Nicaragua Energy Situation

Situation analysis and framework conditions

Energy situation especially in rural areas

Energy demand and supply in the household sector

The total primary energy offer in Nicaragua is around 3.52 Mtoe or 40,937.6 GWh. The main source of primary energy is biomass (52.27%) followed by petroleum (38.35 %), and others (9.37 %) such as hydropower and geothermal . The total energy consumption is around 2.7 Mtoe (31,401 GWh) which is about 76.70% of the total primary energy offer.
The residential energy consumption is around 47.6% of the total energy consumption , which 94.4% are provided by fuel wood. Gross electricity generation of the SIN and isolated power station registered is currently around 3,451.91 GWh, with the share of 79.37 % petrol power plants, 8.6 % hydro power, 8.59 % geothermal power plants, 0.26% gas power plant and 3.18% wind power plants .The net electricity offer is around 3,150.98 GWh , but 28.4% of the electricity generated is lost during transmission (2%) and distribution (26%), of which18% are classified as non-technical and the remaining percent as technical.
The load factor of the installed generation capacity is 68.56%, similar to the load factors of neighboring countries. During 2007 the effective energy supply generation was reduced to less than 500MW due to scant rainfall that reduce the use of hydro electrical power plants, as well as flaws on old generation plants; which causing frequent current outages.
To address this crisis, the Government of Nicaragua decided to install 60 MW with diesel generators, in 2008 60 Mw with bunker generators, and between 2009 and 2010, 120 MW with bunker generators. All of those operated with fuel which is sold by the Government of Venezuela at subsidized prices.
With those new additions, the installed capacity is around 1015.6 MW (effective 836.6 MW) of which 66% is petrol, 9% biomass, 11% hydro electrical, 9% geothermic and 5% wind power plants.

Rural electricity supply

Nicaragua has one of the lowest rural electrification rates in Central America, approximately 65% of the population compared to 99.2% coverage in Costa Rica. About 68.7% of the rural population still lacks access to electricity . In absolute terms, it is estimated that a total of about 340,000 dwellings (1.8 million people) in both urban and rural areas lack electricity service.
The national electricity is subdivided into two concession areas covers only the western part of the country. More than half of the country on the Caribbean and Atlantic coasts remains outside of these concession areas, including half of the Rio San Juan Region, the Region Autonoma Atlántico Sur (RAAS), the Region Autonoma Atlántico Norte (RAAN) and two thirds of the Jinotega region, Matagalpa, Boaco, Chontales and Rio San Juan.
The area not covered by the SIN is called the “Open Area.” This area remains open to be divided into smaller concession areas on a case-by-case basis. The Open Area is characterized by very low population density—only 6 inhabitants per square kilometer, average electricity consumption is 60 KWh per month, there is a low load factor, low incomes, the dwellings have a wide spread and the communities are located far from the energy distribution net.
There are 15,584 households in an area of 124, 433 square kilometers, while density in the two concession areas reaches approximately 80 inhabitants per square kilometer. Population is highly dispersed and access is often difficult (for example, there is only river access for most of the Atlantic Region). These two characteristics prevent the provision of electric services by the conventional grid, and call for site-specific off-grid solutions like the diesel plants, or if hydro resources allow, a micro, mini or small hydropower plant. Off-grid electrification in Nicaragua today consists mainly of installing diesel mini-grids, operated by ENEL to serve some larger villages in remote rural areas, often at heavy financial losses which need to be financed by the Government of Nicaragua on a continuous basis. In a few cases hydroelectric and solar home systems have been implemented.
Some rural electrification projects have been carried out by the Government of Nicaragua, through the FODIEN (Fondo para el Desarrollo de la Industria Electrica). FODIEN is designed to finance feasibility and pre-feasibility studies, project design, execution of projects, and education and communication campaigns in the field of rural electrification. Among these projects are :

