Power policy

Costa Rica’s net-zero strategy was a pioneer in its region, specifically in aiming to reach 100% renewable power by 2030. To put that latter goal in context, in 2020, 99.8% of Costa Rica’s generation came from clean sources, including large hydro. Hydropower is the country’s predominant source of capacity, at 2,330 megawatts, and accounted for 71% of 2020 generation. More geothermal capacity was added in 2019 than any other technology, with 50 megawatts brought online. Geothermal in 2020 accounts for 7% of Costa Rica’s total capacity.

Costa Rica does not need an auction policy since there is an oversupply of renewable energy, however, it was one of the first countries in Latin America to implement a net metering program. The producer-consumer may deposit the unconsumed energy in the distribution network and will have the right to withdraw up to a maximum of 49% of the total energy generated, to use it in the following months in an annual period. By mid 2021, a project of law that envisioned the sale of the electricity surplus to third parties, more tax exemptions and the possibility to generate electricity in one place and use it in another, was being discussed but wasn't approved.

Power prices and costs

Costa Rica power prices rose in 2016 due to the heavy use of diesel-fired generation to satisfy a 6.6% jump in electricity demand. Prices fell and rebounded since 2017, but then remained kept almost constant from 2019 to 2020. Residential customers specifically have different tariffs according to the period of the day, which can be the peak period, valley period or night period.

Power market

The power market in Costa Rica is regulated and dominated by vertically integrated Instituto Costarricense de Electricidad (ICE), the country’s major generator and sole power purchaser. However, the Costa Rican market allows private participation in the form of cooperatives and independent power producers. These entities can be involved with generation and distribution in some parts of the country, but in 2019, ICE and CNFL (its subsidiary) were responsible for generating 67% of total electricity produced.

Costa Rica attracted $2.1 billion in new-build clean energy investment over 2010-2019. Over a third of that capital was directed to small hydro plants ($0.8 billion), followed by geothermal with $0.6 billion and wind with $0.6 billion. Investment peaked in 2014, with almost $0.6 billion accounting for these three technologies. But this dropped by half in 2017 and was even smaller in the next years. In 2019 Costa Rica attracted only $7.5 million to its clean power sector.

Doing business and barriers

Costa Rica’s government has demonstrated strong commitment to clean energy and climate-related incentives. However, high hydro penetration and slow demand growth have curtailed opportunities for new entrants. With typically around 70% of the country’s power coming from hydro, the need to add other clean generation to achieve the national 100% renewable energy goal is limited.

In 2010, the country established an import-tax exemption for equipment and materials brought in to support renewable energy development. Law 51, which came in force in 2016, authorized power purchase agreements (PPA) for up to 20 years. However, private companies that develop renewable energy projects are not allowed to build power plants of over 50 megawatts, limiting the competition between private and public projects. In addition, due to the low demand caused by the pandemic, ICE is not renewing contracts to buy power generated from other players, once the power it generated is already sufficient to supply electricity to all. Due to this, there are several power plants being decommissioned.

EV market

Although the EV market in Costa Rica is still small, the government has created incentives to purchase EVs, either used or new. The public institution ICE has changed 100 from its own fleet to EVs.

According to U.S. International Trade Administration, Costa Rica sold until March 2021 approximately 1,606 electric cars, 625 electric motorcycles and 1,218 special use vehicles (such as golf carts).

EV policy

In Costa Rica’s National Decarbonization Plan, the transport sector is mentioned in several different ways. By 2025, zero-emission two-wheelers should be competititve. By 2035, some 25% of the vehicle fleet should be EVs, and by 2050, the targets are 100% of the new vehicle sales to be zero-emission vehicles (meaning a phase-out target of the Instituto Costariccense de electricidad) and 60% of the vehicle fleet - public and private.

The incentives to achieve this are exemption from VAT, import tax, vehicle ownership tax, toll fees and parking levies in designated areas. Electric vehicles are also exempted from traffic restrictions such as peak and license plate.

Buildings market

Specific to the buildings sector, Costa Rica's National Decarbonization Plan aims to achieve the three targets. These are an increase of 10% in the use of wood, bamboo and other local materials in buildings by 2025, and 100% of the new buildings being designed and built adopting low-emission and resilience systems and technologies under bioclimatic parameters by 2030, as well as 50% of commercial, residential and institutional buildings operating under emission standards like water heating by 2050.

Buildings policy

The government has yet to implement any substantive policy support in this sector and the low-carbon heating and cooling market remains at an early stage.