Difference between revisions of "NAE Case Study: Costa Rica, Distribution Cooperatives"

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<span dir="auto">Cambodia</span>[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
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[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
<p style="text-align: center;"><span style="color:#003399;">'''<u>Category Dashboard:</u>'''{{NAE Case Study Table Costa Rica}}</span></p>
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{{NAE Case Study Table Costa Rica}}
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= Description<br/> =
 
= Description<br/> =
  
Mini-grids started to operate in Cambodia soon after the country’s civil war ended in 1975. Government capacity was very low and unable to reach most of the countryside. In this completely unserved and unregulated environment, people started to buy generators and sell power to their neighbours. Mini-utilities sprang up in many villages. Since those early days, the regime in Cambodia has evolved to regulate these enterprises, but with a light touch that allows the enterprises to prosper and grow. The state-owned utility Electricite du Cambodge (EdC) serves approximately 10% of the population with most of its grid infrastructure and customers located in and around Phnom Penh.&nbsp; Small power providers have been encouraged to establish distribution networks and are now licensed by the Electricity Authority of Cambodia, allowing them to borrow from commercial banks. In Jan 2016, 337 companies had been licensed to build distribution systems, outside the grid owned by EdC.&nbsp; Tariffs are set by the Electricity Authority of Cambodia (EAC) in a simple and transparent manner using a price adjustment formula based on the cost of diesel/HFO, which accounts for 95% of electricity generation in Cambodia.&nbsp; The regulatory regime also provides a framework that allows off-grid systems to connect to larger utilities,&nbsp;<span style="font-size: 0.85em;">purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin.</span>
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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&nbsp; investment to cover future increase in demand).<span style="font-size: 0.85em;"></span>
  
 
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= Context =
 
= Context =
  
In 2016, 80% of villages and 65% of households had access to grid quality electricity, with the Government aiming to achieve electricity access for all villages by 2020.&nbsp; During the 1970s, the electricity sector was seriously damaged by the civil war when there was only one transmission line in Cambodia connecting the Kiriom I Hydropower Station to the capital Phnom Penh. This ceased to operate in 1973 when most generation, transmission and distribution facilities were damaged or destroyed.&nbsp; Today, there is still no national electricity network and power is supplied via 24 small isolated electricity systems.&nbsp; Statistics released in January 2016 showed that Cambodia consumed 1,985 megawatts of electricity in 2015. Local production amounted to 1,569 megawatts. Electricity was imported from Vietnam (277 MW), Thailand (135.5 MW) and Laos (4 MW).&nbsp; 42% of electrified households outside Phnom Penh are served by decentralized mini-grid systems.&nbsp; Most of these are operated by small power providers in rural communities, are privately run, and are profitable. Often these local companies use diesel for their mini-grids since the fuel is readily available in local markets and runs in small generators that are easy to operate and have fairly low capital costs.&nbsp; (Although Cambodia is endowed with an abundance of hydropower resources, it still depends heavily on fuel-based engines or generators to produce much electricity).&nbsp; However, the Government is committed to increased use of renewable energy, with increased use of hydro and other sources; the first solar farm (10MW in Bavet) is planned to be connected to the grid this year. As part of the Cambodian government’s policy to expand access to electricity, all mini-grids in the country now receive a $45 output-based subsidy&nbsp; for each additional residential customer connected (which is released once the mini-utility provides proof that the connection has been made). These funds allow companies to build out their distribution network further, since it becomes profitable to extend service to lower-income and more remote areas than otherwise possible.
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Costa Rica is an outstanding example of a country with universal public services delivery. It has extended electricity services&nbsp; 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.&nbsp; 99.4% of the people in Costa Rica have direct access to electricity.&nbsp; 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.&nbsp; 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.&nbsp; 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.&nbsp; These rural electric cooperatives are owned and operated by energy users and community members.&nbsp; 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 =
 
= Objectives =
  
A priority goal of the government is to reduce poverty, and a key strategy for this is the development of sustainable and affordable energy supplies for all its constituents. A particular objective was to provide the best enabling environment for mini-grids to prosper and grow, supplying a significant proportion of the population that live outside the capital city, Phnom Penh.&nbsp; This involved developing market conditions that motivate the sustainable introduction of mini-grid suppliers.&nbsp; The country has set a specific target of 100% electrification by 2020, with distribution lines reaching all villages by 2015.&nbsp; In practice, electricity had reached only 66% of villages in 2015.
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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 =
 
