Legal framework

Policy and law

What is the government policy and legislative framework for the electricity sector?

In Costa Rica the whole electric market is regulated as a public service.

Supply electricity is regulated in all their four phases: generation, transmission, distribution and commercialisation.

Organisation of the market

What is the organisational structure for the generation, transmission, distribution and sale of power?

Distribution and commercialisation is in the hands of eight companies; two of them are government-owned (ICE and CNFL), two are municipal-owned (JASEC snd ESPH) and the other four companies are cooperative electric companies founded more than 50 years ago with the help of the United States Agency for International Development under the same scheme of electricity cooperative companies in the United States.

ICE (a government company) has a monopoly of the transmission networks of Costa Rica.

In the generation phase, private companies have a cap in the generation market; only 15 per cent of the whole Costa Rican generation system can be in the hands of private companies under Build-Own-Operate (BOO) contracts to sell energy to ICE, and there is a cap of another 15 per cent for private companies wishing to develop Build-Own-Transfer (BOT) projects with ICE. At the end of 2017, BOO contracts had 9 per cent of total generation and BOT contracts had 10 per cent. This means there are legal opportunities for more projects.

Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

The eight distribution companies may develop their own generation projects. Those projects can be developed by one distribution company or between any number of them. Private companies can also be part of the project.

Private investors wishing to develop a project to sell energy to ICE must obtain the following permits:

  • any private company that wishes to develop an energy generation project to sell energy to ICE must first obtain a permit from ICE called an ‘elegibilidad’, which is basically a preliminary review to check that the project is possible from the legal, finance and technical point of view, like a pre-feasibility;
  • from an environmental point of view, a generation project needs an environmental viability permit from the Environmental Secretary (SETENA). For this process, there is an audience in the place where the project will be built and it is usually hydroelectric projects that encounter some social opposition.
  • if a company has an environmental viability permit from SETENA, and the project is a hydroelectric plant, the project then needs a ‘water’ concession from the Water Office of the Environmental and Energy Ministry (MINAE), which allows the company to use the hydraulic force of the water (liters of water per second with a specific meter drop) that also determines a specific energy potential.
  • the last permit is the public service concession given by the Public Services Regulatory Authority (ARESEP), if the project already had obtained the previous permits and also after a public hearing to present the project.

These are the permits needed to sign a contract to sell energy to ICE, but the selection of a project depends on the willingness of ICE to start the process of incorporating a new generation plant, for example: ICE request one eolic generation project of 20MW and companies that have an eolic ‘elegibilidad’ could offer a price per kWh lying within a ‘tariff band’ that the ARESEP has previously approved. The project with the best price wins the contract.

In 2017, ICE published a new Expansion Plan that does not include any new private projects scheduled for the coming years, because the Plan focuses on a new hydroelectric project of 600MW that, according to ICE, could be complete by 2026. However, in August 2018, ICE authorities were considering stopping the new project until 2024 because Costa Rica has enough renewable generation.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

ICE has a monopoly on transmission networks in Costa Rica.

Any generation project bigger than 5MW needs to connect to the transmission network in a substation and this means it will need authorisation from ICE.

A generation project smaller than 5MW could connect to a distribution company network if the distribution company so permits.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

Costa Rica has had a renewable energy policy for several decades.

Currently Costa Rica produces more than 99.67 per cent of its electricity from renewable energy sources. For several weeks in the rainy season Costa Rica produces 100 per cent of the electricity from renewable sources.

Costa Rica uses fuel power plants only when it needs to back up the system but not as an ordinary source of electricity.

Most renewable energy comes from hydroelectric plants (77 per cent).

Eolic projects have grown rapidly in the past years, now with 11 per cent of the electricity coming from wind.

Solar projects should grow in the future: ICE has 1MW installed while Coopeguanacaste has 5MW installed.

According to a recent government study, the grid in Costa Rica has the potential to install 791MW of solar generation and 371 of wind generation in the next six years.

Any renewable generation equipment has tax exceptions.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

Costa Rica has had a renewable energy policy for several decades.

The goal is to improve the 99.67 per cent renewable electricity production.