• Development of small scale hydropower plants for productive use off-grid (PCH). The program's goal is to develop mini and small hydropower plants in rural areas with highly productive potential. The electricity usage will be targeted for residential and productive activities. The program aims to benefit dwellings located in communities out of the concession zone. The program cost 18.23 million USD, of which approximately 80% of funds come from external funding.
• Rural electrification treasury funds. The project is implemented with funds from the Nicaraguan government, provides electrification to 42 communities in nine departments (approx. 11.508 inhabitants), also include a further construction of 94.8 km of distribution networks.
• Rural electrification program in productive areas located out of the concession area (PERZPAC). The project aims for the electrification of 41 rural communities, (approx. 14.742 inhabitants); it also includes the construction of 122 km of distribution networks.
• The FAROL-ER Program, benefits 22 rural communities, (approx. 6810 inhabitants) and includes the construction of 78.6 km of power distribution networks in the departments of Nueva Segovia, Estelí, Matagalpa and Jinotega.
• PLANER (2004-2013), funding for the development of the national electricity industry (FODIEN) includes the extension project funded by EnDev network, the project finances the construction of 12.5 km of distribution network and rural electrification in 8 communities with an estimated target population is 3.468 people.
• Recently, some rural electrification projects have been approved, such as project to enable hydroelectric plants (23 USD million, loan BCIE) and a rural electrification project finance by IDB (30 USD million).

Institutional set up and actors in the energy sector

Nicaragua's power sector underwent a deep restructuring during 1998-99, when the generation, transmission and distribution divisions of the state-owned Empresa Nicaraguense de Electricidad (ENEL) were unbundled, and the privatization of the generation and distribution activities allowed. A wholesale market was created, which allowed electricity trading through long term contracts between generating companies and utilities or large users (more than 2 MW of installed capacity). A spot market also exists.
Four generation companies (GEMOSA, GEOSA, HIDROGESA, and GECSA) a transmission company ENTRESA and two distribution companies (DISNORTE and DISSUR) were created. Two generation companies were sold and are now privately operated; the transmission is expected to remain public and the two utilities were sold to the Spanish company Unión Fenosa in September 2000, with a concession that covers the Western, Central and Northern zones of the country. The eastern part of the country along the Atlantic Coast remains in the responsibility of ENEL which manages some mini-grids at the Atlantic coastline.

Public institutions

The “Ministerio de Energia y Minas (MEM)” was established in 2007 as result of the transformation of the Comisión Nacional De Energía (CNE) into a ministry. MEM is responsible for formulating, coordinating, and seting overall objectives, policies, strategies, and general directives for the entire energy sector. It is also in charge of undertaking strategic indicative planning for the energy sector aimed at achieving development goals and optimizing the use of national energy resources. MEM reviews energy demand and supply balances, pricing policies, energy conservation programs, service coverage, and investment and financing strategies. It undertakes studies, issues criteria for investment projects, promotes private sector participation, and proposes concessions for the use of natural resources by the private sector to the National Assembly. The mandate of MEM includes the development of rural electrification initiatives in coordination with multilateral and bilateral agencies and the promotion of national and foreign investment.
INE (Instituto Nicaragüense de Energía) is the national regulatory authority for the power and hydrocarbon sub sectors. In the power sector INE approves tariffs, adopts technical norms, and undertakes planning functions. The mission to issue concessions and licenses to operators has currently been transferred to the MEM.
As remaining state owned electricity company, ENEL manages some 23 diesel and hydroelectric powered mini-grids in the non concession areas which are heavily subsidized to meet national electricity prices. Activities carried out by ENEL are: planning, management, control, monitoring and evaluation of power generation projects. Through its Isolated Systems Division, ENEL provides electricity to the north, south and central Atlantic region, outside the concession area by DISNORTE and DISSUR utilities.                                                                                                                                                                                                                                                                                     ENATREL or National Electricity Transmission Company is responsible for the operation and maintenance of the national transmission system.

