NAE Case Study: Costa Rica, Distribution Cooperatives

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Description

Initially three (now four) cooperatives, tasked with managing, operating and maintaining the grid in their concession areas and extension to new communities and users within these areas, were established with US$3.3 million loans from USAID, a contribution equivalent to US$0.8 million from the National Bank of Costa Rica and funding from cooperative members (at least US$118k from each cooperative). The design and construction of the program was undertaken by ICE, the national electric power utility, with training from NRECA of the USA. The relationship between the cooperatives and ICE varies in each case, with different operational models being adopted. Arrangements for establishment of local savings committees were put in place with the Department of Cooperatives of the National Bank of Costa Rica. A regulated price system was implemented, under the principle of at-cost service (the price should cover costs, plus a margin for  investment to cover future increase in demand).

Context

Costa Rica is an outstanding example of a country with universal public services delivery. It has extended electricity services  to all social groups and every region of the country, taking full account of the need or equity, quality, affordability, public ethos and environmental sustainability.  99.4% of the people in Costa Rica have direct access to electricity.  In 2016, 97% of the electricity generated came from renewable sources: 65% hydropower, 16% wind, 14% geothermal, biomass 2% and solar 0.02%. Thermal plants covered just 3% of the country’s electricity needs, consolidating a trend to use fossil fuels only as a backup generation source. The national electricity utility ICE, established in 1949, was initially concerned primarily with building up the country’s supply system and developing the national grid.  Distribution remained the concern of the municipal and private electricity companies. However, by the mid-1960s, rural electrification had become a hot issue in the political agenda.  Public pressure for better performance by the private companies and for a much faster pace of rural electrification led a responsive government to seek ways to initiate rural electrification programs. For supply to remote areas, Costa Rica now has four large electricity cooperatives, with a total of 180,393 members and service areas that cover more than a fifth of the national territory. Together, these co-operatives supply electricity to over 392,000 users, mostly living in rural settlements where neither the state-owned nor the for-profit companies were interested or able to offer any service.  These rural electric cooperatives are owned and operated by energy users and community members.  They have proven to be stable, effective, and financially viable organizations. Although they currently connect only about 20% of the country’s rural residents, they increasingly appear to provide an attractive and sustainable model for decentralized electricity supply.

Objectives

The primary objective of the rural electrification cooperatives has been to achieve the high levels of electricity connection now achieved (99.5% according to the World Bank), of which the co-ops account for about 20% of rural consumption. The broader goal of the national co-operative movement, summarised by the mission of the co-operative consortium, CONELECTRICAS, is "to strengthen its members by promoting and implementing joint generation projects and other initiatives related to the electricity sector, contributing to their development as energy enterprises in accordance with the principle of environmental protection and the values of the cooperative movement.”

Legal Basis

The key legislation governing the electricity sector in Costa Rica is as follows:

• Law N°449 for the creation of the Costa Rican Electricity Institute
  
• Law N°7593 “Law of the Public Service Regulatory Authority”
  
• Law N°7200 authorizing private generation of up to 15% of the total installed capacity with ICE purchase and sale contracts

• Law N°8345 “Participation of rural electrification cooperatives and municipal public service companies in National Development” (Coopelesca, Coopealfaro, Coopeguanacaste, Coopesantos, Coneléctricas), which was enacted in 2003 (www.pgr.go.cr/) and sets out the legal framework for the generation, distribution and sale of electrical power by rural electrification cooperatives to consortia they have formed and to municipal public service companies, using both renewable and non-renewable sources within the country.