Even more important is the process of moving transportation to electric solutions instead of fuel options. At the end of 2017, Congress approved a Law to create incentives for reaching 100 per cent electric vehicles.

If Costa Rica is able to reduce carbon emissions in transportation, within the next decade the country could be carbon-neutral.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

The National Energy Plan of Costa Rica (2015-2030), which MINAE approved in 2015, has a specific objective of analysing electricity storage possibilities for use of renewable energy in times of higher consumption. There is huge potential to integrate renewable generation with storage facilities.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

Nuclear energy is not renewable energy and it is not considered under the National Energy Plan of Costa Rica (2015-2030).

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

ICE has a monopoly on transmission networks of Costa Rica. Only ICE construct and operate transmission networks. Costa Rica does not have an open transmission market at this moment.

Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Only ICE may construct and operate transmission networks.

Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

ICE collects a regulated tariff, per every kWh that needs to be transmitted in the transmission network, and with that income ICE has to develop the network.

Only distribution companies can use the transmission network. This means that private companies cannot have access to the transmission network to generate energy in one place and consume that energy in another.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The cost of the transmission network is reviewed by the ARESEP. The quality standard is set also by the regulatory authority.

The tariff of the transmission service is calculated by the sum of all the costs that ICE has incurred to provide that service.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

Because only ICE may provide the service, ICE has to maintain that the network is always available to other distribution companies.

Regulation of electricity utilities – distribution

Authorisation to construct and operate distribution networks

What authorisations are required to construct and operate distribution networks?

The entire Costa Rica territory is distributed by the current eight distribution companies. These companies have a formal concession (permits) from MINAE.

There is no part of the country that does not have a distribution concession.

Access to the distribution grid

Who is eligible to obtain access to the distribution network and what requirements must be met to obtain access?

There is no part of the country that does not have a distribution concession, so it is currently not possible to request a distribution permit.

Government distribution network policy

Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?

In 1974, the Costa Rican electricity system covered 50 per cent of the population of the country, but 40 years later, in 2014, the system covered 99.4 per cent of the population of the country. In other words, the distribution network covers almost the entire population, so the expansion of the distribution network is now focused on improving that excellent percentage.

Rates and terms for distribution services

Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?

Every one of the eight distribution companies collect a regulated tariff. The cost of the distribution network is reviewed by the ARESEP.

The tariff of the distribution service is calculated by the sum of all the costs that a specific distribution company has. Because of that, the prices of the government companies (ICE and CNFL) are currently 30 to 35 per cent higher than other distribution companies such as JASEC, ESPH, Coopelesca or Coopeguancaste.

The quality standard is also set by the regulatory authority.

Regulation of electricity utilities – sales of power

Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

Only the eight distribution companies that have concessions over Costa Rica territory may sell electricity to domestic, commercial and industrial customers.

Power sales tariffs

Is there any tariff or other regulation regarding power sales?

Power sales have a tariff regulated by the ARESEP. The tariff for power sale is the same as the tariff for the distribution service.

Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

Wholesale power has a special tariff in Costa Rica for those industrial companies (cement, microchips, aluminium, glass) that require high electricity consumption and that are able to obtain electricity directly from the transmission networks.

These kinds of sales of power are not considered distribution sales, but are considered directly generation sales. The sole provider of this wholesale tariff is ICE.

The tariff for the wholesale of energy is also regulated by the ARESEP but not according to the cost of the energy because it must subsidise the price, for example, when the other generation tariffs go up the wholesale tariff does not rise. The wholesale price is currently between US$0.05 and US$0.06 during the day and US$0.04 during the night.

Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

Electricity utilities are considered public services that are regulated from the economic and quality point of view.

Regulatory authorities

Policy setting

Which authorities determine regulatory policy with respect to the electricity sector?

MINAE and ARESEP are the authorities determining regulatory policy in the electricity sector.

Scope of authority

What is the scope of each regulator’s authority?

MINAE is the authority in charge of public policy on energy in Costa Rica. It is also in charge of the concessions (permits) of generation and distribution of energy and, via its Water Office, of the hydroelectric use of the waters. MINAE is also in charge, via SETENA, of environmental construction viabilities of any kind of generation project.

