Power policy

Under the country’s updated NDC, it has set a goal for 65% of electricity generation to come from renewables by 2030, up from the previous target of 60%. In 2021, renewables accounted for 45% of Nicaragua’s generation mix, with biomass and wind being the biggest contributors, at 13% and 11%, respectively. Fossil-fuel-powered plants still play an important role in the country’s power sector and Nicaragua says it will look to replace more emissions-intensive coal and diesel generation with natural gas.

Renewable energy developers enjoy a range of tax breaks in Nicaragua, including exemptions on import duties, value-added taxes and income taxes. Tax incentives to aid the development of renewables projects have been extended until 2023.

Net metering rules allow owners of solar photovoltaic and other renewables systems with up to 5 megawatts (MW) of capacity to sell surplus power to distribution companies.

Power prices and costs

Electricity tariffs in Nicaragua declined last year as the national currency lost value. Commercial and Industrial power prices dropped by 14% between 2020 and 2021, reaching $245.5 per megawatt-hour (MWh) and $178.94/MWh, respectively. Still, this is the highest in Latin America. Meanwhile residential tariffs fell by 20% across the same period to $179/MWh, although the country’s residential power prices are in the top quartile in the region. Wholesale prices suffered the least change, only dipping by 4% to $136.36/MWh.

Continued reliance on imported fossil fuels for generation is largely to blame for the high cost of power in Nicaragua. Renewables development therefore represents a potential path to greater energy independence and cheaper power.

Power market

Nicaragua's power sector is unbundled, and distinct actors – both state and privately owned – participate in the generation and distribution sectors. At least 18 companies hold active generation contracts today for projects they own. Nicaragua is part of the Central American Electrical Interconnected System (SIEPAC) and its grid is connected to El Salvador, Guatemala, Panama, Costa Rica and Honduras by transmission lines.

Doing business and barriers

While Nicaragua does offer tax incentives for renewables, a general lack of direct policy support will likely inhibit the sector’s growth. Very high power prices also make it difficult to attract new business to the country, and the fragile condition of the transmission system jeopardizes service reliability.

EV market

Nicaragua’s government only introduced policies for electric vehicles (EVs) in 2022 and the market remains at an early stage. Just two EV sales were registered in 2021.

EV policy

In 2022, the country introduced tax exemptions for EVs according to their price brackets until 2027 ¬– the higher the EV price, the higher the exemption. Vehicles under $30,000 will enjoy import duty, VAT and consumption tax exemptions. These exemptions also apply to charging stations.

Buildings market

The tropical climate of Nicaragua means heating requirements are minimal, so efforts to lower the carbon footprint of buildings relate to energy efficiency policies.

Buildings policy

Nicaragua passed Law 956 on energy efficiency in 2017, establishing a legal framework to promote the rational and efficient use of energy. The country has several energy efficiency and improvement planning programs that aim to reduce energy consumption, mainly from refrigeration, lighting and various consumer sectors.