= Legal Basis =
  
The national “Law on Electricity” was adopted by the National Assembly on November 6, 2000 and then promulgated by Royal Decree on February 2, 2001. This law covers all activities related to the supply, provision of services and use of electricity, and other associated activities of the power sector, allowing licensing of&nbsp; isolated and grid-connected mini-grids and distribution systems.&nbsp;&nbsp;
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The key legislation governing the electricity sector in Costa Rica is as follows:
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*Law N°449 for the creation of the Costa Rican Electricity Institute<br/>
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*Law N°7593 “Law of the Public Service Regulatory Authority”<br/>
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*Law N°7200 authorizing private generation of up to 15% of the total installed capacity with ICE purchase and sale contracts
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*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/|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<br/> =
 
= Institutions, Roles and Responsibilities<br/> =
  
There are three main players who have considerable power in the electricity sector in Cambodia: the Ministry of Industry, Mines and Energy (MIME), the Electricity Authority of Cambodia (EAC), and the state owned utility Electricite du Cambodge (EdC).&nbsp; Electricity was first introduced to Cambodia in 1906 by Compagnie des Eaux et Electricité (CEE), Union d’Electricité d’Indochine (UNEDI) and Compagnie Franco – Khmer d’Electricité (CFKE). CEE was responsible to supply the electricity to Phnom Penh and suburbs, while UNEDI operated throughout country except Battambang province, which was supplied by CFKE.&nbsp; In 1958, the Government purchased CEE’s and UNEDI’s concession rights to form the Electricité du Cambodge to generate, transmit and distribute electricity for Phnom Penh and provinces throughout the country.&nbsp; During the long war, EdC’s facilities were destroyed, but it remains the most influential of the three key players in the electricity market.&nbsp; As a commercial entity, EdC is required to operate in accordance with market demand and seek to earn a profit.&nbsp; It must prepare, build, own, finance, lease and operate power generation and substations, transmission lines, distribution networks and other infrastructure necessary.&nbsp; This involves the operation of 24 decentralised grid networks.&nbsp; Other players in the market include over 300 IPPs, REEs, and other licensees that import electricity from neighbouring countries or own stand-alone diesel generators.&nbsp; MIME is mainly responsible for the formulation of policies and strategies.&nbsp; EAC was established by the Electricity Law in 2000 as an autonomous public agency with the purpose of regulating the electricity power services, and was granted the right and obligation to penalize, if necessary, the supplier and consumer of electricity in relation to electricity generation and supply facilities. Amongst other responsibilities, EAC issues five types of license for the supply of electricity (consolidated, generation, distribution, retail and special purpose transmission licenses), approves tariff rates and charges, oversees the implementation procedures and standards, and ensures transparency by facilitating information to the public about its activities.
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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).&nbsp; 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<br/> =
 
= Interventions<br/> =
  
The Government's approach was based upon an intentional lack of restrictions such as exclusive franchises, licensing, and tariff regulation.&nbsp; When a central utility does not have the incentives, cost structure, or capacity to reach grid extension goals, exclusive or monopoly rights can be counterproductive.&nbsp;&nbsp; It was recognised that mini-utilities thrive when they are free from onerous licensing and permitting barriers (even where mini-utilities are not blocked by exclusive franchises, they are still often stymied by onerous licensing procedures and conditions). Cambodia adopted a light regulation approach that meant mini-grid enterprises could prosper and grow. Licenses were granted, allowing mini-utilities to borrow from commercial banks.&nbsp; A regulation framework was introduced to allow off-grid systems to connect to larger utilities, purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin.&nbsp; As part of the Cambodian government’s policy to expand access to electricity,&nbsp; mini-grids in the country are eligible to receive a $45/connection output-based subsidy to offset the upfront capital costs - this government policy has successfully attracted businesses to the mini-utilities space.&nbsp; The Government has also established a Rural Electrification Fund (REF) with the objective to facilitate access to electricity infrastructure and provide a secure, reliable, environmentally safe, and sustainable energy supply of various types, at reasonable and affordable price.&nbsp; Mini hydro plants (and also solar home systems) are eligible to receive subsidies up to 25% of total investment costs.
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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.&nbsp; NRECA helped establish the four electric co-operatives and, in 1989,&nbsp; NRECA&nbsp; 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.&nbsp; 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.&nbsp; By contrast, COOPELESCA started with a partial connection fee and arrangements for members to secure low interest rate bank loans.&nbsp; The operational models, including the tariffs charged, also vary across the different co-operatives.
  