ARESEP is in charge of the quality of the electricity that costumers receive and of the economic regulation (tariffs) of all the electricity prices (generation, transmission, distribution and commercialisation).

Establishment of regulators

How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?

The ARESEP is considered very independent. The General Regulator is the head of the ARESEP and is chosen by the President of Costa Rica, but needs to be approved by the Parliament as well. ARESEP also has a board of directors that is chosen by the President and needs to be approved by the Congress.

The head of MINAE is the Ministry, and for the energy sector there is also a Vice Minister of Energy, both chosen at the discretion of the President.

Challenge and appeal of decisions

To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?

ARESEP and MINAE decisions can be appealed, but their decisions are rarely revoked.

These decisions can be also challenged in a judicial court, under a formal trial to present the arguments to revoke a decision.

Acquisition and merger control – competition

Responsible bodies

Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?

In Costa Rica the acquisition of electricity utilities happens at generation levels, for example, when a distribution company buys a generation plant that was owned by a different private company.

In these cases, during the acquisition process the companies send an information letter to the Competition Government Office, which is part of the Ministry of the Economy.

Review of transfers of control

What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?

Transfers of stocks of private generation companies are not under competition restrictions, because:

  • Costa Rica does not have an open electricity market; and
  • ICE and its subsidiary (CNFL) have more than 70 per cent of the consumption market, which means that the dominant company is also a government company.

Prices are regulated and do not depend on the market share.

Prevention and prosecution of anti-competitive practices

Which authorities have the power to prevent or prosecute anti-competitive or manipulative practices in the electricity sector?

Costa Rica does not have an open competitive electric market. The price of electricity does not depend on market share.

Determination of anti-competitive conduct

What substantive standards are applied to determine whether conduct is anti-competitive or manipulative?

Costa Rica does not have an open competitive electric market. The price of electricity does not depend on market share.

Preclusion and remedy of anti-competitive practices

What authority does the regulator (or regulators) have to preclude or remedy anti-competitive or manipulative practices?

Costa Rica does not have an open competitive electric market. The price of electricity does not depend on the market share.

International

Acquisitions by foreign companies

Are there any special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies?

Private companies that sell electricity to ICE, according to Law 7,200, must always leave a 35 per cent share of the company in the hands of Costa Rican citizens. It means that a foreign company may hold only 65 per cent of the shares in a private generation company.

Authorisation to construct and operate interconnectors

What authorisations are required to construct and operate interconnectors?

ICE has a monopoly on transmission networks in Costa Rica. Only ICE may construct and operate transmission networks. Costa Rica does not have an open transmission market.

Interconnector access and cross-border electricity supply

What rules apply to access to interconnectors and to cross-border electricity supply, especially interconnection issues?

ICE has a monopoly on transmission networks in Costa Rica. Only ICE may construct and operate transmission networks. Costa Rica does not have an open transmission market.

Transactions between affiliates

Restrictions

What restrictions exist on transactions between electricity utilities and their affiliates?

There are no restrictions on transactions between electricity utilities and their affiliates.

Enforcement and sanctions

Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?

There are no restrictions on transactions between electricity utilities and their affiliates.

Update and trends

Update and trends

Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?

In the Costa Rican Parliament, there are groups that advocate for a more open electricity market with more space for private projects. The higher costs of recent hydroelectric projects built by government companies (ICE and CNFL) challenge the regulatory model that probably should evolve.

Electric transportation will need more renewable energy (solar and wind) in order to maintain the 99 per cent renewable electricity production that Costa Rica has reached but first the electric fleet has to rise during the next five years before we see significant growth in new generation projects.

Disruption of the electricity sector is closer, for Costa Rica and for the world. In five or seven years, electricity storage could change the way the market has been working for decades. It is a huge opportunity but a big challenge as well for all the companies in this sector.

At this moment the movement in the internal market is in the hands of distribution generation because every month more commercial and industrial companies are installing solar panels to produce their own energy at a lower cost and this process could grow bigger and faster during 2019.