Power policy

Costa Rica’s net-zero strategy was a pioneer in the Latin America region with its ambition to reach 100% renewable power by 2030. The country is already close to reaching this goal as 99.9% of the country’s electricity generation came from clean sources, including large hydro, in 2021. Hydropower is Costa Rica’s dominant source of capacity, at 2,379 megawatts (MW), and accounted for 71% of generation in 2021. More small hydro capacity was added last year than any other technology, with 48MW brought online. Small hydro accounted for 18% of Costa Rica’s total capacity in 2021.

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. When solar producers generate more electricity than they use, they can deposit the unconsumed energy in the distribution network and withdraw up to 49% of it back in an annual period.

In 2010, the country established an import-tax exemption for equipment and materials brought in to support renewable energy development. In mid-2021, a law was being discussed that envisioned the sale of surplus electricity surplus to third parties, more tax exemptions for those with distributed renewable generation systems for self-consumption, and the possibility to generate electricity in one place and use it in another. However, this was not approved.

Power prices and costs

Power prices in Costa Rica rose in 2016 due to heavy use of diesel-fired generation to satisfy a jump in electricity demand. While prices fell in 2017, they then trended upwards through 2020, before dropping considerably by an average of 22% in 2021.

Commercial and industrial rates declined significantly in 2021, by 15% to $162 per megawatt-hour (MWh) and 17% to $171/MWh, respectively. The change in residential prices was much more muted, with just a 5% decrease to $152/MWh. Residential customers have different tariffs according to the period of the day – 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 state-owned utility is the country’s major generator and sole power purchaser. However, the Costa Rican market does allow 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, although in 2020, ICE and its subsidiary CNFL generated 70% of total electricity produced.

Costa Rica attracted $2 billion in new-build clean energy investment over 2010-2021. Over a third of that capital, or $0.82 billion, was directed to small hydro plants, followed by $0.5 billion for geothermal and $0.6 billion for wind. Investment peaked in 2014, with almost $0.6 billion spent on these three technologies in that year. But this halved in 2017 and was even smaller in subsequent years. In 2021, Costa Rica attracted just $3 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 around 70% of the country’s power typically coming from hydro, the need to add other clean generation to achieve the national 100% renewable energy goal is limited.

Law 51, which came in force in 2016, authorized power purchase agreements for up to 20 years. However, private companies that develop renewable energy projects are not allowed to build power plants larger than 50MW, limiting the competition between private and public projects. In addition, due to the low electricity demand caused by the Covid-19 pandemic, ICE is not renewing contracts to buy power generated from other players once the power it produces is already sufficient to supply electricity to all. Because of this, several power plants are being decommissioned.

EV market

The electric vehicle (EV) market in Costa Rica is still relatively small. EVs represented around 3% of the country’s total passenger vehicle sales in 2021, comprising 1,045 battery-electric cars and 89 plug-in hybrids. The market is slowly growing, with the first EV having been introduced in 2015 and annual sales increasing by 2% on average.

EV policy

Costa Rica’s National Decarbonization Plan is aiming for 25% of the country’s light-duty vehicle fleet to be electric by 2035. It is targeting 100% of light-duty vehicle sales to be zero-emission models by 2050 at the latest.

The government has created incentives to purchase EVs, either used or new. These include exemption from value-added tax, import tax, vehicle ownership tax, toll fees and parking levies in designated areas. EVs are also excepted from peak traffic restrictions, such as the limitations on the movement of certain license plate end numbers.

In terms of public transport, Costa Rica is looking for 70% of buses and taxis to be zero-emission vehicles by 2035, rising to 100% in 2050.

Buildings market

Costa Rica’s tropical climate means the focus is on cooling rather than heating and how to improve the energy efficiency and carbon intensity of these efforts.

Buildings policy

The country’s National Decarbonization Plan aims to achieve three targets across the buildings sector: a 10% increase in the use of wood, bamboo and other local materials in buildings 2025; all new buildings being designed and built will adopt low-emission and resilience systems and technologies under bioclimatic parameters by 2030; and 50% of commercial, residential and institutional buildings will operate under emission standards by 2050, such as high electrification and the use of renewable energy for water heating by 2050.