The National Load Dispatch Center or CNDC (Centro Nacional de Despacho de Carga) manage the electricity market and the operation of the national interconnected system (SIN). Among its functions are: to schedule and dispatch energy available, to operate the national interconnected grid and the national transmission system (SNT), and to coordinate the planning of preventive and corrective maintenance of the facilities of the National Interconnected System and International Interconnection.
Other public institutions involved in the energy sector are:
• The Ministerio para el Fomento, la Industria y el Comercio (MIFIC) it is in charge of granting concessions for the use of water in hydroelectricity projects with generation capacity between 1 MW to 30 MW. For less than 1 MW projects will not need to apply for a grant
• The Ministerio del Ambiente y Recursos Naturales (MARENA) develops policies and defines norms for the enviromental sector. Based on environmental impact studies, MARENA gives permits for all activities regulated by the environmental law (Ley del Medio Ambiente).

Electricity companies

Power Generation : 80% of the power generated comes from private companies, amongst which we find: Consorcio Eolico Amayo operating since 2009 with an effective capacity of 30 MW. The Coastal Power that runs two thermal power stations, ‘Nicaragua’ and ‘Chinandega’, with a combined effective capacity of 114 MW. Other private thermal power stations are CENSA-AMFELS, Tipitapa power company and ENRON with the following effective capacities: 24 MW, 50.9 MW and 50 MW, respectively.
Currently all geothermal and biomass power stations are private owned. Geothermal power plants include ORMAT (22 MW), Polaris Energy Nicaragua (4.8 MW) and GESARSA (4.2 MW). The biomass power plants Monterosa and Nicaragua Sugar Ltd., both of them generate electricity from sugarcane bagasse.
The state owned companies are Albanisa thermal power plant (97.6 MW), GECSA manages the three thermal power plants ‘Managua’ (50MW), Hugo Chavez Flores-Las Brisas (43.2 MW) and ‘Las Brisas’ (54MW), and HIDROGESA hydroelectric power plant with a effective capacity of 96 MW
Transmission: The transmission company Empresa Nacional de Transmisión Eléctrica S.A. (ENATREL) remains a government-owned company and is responsible for the management of the transmission lines and the international electricity exchange, which is managed by the CNDC (Centro Nacional de Despacho de Carga). As indicated above, CNDC is responsible for the dispatching functions.
Distribution: the energy distribution is carried out by Union Fenosa, ENEL, Zelaya Luz S.A. and small dealerships which manage some isolated systems. Unión Fenosa is a private-state owned utility which got the concession for the national grid covering the Western, Central, and Northern zones of the country trough two distribution systems: Disnorte and Dissur. In the concession areas, Unión Fenosa holds a monopoly on distribution and retail supply except for final consumers with a power demand higher than 2 MW, who can contract directly with generators if so they wish.
Asmentioned before, ENEL through its Isolated Systems Division, provides electricity to the north, south and central Atlantic region, outside the concession area by DISNORTE and DISSUR utilities.
Since 2006 and for a period of 30 years the Zelaya Luz S.A., private owned utility, can distribute and market energy in the Nueva Guinea municipality located on the South Atlantic Autonomous Region (RASS). The energy supply to Zelaya Luz S.A is provided by DISSUR and it is expected that 250 dwellings access electricity through this utility.
The small dealerships are 10 small utilities which also generate their own electricity; all of them provide electricity to remote rural villages and small urban municipalities, located on the eastern and central region. Of these utilities, 60% have an installed capacity of less than 500 Kw. Some of them are describe in the section below.

Non governmental services providers for rural areas in energy sector

Projects implementing NGOs: Nicaragua has a well developed NGO sector with several organisations working in the field of energy. The most important are:

• APRODELBO Asociación de Pro-Desarrollo del Servicio Eléctrico Bocay (APRODELBO) operates a hydropower plant of 230 kW and the mini grid in the department Jinotega.

• ATDER-BL La Asociación de Trabajadores de Desarrollo Rural - Benjamín Linder, ATDER-BL, has carried out several energy projects in several communities in the centre and north of Nicaragua. ATDER-BL's energy activities are mainly focused on hydropower and include: feasibility studies, research, construction of equipment, administration and training of local groups in the operation of the constructed infrastructure.

