Costa Rica Water & Electricity Problems. April 2007

Well what can one say? It’s been a very frustrating time in Costa Rica as we have been plagued by a variety of electricity rationing and blackouts in the last two weeks. The company responsible is the Instituto Costariccense de Electricidad, also known as ICE.

The Instituto Costaricense de Electricidad (ICE) plays the dominant role in Costa Rica’s electricity sector. ICE is a government owned, vertically integrated electricity and telecommunications utility.

ICE is responsible for 100% of electricity transmission, 39% of distribution and 78% of generation. CNFL, Compañía Nacional de Fuerza y Luz, another state company that is within the GrupoICE or Groups of ICE companies, is involved predominantly in electricity distribution, 42% of national total, but also in production of electricity, 9%. Two municipal companies and four cooperatives cover the rest of electricity distribution in Costa Rica. These companies also produce 3% of the electricity in Costa Rica.

Private companies, including small hydroelectric projects, sugarcane refineries and wind plants, produce the remaining 11% of electricity in Costa Rica. All of the electricity they produce must be sold to ICE who then transmits to distributors.

Costa Rica Energy: A week of bad news.

The press releases coming from the monopoly power and telecommunications company ICE have, as usual, have been idiotically confusing. One moment there’s one problem, then another, one spokesperson tells us that they won’t need any more rationing of electricity and then two days later they announce more nationwide, rolling blackouts then today, the 26th April 2007, they announce a national emergency which will allow ICE to buy more equipment.

According to ICE the bottom line would appear to be that due to low levels of water, the usual amount of hydroelectric power has not been available so that ICE has been forced to use their oil fired electricity generating plants – which are normally used only for back-up – much more than normal. This has caused more wear, tear and breakdowns plus they have spent far more money than they had anticipated on increasingly expensive fuel oil.

Here’s The Good News:

This all very sad because in some respects, Costa Rica’s electricity sector is a world model. “In 2004 Costa Rica generated 99% of its electricity from local renewable sources; 80% hydroelectric, 16% geothermal, 3% wind and only 1% fossil fuel combustion, making it by far one of the most clean power sectors in the world.”

And “It must be highlighted that ICE has done an excellent job developing, planning and leading the Costa Rican electricity sector. The country has reached a 97% electrification level and enjoys the lowest consumer electricity costs in the region.”

But ICE Was Warned About These Exact Problems Years Ago:

All of these problems had been accurately forecasted back in April 2001 by the Japan Bank for International Cooperation when they stated.

“ICE is the sole authority of Costa Rica’s electric power system, with hydroelectric power accounting for about three-quarters of its total power supply. Domestic demand for electricity has been steadily increasing every year in step with the economic growth of the country, registering an average annual rate of 5.5% from 1985 to 1997. ICE projects that electricity demand shall increase at an annual rate of 5.7% until 2020. To meet this growth of demand, ICE has been developing the country’s rich energy resources such as hydro and geothermal power. Although present facilities of ICE are sufficient to meet demand for the moment, demand projections show that ICE will encounter serious electricity shortages from the year 2006 and thereafter if ICE does not develop any power plants. It is an urgent task for ICE to prepare for future demand. Moreover, to attract further foreign direct investment in its high-tech industry, a driving force of the recent economic growth, the country needs to improve the reliability of the power system’s stability…”

It was also projected in an August 2006 study entitled Clean Power in Costa Rica: Opportunities and Barriers. Strategies for a Fossil Fuel-Free Power Sector by 2025 by Jessica Morey when she said: “Costa Rica faces imminent electricity shortages projected for the 2007 and 2008 dry seasons through 2012.”

No Juice and No News:

ICE could not explain how the new rolling blackouts covering one area then another would occur. We watched the 11pm news in our search for any updated information and we never watch television, they said that the rolling blackouts were to start from 8-11am in some areas then 11am-2pm in other areas and they added that this may continue for 2-3 weeks.

Unfortunately, and as is standard operating procedure with ICE, we also read two other, alternative schedules as to when these blackouts would start so as I typed this, I didn’t know if we were to be without power as of 9am, 11am or 3pm which made planning my day a little ‘complicado.’ (We ended up having no power for two hours starting at 10.13am).

And even after all these problems the company’s press release page mentions nothing about the blackouts.

Good News for the CAFTA Supporters?

One of the main arguments against CAFTA (the Central American Free Trade Agreement) that is regularly voiced by the people of Costa Rica is that should the country open up the electricty and telecommunications market to competition with the approval of CAFTA, then the many jobs of that company would be in jeopardy.

You betcha!

However, it would appear that the short-term concerns for their personal employment and attractive retirement packages (even by North American standards) has resulted in what may be considerable long-term problems for the country:

  1. In the year 2000, ICE made some changes in the law (Ley 7200) which made the development of private hydroelectric plants illegal even though at the time, they had proposals for private plants that would have produced enough electricity to prevent the rationing and blackouts that we are experiencing today and …
  2. For over ten years, ICE and their unions have also put pressure on the politicians not to give water concessions to anyone wanting to generate private hydroelectric energy.

