Costa Rica’s past and future clash over energy

September 7, 2012

From the print edition

According to many energy experts, Costa Rica can achieve a power generating capacity based completely on clean and renewable sources of energy by taking a simple step: promote more private investment in the generation private of renewable energy. 

Both the generating potential – through water, wind, geothermal energy and sun – as well as the financial resources and interest, they say, are present. However, built into the laws that govern the generation of electricity are limits on the amount of electricity that can be produced by private sources, and the public Costa Rican Electricity Institute (ICE) exercises near total control over power generation. 

While changing the law to increase the share of privately generated electricity seems like a simple solution, ICE is a powerful symbol in Costa Rican society, representing to many the government’s longstanding commitment to equitable economic development. 

For example, ICE built the hydroelectric dams and transmission networks that brought electricity to the entire countryside long before neighboring countries had even guaranteed electricity in their cities. Today, over 98 percent of Costa Rican homes have access to electricity, thanks largely to ICE. ICE also provides secure employment and a middle-class lifestyle to its thousands of employees. 

Many Costa Ricans see ICE, along with other state institutions such as the Social Security System (the Caja) and public schools and universities, as part of a system of state solidarity with citizens that is the basis for what has made Costa Rica different, and in their eyes, better. 

In addition, ICE, which also held a monopoly on telecommunications until the approval of the Central American Free Trade Agreement with the U.S. (CAFTA), is losing money in the face of competition from private cellphone companies. ICE’s defenders – foremost among these its unions – see a greater opening to private generation of electricity as a similar threat, one they fear could lead to the institution’s demise. They point also to the recent troubles and threatened insolvency of the Caja as another sign of the need to circle the wagons and protect state institutions.

On the other hand, ever since Costa Rica’s economy almost collapsed in 1981 – a crisis caused in large part by government debt – the country has been moving steadily away from the state-led development model of ICE’s heyday, which has proven difficult to sustain over time. 

Over the last decades, Costa Rica’s economic development increasingly has been based on foreign investment and greater participation in a globalized economy, and private investment has replaced the state as the driving force behind economic growth. While this model has significant opposition in Costa Rica – which was behind the near defeat of CAFTA – it’s also doubtful that Costa Rica can afford to turn back the clock. 

In the same way, the country sooner or later will be forced to open to much greater private participation in the generation of electricity in order to meet demand, simply because it probably cannot afford not to. That doing so should also lead to a power generation system that relies completely on clean and renewable sources of energy makes this move much more attractive and difficult to oppose.

Nevertheless, inviting greater private participation does not necessarily mean abandoning control. Both ICE and private energy investors and developers should search for ways to work together to ensure that sufficient incentives for private investment exist, while at the same time maintaining safeguards for the public interest.

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