Costa Rica Electricity Rate Increase Comes as a Shock

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    Back in March, the state utilities regulator announced that Costa Rica had met its yearly energy demand almost exclusively with renewable resources and, therefore, would be reducing electricity rates by about 12% from April. Now, April has come to an end and Coopesantos — an electrical cooperative with over 40,000 subscribers in the Central Valley — just came forward with not a reduction, but an increase of 8.7% to their rates.

    What’s going on with Costa Rica Electricity?

    How can prices continue to rise so quickly?

    Nevertheless, the 7,000 Coopealfaroruiz subscribers in Alajuela have it far worse as the co-op warns of the possible 30% rise coming to their tariffs. The rate hikes range in size from company to company, but they all point to the same questions: What’s going on? How can prices continue to rise so quickly?

    A Pattern of Change

    In all fairness, today’s high electrical costs are part of a trend that extends at least the last decade, and will surely take more than a few month to correct. Like most of the rest of the world, Costa Rica has experienced increasing energy prices. In the last ten years, electricity rates have nearly tripled for the country. This is due to a combination of national demographic and global economic trends.

    Rapid population and gross domestic product (GDP) growth within Costa Rica led to a 130% increase in energy consumption from 1990 to 2010. This was enough to shoot prices through the roof even though inflation in 2013 was at a 20-year low.

    Is it the Renewable Energy?

    Though Costa Rica hopes that the recent switch to all renewables will save them money in the long run as fossils fuels continue to be a global issue, this switch did not come without its own cost. Other countries such as Denmark and Germany also depend heavily on renewable sources and yet they too have some of the highest electricity rates in the world. [quote_box_right]Need to save on electricity? Read this: 3 Ways to Make Your Home More Energy Efficient[/quote_box_right]Though power alternatives such as wind, solar and geothermal technologies have obvious advantages as they provide a healthier and more sustainable model for energy production, they do require more infrastructure to get renewable energy from its place of generation–usually along remote hillsides, on the coast or in thermal areas–to urban areas that consume it the most.

    Last November, the International Renewable Energy Agency reported that the weighted average costs of electricity from geothermal, hydropower and onshore wind are nearing the average price of electricity produced by fossil fuels. This is especially true for Costa Rica where the average price of regular gasoline last week was $4.04–almost two dollars higher than neighboring Panama. The Costa Rican Electricity Institute (ICE) also predicts that their electricity selling prices on the other hand will continue to go down throughout the year. Therefore, in theory, it seems customers should see decreases in their rates if not in the next months, in the next year.

    A Fight for More Clarity

    As it stands, users cannot choose their electricity company, but medium and high voltage electricity rates are supposed to be fixed as stated in the National Development Plan of Costa Rica. That said, recent increases seem to contradict the executive order. Therefore the American Chamber of Commerce (AmCham) has taken legal steps against the Regulatory Authority of Public Services (ARESEP), requesting more transparency with regard to the hikes.

    Although the Constitutional Court ruled in AMCHAM’s favor, ARESEP has yet to release all documents that certify the rates are in accordance with the National Development Plan. We now know that ICE was allowed to raise its rates under certain conditions set by ARESEP, but it is uncertain what those conditions were, how exactly the rate change was calculated, or whether the conditions were ever fulfilled.

    According to Elias Soley, the Second Vice President of AmCham:

    [quote_center]“If the country does not allow users to choose their supplier of electricity, ARESEP, like the other electric companies, must demonstrate that the electrical service provided is making the best use of resources. We must have the guarantee that the electrical service is efficient, with good quality, at a cost that does not undermine the competitiveness of companies and, at the same time, generating more employment opportunities.”[/quote_center]

    Until ARESEP releases the appropriate documents, it is impossible to know the full story behind Costa Rica’s increasing electricity rates. If rates do continue to go up however, it could be at the price of the country’s international competitiveness and, subsequently in time, the nation’s already tight job market.

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