• ASOFENIX utilizes photovoltaic pump systems in water projects. They are also promoting Solar Home Systems of 25W which cost 350US$ or 13 US$/month in rural areas. In addition, Asofenix is interested in two hydropower projects.

• ASOLPIC La Asociación Electronic Light-La Pita Central (ASOLPIC) is operating a micro hydro power plant of 30 kW in La Pita-El Carmen and also operate the mini grid.

• PROLEÑA Asociación para el Fomento Dendroenergético de Nicaragua (PROLEÑA) is promoting on one hand the use of improved cook stoves and on the other hand is developing three projects to generate electricity with biomass (shells of peanuts, rice husks and timber waste).

• FUNPROTECTA Fundación Nicaragüense para la Promoción de Tecnologías Alternativas (FUNPROTECA), are carrying out rural electrification projects including SHS and improved cook stoves in the pacific region.

• TERRASOL is promoting SHS in rural areas. They are also provide training in administration and management.

• BUN-CA (Biomass User Network – Central America) is a regional network with several energy related activities.

• FENERCA is providing business development services for small renewable energy companies. The organization also provided loans to start-ups financed by E+Co.

• Fundación Solar, is active in all renewable energy areas. Activities comprise studies, advisory services, promotion of renewable energy technologies.

Policy framework

Poverty reduction strategy

Nicaragua is the second poorest country in the Latin America and Caribbean (LAC) region after Haiti with an estimated per capita GDP of US$817 in 2004. In 2001 Nicaragua worked out a poverty reduction strategy which has become the guideline for the national development strategy. Although Nicaragua made some progress in reducing poverty nearly half of all Nicaragua’s Poverty Reduction Strategy Paper (PRSP) and Millennium Development Goals (MDGs) targets are not currently on track to be met by 2015 according to an evaluation of the World Bank. The Nicaraguan government considers the improvement of the infrastructure especially of energy service a key factor for economic growth and for the alleviation of poverty in rural areas. Within the frame of the implementation of the PRSP the government committed itself to provide 15 Mio US $ from the national budget for a special rural electrification programme for the period 2005 – 2009. The objective is to connect 14,235 households (approx. 80.000 persons) in 483 villages to the grid. The programme is part of the national plan for rural electrification.

Energy policy

The energy sector is regulated through several laws, decrees and norms. The key primary and secondary laws and regulations for the power sector are:

• “Electricity Industry Law” (Ley de la Industria Eléctrica) (No 272-1998) and “Electricity Industry Law Regulation” (Decree No. 42-1998). This law defines actors, their role and responsibilities on energy sector, also determine the activities that can be develop on energy sector such as generation, transmition, distribution, marketing, importation and exportation; and establishes the conditions to do it.
•  “Renewable energy promotion law” (Ley para la Promoción de Generación Eléctrica con Fuentes Renovables) (No. 532-2005), declares that renewable energy based power generation is of national interest. Additionally, it establishes economic incentives and priority rights when contracting new RE generation. The law established the following incentives for all equipment and materials necessary to establish power generation with renewable energies: i) exoneration of import taxes, value added tax , income tax for seven years for the operation of renewable energypower plants and all local taxes as well as other taxes; and ii) obligation of utilities to buy power generated from renewable energy plants.