Institutions, Roles and Responsibilities

Distribution and commercialisation of electricity is the responsibility of four state-owned companies – one national, one regional and two municipal – and four cooperatives, with no participation by for-profit private companies. The Costa Rican Electricity Institute (Instituto Costarricense de Electricidad – ICE) is an autonomous state institution with the legal mandate to provide the electrical power the nation requires for its development. ICE is active in the fields of energy and telecommunications and has evolved as one of the pillar institutions of this welfare state. ICE is responsible for 38% of the energy distributed in the country, and its regional subsidiary Light and Power Company (CNFL, active in the metropolitan area of San Jose), for 41%. The two municipal enterprises, the Public Services Company of Heredia (ESPH) and the Electric Board of Cartago (JASEC), account for 12% of distributed power. The four rural electrification cooperatives (COOPEGUANACASTE, COOPELESCA, COOPESANTOS and COOPEALFARO) distribute the remaining 9%. These co-operatives are “legal persons of public convenience and utility and social interest governed by private law”. They are all involved in electricity distribution, and some are also generators. In 1989 the cooperatives joined to create the Consorcio Nacional de Empresas de Electrificación de Costa Rica (CONELECTRICAS R.L.), a consortium that aims to defend the interests of the cooperative sector and engage in common power generation operations, policy advocacy and provision of technical services. This consortium enables the co-operatives to obtain financing for the development of generation projects to supply electricity to subscribers in their distribution area. The consortium owns and operates two hydropower plants with an installed capacity of 43 MW. The remaining electricity needs of the cooperatives are met by the national state-owned utility ICE, with which they have had a mostly supportive and synergetic relationship. Private power generation companies operate under the framework of Autonomous or Parallel Generation Law, No. 7200, and most are members of the Costa Rican Association of Electricity Producers (Asociación Costarricense de Productores de Electricidad – ACOPE).  The Public Service Regulatory Authority (Autoridad Reguladora de los Servicios Públicos – ARESEP) is the body responsible for fixing tariffs in the electricity chain of generation, distribution, sale and transmission; it also sets tariffs for purchasing electricity from private generators and to establish quality standards in the provision of public services.

Interventions

The four rural electrification cooperatives and the municipal companies are the only entities permitted to sell electricity directly to clients in their concession area. ICE owns the transmission lines, but the co-ops are responsible for distribution through over 7,000 km of grid, supplying some 150,000 customers. The supply area of the four cooperatives stretches across 22 per cent of the nation’s territory. Law No. 8345 authorized cooperatives to generate, distribute and sell electrical power to users located in the geographical area of coverage defined by their concession. The law also authorizes them to sign cooperation, investment and joint operation agreements with each other and with other public and municipal companies.  NRECA helped establish the four electric co-operatives and, in 1989,  NRECA  also helped these co-ops to form Conelectricas which owns and operates two small hydro plants and sells the energy output to its members. Each of the co-ops has been able to adopt its own approach.  For example, COPESANTOS decided that after initial construction of the distribution system was financed by the USAID funding, new consumers would be required to pay their connection costs.  By contrast, COOPELESCA started with a partial connection fee and arrangements for members to secure low interest rate bank loans.  The operational models, including the tariffs charged, also vary across the different co-operatives.

Impacts Achieved

The four rural cooperative enterprises have been active since the 1960's and are completely self-sufficient; all four have survived and prospered, helping the country to achieve over 99% electrification. They are entirely not-for-profit and reinvest all financial surplus into improving the quality and the coverage of their services. They are also continually expanding the scope of their operations beyond their original mission, for example into telecommunications, retail, media and insurance services.   They have also provided jobs for over 1,900 workers. In March 2015, the Costa Rican government announced that the country had gone 75 days without using fossil fuels by relying exclusively on renewable sources to generate power.  

Lessons Learned

This experience shows that multiple approaches to electricity distribution can be successful even in the same country.  But all need meticulous preparation and continued institutional support when setting up new organizational structures for rural electrification.  Early and full coverage of urban areas provided a secure technical and financial foundation from which to extend the benefits of electrification into rural areas.  The long-term fuel source must however be carefully considered; since climate change may worsen, and rain patterns become more unstable in Central America, Costa Rica has recognised the need to expand solar and wind power capacity in preparation for changing weather conditions that may challenge today’s reliance on hydropower. Experience has shown that, when extending access to electricity, care must be taken to avoid the excessive proliferation of dams (small and large), leading to overproduction of energy and unnecessary environmental degradation.  Such dams may also contribute to the expansion of commercial forest plantations, agribusiness production, tourism enclaves and the imposition of genetically modified crops - these are all outcomes that can brings benefits but need to be carefully managed. Local communities have also denounced the impacts of relatively small hydropower projects, which in some cases have involved the loss of artisanal fishing and recreational spaces.