Building new hydroelectric or geothermal facilities does not happen overnight, it can take 5-8 years so unless Costa Rica enjoys significant rainfall during this and every other green season, it would appear that we may have to endure these problems for some time to come.

ICE faced serious funding challenges because the Costa Rican legislature requires ICE to use an accounting method that considers investments in new plants as expenditures that must be balanced by current income. In this system the government also claims yearly profits. This is an inappropriate accounting system because power plants, especially capital intensive renewable energy plants, need many years to recuperate investment costs. ICE is investment starved. It is not allowed to receive loans from international banks, despite its excellent credit rating.

However, in declaring a state of emergency this week, this will allow ICE to make the purchases required to accelerate their electricity generating capacity.

The inconvenience for someone retired here is minimal as it is easy to plan your day around a short period when electricity is not available however, one can only imagine what is going through the mind of a foreign business owner who might be considering starting a business here however we should remember that…

This water shortage problem is not isolated to Costa Rica. Nicaragua has serious electricity problems, Panama has water shortages, Colombia had massive blackouts – ‘apagones‘ this week, Australia is in the middle of their worst drought in 1,000 years and the United Nations estimates that at our current usage rates, almost 3 billion people will face severe water shortages by 2025. That’s less than 20 years away and look how fast the last 20 went by!

What Can Be Done in Costa Rica? Some suggestions:

  1. Costa Rica must immediately implement public education programs to clearly show the people that it’s in their best interests to conserve both water and electricity.
  2. Costa Rica should promote more energy efficiency and demand management programs for both water and electricity.
  3. The local authorities must repair or replace leaking and burst water pipes in a more expeditious manner. (We should also be recycling ‘everything’ more than we do.
  4. Is it just me? Or do you also think it is insane that we should be considering using a zillion gallons of water to grow crops – not for food – but for fuels for cars and trucks?
  5. How about a 100% special ‘A/C consumption tax’ on electricity to all homes in the Central Valley that choose to use air conditioners?
  6. Costa Rica has plenty of sun and alternative energy technologies are drastically under-utilized in the energy sector, so we should dramatically increase investments into more solar and wind energy research. Why not start by insisting on all new hotels and homes being built with solar powered water heaters only?
  7. Why not insist on all new construction be done with water efficient toilets and flow restrictors on faucets and shower heads?
  8. Why not implement a special water tax for high volume water users and people with swimming pools? Divert rainwater from roofs to rain barrels. Why not redirect sink, tub, and clothes washer water into containers for garden use? Or redirect that water to flush our toilets?
  9. Costa Rica national parks are legally protected which has prevented us from developing more geothermic power but surely there is a way to do this in an environmentally friendly manner?
  10. As far as gasoline is concerned, why shouldn’t we have some kind of a ‘sin tax?’. While Manuel drives around San Jose in his Toyota Prius that gives him 45 miles to the gallon, ‘Ace’ the multi-millionaire online gambling Gringo from Williamsburg, Brooklyn gets 6 miles per gallon in his Hummer. Why not have a gas consumption ‘norm’ and above that ‘norm’ someone like the Hummer owner would have to pay a ‘sin tax’ of 100% and those additional monies are dedicated only to developing alternative energy sources.
  11. The political, institutional, regulatory and legal roadblocks that prevent Costa Rica from developing more alternative energy sources and allowing more competition must be reformed and streamlined. The very future of the country depends on this.
  12. With two massive coast lines, perhaps Costa Rica could enter into some joint venture agreements to try and harvest the power of the ocean with wave energy.

This water shortage problem will eventually affect all of us, no matter where we live so we would encourage our VIP Members to please make your voice heard in the Costa Rica’s Water & Electricity Problems topic in the Discussion Forum here.

5th May 2007 Update:- Costa Rica’s electricity shortage appears to have ended. The rainy season is here and unless we have an unusually dry wet season, there will hopefully be no power powercuts – ‘apagones’.

The water levels in the Cachí dam have risen by ten meters and the power company has inaugurated a new hydro-electric plant called Cariblanco in Sarapiquí six months ahead of schedule which must rank up there as the eighth wonder of the world.

But even though these outages were frustrating, it gave us a few extra hours to ‘smell the roses’, to take some long decadent lunches with friends that we haven’t seen in a long time and a chance to just stand there, watching and listening to those magnificently colorful parrots screeching at each other as they flew from tree to tree outside my favorite supermarket.

When was the last time you smelled a rose?

Written by Scott Oliver, author of How To Buy Costa Rica Real Estate Without Losing Your Camisa and Costa Rica’s Guide To Making Money Offshore.

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