• “Hydroelectric sub-sector promotion law” (Ley para la promocion del sub-sector hidroelectrico) (No. 467-2003) and “Sub-sector hydroelectric promotion regulation” (Decree No 72-2003), sets the maximum generation capacity that can be generated for private investors, also sets the conditions to obtain a generation authorization.
• “The Geothermal Resource Development Exploration Law” (Ley de exploracion y explotacion de recursos geotermicos) (No 443-2002) and its regulations, sets the framework for assigning geothermal exploration rights, provide developers a concession regime for resource exploration and development.
• “National Energy Policy” (Política energética nacional) (Decree No 13-2004) its main objectives are to ensure the country's energy requirements, prioritize the usage of clean renewable energy sources within national energy matrix, allocating resources and mechanisms in order to obtain the maximal benefits, promoting stability in the costs of power generation in the country through renewable energy sources, establish incentives for investments that produce acceptable cost, diversified supply, clean generation and efficient use, promote anti-monopoly and competitive behavior in the energy sector, promote energy sector participation on the Integrated Regional energy markets, and others.
• “PLANER”, based on the National Development Plan (PND), a national program for rural electrification (PLANER) was developed. The aim of the program is to achieve a national electrification rate of 70% by 2013. In absolute figures it means to provide 1,585,909 people with access to electricity. The program costs are calculated to be 344 million US $ or 189 US $ per person. The Government's sees the expansion of electricity services in the rural areas as part of its strategy to improve the competitiveness of the country through the strengthening of rural economic activities, and as a tool to improve the living standards of the rural population. The Government however, is also aware, that the electricity sector would be able to contribute to the achievement of this ambitious goal only if electrification is combined with the promotion of economic activities in rural areas. Therefore, the Government's strategy aims at strengthening rural businesses by upgrading agricultural technology, promoting integrated clusters and networks for the dairy and coffee sector, and by training trainers to deliver business development services to rural areas.
• “FODIEN” (Fondo para el Desarrollo de la Industria Eléctrica). In October 2000 the Nicaraguan government created the public fund (FODIEN) to finance rural electrification projects. The fund is managed by MEM. FODIEN is designed to finance feasibility and pre-feasibility studies, project design, execution of projects, and education and communication campaigns in the field of rural electrification. FODIEN resources come from multilateral agencies, bilateral donors, and from the state via the general budget of the republic. In addition, the fund will be fed by concession and license fees and fines. FODIEN can finance projects through grants, soft loans, loans without interest, and commercial loans. FODIEN has only recently become operational thus the first electrification projects in rural areas have received financial contributions through this mechanism.
  
  

Key problems hampering access to modern energy services in rural areas

Obstacles for grid based rural electrification

Several factors handicap rural electrification in Nicaragua, among of which are:

1. Insufficient financial resources for investments in grid extension and installation of minigrids. Unión Fenosa is not interested in grid extension into rural areas, as the profitability of the investment is considered low. The same refers for establishing mini grids in rural areas. Private companies generally don’t invest in this sector as cost of providing access are high due to remoteness of the sites, dispersed nature of the populations and difficulty of the terrain. Local communities don’t dispose of sufficient proper financial resources to make infrastructure investments in their community. Consequently, only the central government and NGOs are left for this kind of investment. NGOs are specialized on small systems whereas the MEM is involved in middle size systems. However, both depend to large degree from international donations to be able to carry out mayor investment in rural electrification. In the case of MEM less than 30% of the calculated costs of the national rural electrification plan are currently covered by international grants and loans.
2. Lack of skills in operating small power generating plants and mini grids. Although there are several examples where micro and mini hydropower plants are managed successfully in rural areas in Nicaragua, the number of sufficiently qualified persons is low. This refers to technical skills necessary to maintain and repair the system as well as to management skills regarding appropriate tariff-setting and operation of the plant.
3. Difficulty to operate mini-grid profitability due to the low purchasing power and the low energy demand of rural clients.

Obstacles for off grid energy technologies and services

1. Insufficient financial resources to carry out dissemination programs for off-grid technologies.
2. Insufficient availability of micro-finance schemes for energy technologies in rural areas. Large parts of the country have almost no access to institutional micro-finance services and must rely largely on moneylenders, suppliers, family and friends for short term seasonal loans. There are no secure liquid savings options available to these households, which would enable them to build assets over time. Existing micro-finance institutions often have a narrow credit product line, limited experience in rural markets and a lack of access to best practice information and technical tools.
3. Lack of a marketing and maintenance structure for energy technology devices in rural areas. Almost all retailers are established in cities with no outlets in rural communities. Thus, clients have to travel to cities to purchase energy devices and for repair orders, which is difficult for most rural families. Establish rural outlets are considered not to be profitable due to the high costs for transportation and mobilization, the dispersed nature of the populations and the low income and low demand of the local population.

References

EnDev-Nicaragua