Effectiveness

The co-operatives supply energy to ~400,000 users (~115,000 households), with initial costs offset by early finance of ~US$4.5m (provided by international donors, the national bank, and co-operative members).  Cost-covering prices were successfully introduced by the co-operatives after the grants and concessional loans were taken into consideration.  This market driven approach, with co-operatives servicing rural areas, has been very successful (over 99% of the population now have electricity access, with 97% of those connected being powered by renewable energy sources). By  the year 2000, after years of under-pricing, the co-operatives set a minimum charge for the first 30kWh/month at US$2.50-2.75.  Although many users ensured their consumption did not exceed this limit, the fixed charge provided a minimum annual income for the co-operatives of about US$3.6m.  The co-operatives have thereby provided a cost-effective means of servicing the population in remote areas, where the cost of grid extension would be excessive.

Overview of Other Country Case Studies

References

• Barnes, D. (2007). The Challenge of Rural Electrification: Strategies for Developing Countries. Book Chapter https://books.google.co.uk/books?id=iOBi17Pr3fIC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false
• "Rural+Electrification"&q2=mattersInCountry_en_le:"Costa+Rica" http://www.centralamericadata.com/en/search?q1=content_en_le:"Rural+Electrification"&q2=mattersInCountry_en_le:"Costa+Rica"
• http://www.energy-democracy.net/?p=367
• ESMAP (2005), Meeting the Challenge of Rural Electrification in Developing Nations: The Experience of Successful Programs https://static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT
• http://library.fes.de/pdf-files/bueros/mexiko/13389.pdf
• http://www.nrecainternational.coop/where-we-work/costa-rica/
• clean energy through cooperatives.pdf http://www.uwcc.wisc.edu/pdf/Providing clean energy through cooperatives.pdf

Authors

Authors: Mary Willcox, Dean Cooper

Acknowledgements

The Review was prepared by Mary Willcox and Dean Cooper of Practical Action Consulting working with Hadley Taylor, Silvia Cabriolu-Poddu and Christina Stuart of the EU Energy Initiative Partnership Dialogue Facility (EUEIPDF) and Michael Koeberlein and Caspar Priesemann of the Energising Development Programme (EnDev). It is based on a literature review, stakeholder consultations. The categorization framework in the review tool is based on the EUEI/PDF / Practical Action publication "Building Energy Access Markets - A Value Chain Analysis of Key Energy Market Systems".

A wider range of stakeholders were consulted during its preparation and we would particularly like to thank the following for their valuable contributions and insights: - Jeff Felten, AfDB - Marcus Wiemann and other members, ARE - Guilherme Collares Pereira, EdP - David Otieno Ochieng, EUEI-PDF - Silvia Luisa Escudero Santos Ascarza, EUEI-PDF - Nico Peterschmidt, Inensus - John Tkacik, REEEP - Khorommbi Bongwe, South Africa: Department of Energy - Rashid Ali Abdallah, African Union Commission - Nicola Bugatti, ECREEE - Getahun Moges Kifle, Ethiopian Energy Authority - Mario Merchan Andres, EUEI-PDF - Tatjana Walter-Breidenstein, EUEI-PDF - Rebecca Symington, Mlinda Foundation - Marcel Raats, RVO.NL - Nico Tyabji, Sunfunder -

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Any feedback would be very welcome. If you have any comments or enquires please contact: mary.willcox@practicalaction.org.uk, benjamin.attigah@euei-pdf.org, or caspar.priesemann@giz.de.

Download the Tool as a Power Point: https://energypedia.info/images/a/aa/National_Approaches_to_Electrification_-_Review_of_Options.pptx

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