SNAPSHOT: Costa Rica's power expansion options

Monday, June 9, 2014

Energy policymaking is a dynamic process that involves a diverse group of stakeholders and a myriad of variables.

Identifying the best course of action is not a simple task and often a number of options are tabled to provide flexibility and guarantee a supply and demand balance.

In its 2014-35 power generation expansion plan, Costa Rica state power company ICE has tackled this formidable task.

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The study outlines three possible expansion routes: one based on renewable energy projects, another that incorporates 650MW hydro Diquís and a third that envisions LNG.

The routes look to cover generation and capacity demand, which in a base scenario, are forecast to hit 14.1TWh and 2.13GW respectively in 2020, and 25.6TWh and 3.65GW in 2035, compared to this year's projected 10.8TWh and 1.69GW.

The renewables-heavy path requires 800MW to cover average demand growth and 1.15GW in a high-growth scenario.

Restrictions to incorporate renewables exist, however, such as the need to reach an agreement to tap geothermal resources inside national parks. The sheer number of projects also raises regulatory, financing, construction capacity and permitting issues.

In the case of Diquís, the principal risk is the environmental and social complexity which could delay or stop development.

"It has been preliminarily estimated that if Diquís does not complete social and financial viability close to 2018, it should be suspended and a new expansion route adopted," highlighted the plan.

The principal risk of introducing LNG into the generation mix is the complexity of gas supply contracts. One option is development of duel fuel plants which could run on diesel.

ICE's recommendation is to advance Diquís but to maintain an alternative plan to incorporate LNG if the large hydro does not advance.

The recommended expansion plan in an average demand scenario would add 3.74GW, of which 1.6GW would come from hydro including Diquís, 495MW geothermal, 320MW thermo, 220MW wind and 1.1GW "renewables." Total investment cost nears US$5bn.

"Thermo capacity is necessary to reduce the cost of energy because, although it has a high operation cost, investment is very low. It is a suitable technology to complement renewable sources," according to the forecast.

ICE projects under development include hydros Reventazón (305MW, due online in 2016), Río Macho modernization (additional 15MW in 2015) Cachí expansion (additional 60MW in 2015) and Balsa Inferior (40MW in 2014); and geothermal complex Pailas II (50MW in 2019).

Municipal companies and rural electrification cooperatives have 280MW in development and 455MW in private generation.