 
= Impacts Achieved<br/> =
 
= Impacts Achieved<br/> =
  
After a little more than 15 years of development, mini-utilities serve 28% of the rural population on a commercial basis.&nbsp; According to the current national Rural Electrification Master Plan (REMP), the total cost to electrify all villages (including private investment and public subsidy) is about US$ 427 million or US$ 490 per household for future connections, with 872,000 households to be involved. A total of 272,000 households will be electrified in the off-grid areas by decentralized mini-grids and solar battery charging by the target year 2020. The gross investment costs will amount to about $147 million. The remaining villages will be connected through grid extension.&nbsp;
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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.&nbsp;&nbsp; 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.&nbsp;&nbsp;
  
 
= Lessons Learned<br/> =
 
= Lessons Learned<br/> =
  
The success of mini-utilities in Cambodia is due mainly to a regulatory regime that allows them to exist. This illustrates a regulatory approach&nbsp; that may be valuable for other governments looking to facilitate the operation of local mini-grids in unserved areas.&nbsp; One important need for future electricity grid integration is the development of standards, which has been achieved in Cambodia with international donor support (provided by JICA to prepare the General Requirements of Electric Power Technical Standard, GREPTS, which was adopted in 2004).&nbsp; A key lesson from Cambodia is simply the value of removing restrictions such as exclusive franchises, licensing, and tariff regulation.&nbsp;&nbsp; Cambodia may be an extreme case, and there is no need to abandon all regulation to get mini-grids working. What is essentially required is to legalize their operations to put them on a sound regulatory footing so that they can do the essentials, such as raising debt.&nbsp; Most mini-utilities cannot offer to connect customers for little or no up-front payment - they are simply unable to finance such large capital outlays on their own. Some financial support from the government has been needed to attract businesses to the mini-utilities space.&nbsp; In many countries, regulation has been used to introduce tariff caps intended to counter the natural monopoly of typical grid utilities, and to make electricity affordable for the poor. But often they have the opposite effect by making it unviable for mini-utilities to enter the market. Mini-utilities typically have a higher cost of service than large integrated grids, but where they are used solely for lighting purposes they compete with solar home systems and lanterns.&nbsp; Regulation can then fail to address the practical needs, restricting rather than facilitating market development, and therefore be unnecessary.&nbsp; For example, in Cambodia, mini-utilities began and flourished without any tariff regulation (though the need for some structure, as the operation of mini-grids expanded, was ultimately provided from 2000 by EAC).
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This experience shows that multiple approaches to electricity distribution can be successful even in the same country.&nbsp; But all need meticulous preparation and continued institutional support when setting up new organizational structures for rural electrification.&nbsp; 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.&nbsp; 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.&nbsp; 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<br/> =
 
= Effectiveness<br/> =
  
The approach adopted by the Cambodian government (enforced to a large extent due to lack of capacity following the civil war) has avoided restricting the growth of the market for mini-grids, which are expected to serve 31% of villages with grid-quality electricity by 2020.&nbsp; Historically, the average cost of connection to a decentralised mini-grid has been&nbsp; ~US$540/household, which has been made affordable for end users (though whether this includes the initial system installation cost, or just the incremental cost per connection, is not clear).&nbsp; The Rural Electrification Fund (with support from the International Development Association and the Global Environment Facility) has helped to reduce the costs to the target customers, and the government subsidy of US$45/household, made available to Rural Electrification Enterprises for an additional 50,000 connections, has stimulated significant growth.&nbsp; The combination of clear Government targets and limited financial incentives to offset capital costs, has seen the development of an effective commercial mini-grid sector without the need for extensive regulation.
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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).&nbsp; Cost-covering prices were successfully introduced by the co-operatives after the grants and concessional loans were taken into consideration.&nbsp; 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&nbsp; 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.&nbsp; 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.&nbsp; 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.
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= Overview of Other Country Case Studies =
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{{NAE Case Studies Navigation Table}}
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= References =
 
