’s door, proposes a wholesale energy market where public and private entities will compete.

Her plan, unlike a draft proposed by her predecessor, Oscar Arias, posits a divided market in which private participation in electricity generation will be capped at 35 percent. Prices for the sale of electricity will be fixed by the Public Services Regulatory Authority (ARESEP). This body will also determine the auction rules for those who wish to enter the electricity market.

Teófilo de la Torre, Costa Rica’s Environment, Energy and Telecommunications minister, defended this aspect of the bill, claiming that it respects the integrity of both public and private energy ventures.

“This model maintains the capacities and faculties of the public sector that, today, produces, emits and distributes electricity, while promoting private participation by different companies of local and international capital,” de la Torre said in a press conference last week.

The bill contains incentives for renewable private energy projects and also opens up a space where investors can compete in price and quality in order to obtain a contract in the market.

But the mixed competition model has perplexed some private generators, who, for years, have considered ARESEP’s prices unfair.

“The doubt is, how, in a scheme with public participation, can you achieve the best price possible?” said Mario Alvarado, executive director of the Costa Rican Association of Energy Producers (ACOPE). “That is not a competitive scheme and it seems irrational to me.”

Under Chinchilla’s bill, the Costa Rican Electricity Institute (ICE) will largely remain in control in order to ensure a “universal system and one of solidarity.”

Alvarado wonders where the competition comes in. “ICE has been strengthening and modernizing itself for competition, preparing rules and laws to compete, but in this bill, it doesn’t compete,” he said.

Among the members of the commission, ML lawmakers have criticized Chinchilla’s proposal for capping energy production and failing to meet true competitive standards.

PAC legislators have welcomed the less aggressive text, but have questioned why an opening is necessary.

“A successful model that provides 99 percent coverage to the country, with the highest quality, doesn’t need to be changed,” said chief PAC legislator, Juan Carlos Mendoza.

For de la Torre, though, the coverage map is not the issue.

“(The world’s) petroleum resources are quickly running out and this bill opens a scenario in which we can develop renewable energy projects using traditional sources – wind, water and geothermal – as well as new technologies such as solar and hydrogen,” he said.

In some areas, the bill is muddled, but Chinchilla has labeled this energy bill one of her government’s top priorities. Her PLN team has one year to garner support and solicit the votes that the president wants in order to pass the bill.

If the negotiations to pass the bill are unsuccessful, and if the government’s projections concerning future needs are accurate, the country’s energy needs might quickly outstrip its productive capacity.

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