= References =
  
*<div>[http://www.aseanenergy.org/articles/universal-access-to-energy-in-asean-case-of-cambodia-and-lao-pdr/ http://www.aseanenergy.org/articles/universal-access-to-energy-in-asean-case-of-cambodia-and-lao-pdr/]</div>
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*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 https://books.google.co.uk/books?id=iOBi17Pr3fIC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false]
<div>
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*[http://www.centralamericadata.com/en/search?q1=content_en_le: "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://eac.gov.kh/wp-content/uploads/2015/07/report-2014en.pdf http://eac.gov.kh/wp-content/uploads/2015/07/report-2014en.pdf]<br/>
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*[http://www.energy-democracy.net/?p=367 http://www.energy-democracy.net/?p=367]
*[[Cambodia Energy Situation|https://energypedia.info/wiki/Cambodia_Energy_Situation]]
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*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 https://static.globalinnovationexchange.org/s3fs-public/asset/document/Meeting0the0Ch10Discussion0Version0.pdf?q3Tol9Bdn4yH4J43t3P9t3hq5lh6ZipT]
</div>
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*[http://library.fes.de/pdf-files/bueros/mexiko/13389.pdf http://library.fes.de/pdf-files/bueros/mexiko/13389.pdf]
*IED. 2013. Low Carbon Mini Grids. Identifying the gaps and building the evidence base on low carbon mini-grids [http://www.ied-sa.fr/index.php/fr/ressources-documentaires/publications/send/2-publications-ied/19-gmg-dfid-ied-nov-2013-vol-1.html http://www.ied-sa.fr/index.php/fr/ressources-documentaires/publications/send/2-publications-ied/19-gmg-dfid-ied-nov- 2013-vol-1.html]
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*[http://www.nrecainternational.coop/where-we-work/costa-rica/ http://www.nrecainternational.coop/where-we-work/costa-rica/]
*[http://www.irena.org/eventdocs/Cambodia presentation.pdf http://www.irena.org/eventdocs/Cambodia presentation.pdf]
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*[http://www.uwcc.wisc.edu/pdf/Providing clean energy through cooperatives.pdf http://www.uwcc.wisc.edu/pdf/Providing clean energy through cooperatives.pdf]
*[http://www.reegle.info/policy-and-regulatory-overviews/KH http://www.reegle.info/policy-and-regulatory-overviews/KH]
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<div></div>
*[http://ref.gov.kh/page/admin/public/asset/article-asset/REF report 2016_Eg final.pdf http://ref.gov.kh/page/admin/public/asset/article-asset/REF report 2016_Eg final.pdf]
 
*World Bank. 2014. From the Bottom Up. How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa. [http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/learning+and+adapting/knowledge+products/publications/publications_report_gap-opportunity http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/learning+and+ adapting/knowledge+products/publications/publications_report_gap-opportunity]
 
*[http://documents.worldbank.org/curated/en/362361468016738691/pdf/E27230EAP1EMP110Box358316B01PUBLIC1.pdf http://documents.worldbank.org/curated/en/362361468016738691/pdf/E27230EAP1EMP110Box358316B01PUBLIC1.pdf]
 
 
 
 
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Latest revision as of 13:30, 16 July 2018

NAE Overview Page
TechnologyTechnology: Grid ExtensionTechnology: Grid-Connected Mini-Grid/Distribution SystemTechnology: Isolated Mini-GridTechnology: Standalone SystemsDelivery ModelDelivery Model: PublicDelivery Model: Private (Non-Government)Delivery Model: Public-Private PartnershipLegal BasisLegal Basis: ConcessionLegal Basis: LicenseLegal Basis / Price/Tariff Regulation: UnregulatedPrice/Tariff RegulationPrice/Tariff Regulation: UniformPrice/Tariff Regulation: IndividualFinanceFinance: PrivateFinance : UserFinance: Grants & SubsidiesFinance: Cross-SubsidiesFinance: Tax ExemptionsFinance: GuaranteesNon-Financial InterventionsNon-Financial Interventions: Direct Energy Access ProvisionNon-Financial Interventions: Institutional RestructuringNon-Financial Interventions: Regulatory ReformNon-Financial Interventions: Policy & Target SettingNon-Financial Interventions: Quality & Technical StandardsNon-Financial Interventions: Technical AssistanceNon-Financial Interventions: Capacity Building & Awareness RaisingNon-Financial Interventions: Market InformationNon-Financial Interventions: Demand PromotionNon-Financial Interventions: Technology Development & AdoptionNon-Financial Interventions: National Energy PlanningNAE Case Study Table Costa Rica.png]]


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

Bangladesh, IDCOL Solar Home SystemsBrazil, Luz para Todos (Light for All)NAE Case Study: Cambodia “Light Touch” RegulationCosta Rica, Distribution CooperativesEthiopia, Solar Market DevelopmentKenya, Off-Grid for Vision 2030Mali, Rural Electrification ProgrammeNepal, Rural Energy Development ProgrammePeru, Concession Model for Standalone SystemsPhilippines, Islanded Distribution by CooperativesRwanda, Sector-Wide Approach to PlanningSouth Africa, Integrated National ElectrificationTanzania, Mini-Grids Regulatory FrameworkTunisia, Low Cost Distribution TechnologyVietnam, Rapid Grid ExpansionNAE Case Studies Navigation Table.png]]


References


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 -



NAE Overview Page

Any feedback would be very welcome. If you have any comments or enquires please contact: mary.willcox@practicalaction.org.ukbenjamin.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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