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Nicaragua bets on energy ‘revolution’

By David Hutt |  Special to The Tico Times

By 2017, Nicaragua wants 94 percent of its electricity needs to be sourced from renewable energy. But is this a reachable target?

LEÓN, Nicaragua – In the town of San Jacinto, 90 kilometers northwest of Nicaragua’s capital, a geothermal power plant recently underwent an expansion. The San Jacinto-Tizate project sits on a hotspot between two volcanoes that has been called one of the most productive areas for geothermal activity on the American continent. 

Its owners, U.S-based Ram Power Corp., announced last week that phase two expansion is now commercially operational, which has brought the plant’s capacity to generate power up to a rate of 72 megawatts – up from 36 MW at the beginning of the year.

What this means for Nicaragua is that in 2013, the project should be able to generate 17 percent of the country’s electricity needs, according to projections from the plant’s operators. Since the project relies solely on geothermal energy, it is an important step in Nicaragua’s “energy revolution,” which aims at breaking the nation’s reliance on oil and replacing it with renewable sources. 

The Nicaraguan government is optimistic. In the National Development Plan, officials calculate that by 2017, 94 percent of the country’s electricity needs will be sourced from renewable energy. If this figure is to be attained, power plants such as the San Jacinto project are essential. 

There are other positive signs for the Nicaraguan government. Over the past five years, the productive means for renewable energy have grown in leaps and bounds. In 2010, work finished on the second part of a wind farm near the city of Rivas, close to the Costa Rican border. Amayo I and II can now boast almost two dozen turbines, with a combined capacity to generate 63 MW. 

There also has been much talk of the construction of a hydroelectric plant in Tumarín, located in the Southern Atlantic Autonomous Region. Construction is set to begin this year on that project, which will have the potential capacity to generate 253 MW. 

Emilio Rappaccioli, Nicaragua’s minister of energy and mines, is a leading advocate of clean energy, and is satisfied with his country’s progress over the past year. 

“Development of the San Jacinto project has become an example of natural resource development currently happening in Nicaragua. The development of these types of renewable energy projects is an essential component for Nicaragua’s future, further promoting the well-being and progress of the Nicaraguan people,” he said. 

According to ProNicaragua, the government’s investment promotion agency, in 2011 foreign investment in the renewable energy sector was valued at $217 million – an increase of 37 percent from the previous year. 

But how achievable is the goal of 94 percent and what would it mean for Nicaragua? 

In 2012, 40 percent of Nicaragua’s electricity came from renewable energy sources – an 8 percent increase from 2011. Over the coming year, targets set by the National Development Plan aim to increase this figure to 50 percent – an achievable increase given the previous year’s growth, officials said. If the renewable energy industry continues to grow at this rate, the 94 percent final target would be feasible. 

However, experts including the minister of energy and mines said that this feasibility depends on several aspects, including whether or not demand for electricity increases faster than the supply of renewable energy. 

A report by the Central Bank in September 2012 showed that in 2010, the average energy consumption of each Nicaraguan residence was 75 MWH. In 2011, this number had increased to 77 MWH. According to the report, in the first six months of 2012, demand stood at 58 MWH – meaning a potential demand of 87 MWH for the year. The commercial sector also experienced a similar trend in increasing demand. 

Furthermore, in late 2012, the Inter-American Development Bank approved a $35 million loan to Nicaragua in order to expand the availability of electricity. Through the loan, it is hoped that electrical coverage will be increased from 65 percent of the population to 85 percent – an extra 1.7 million Nicaraguans, most who reside in rural areas. 

While it is inevitable that this increase in electricity availability will create a higher demand, the government has responded with attempts to bring down consumption. A $17 million program by the Ministry of Energy and Mines seeks to furnish street lamps with energy-saving bulbs. According to the ministry, this will save the country 35 MWH annually. 

Another factor is that Nicaragua must give up its reliance on oil. Since President Daniel Ortega returned to power in 2007, the government has benefitted from low-cost oil imports from Venezuela, traded at “solidarity prices.” Nicaragua buys half of the oil up front and then pays back the other half through loans. 

This has allowed Nicaragua to expand electricity availability at a reduced price for a barrel of oil. However, it also has burdened the second-poorest country in the hemisphere with a substantial annual expenditure and debt. It also has meant that Nicaraguans pay one of the highest costs for electricity in Central America. Almost 80 percent of households rely on government-funded electricity subsidies.

In order to overturn this dependence on oil and mitigate the high cost of electricity for the population, the government has pushed rigorously for more investment in renewable energies and has planned to decrease the amount of oil it imports. According to the Ministry of Energy and Mines, in 2013, Nicaragua will import almost two million fewer barrels of oil from Venezuela, at a savings of some $200 million. 

Nicaragua has courted foreign investment in renewable energy through tax and other incentives. The government recently reached an agreement with operators of the San Jacinto project for an increase in energy tariffs. Financially, this means that operators will be able to recover costs for the expansion with an annual increase on tariff rates by 3 percent until 2022.

The executive chairman of Ram Power stated in response to this agreement: “We are grateful for the continued confidence and support of our project, and our company, at the highest levels of the Nicaraguan Government. President Ortega expressed a need to continue the development of the renewable energy sector in Nicaragua.”

In November, the government approved a law to give tax incentives to investors of the Tumarín hydroelectric project at a rate of 3 percent income tax for 15 years. They also agreed to finance the construction of infrastructure to connect the plant to the national grid. 

The $1.1 billion investment from the project’s Brazilian owners previously was not forthcoming. But the Nicaraguan government hopes that substantial work could now begin as early as February due to the concessions.  

For its efforts, Nicaragua has received the praise of several energy commissions. In 2012, the Inter-American Development Bank’s first-annual “Climatescope” report ranked Nicaragua second in Latin America for investment in renewable energies (Brazil was first). The report also recognized Nicaragua as the strongest supporter of green micro-financing in Central America. 

Yet, experts say two questions remain. Firstly, how will the change from oil-based energy to renewables affect the cost of electricity in Nicaragua? 

David Castillo, a chairman of the Nicaraguan Institute of Energy, expects rates to drop by at least 15 percent in the next five years. However, he has warned that any short-term price drops are unlikely. 

“Energy prices will start going down, but do not forget that last year we borrowed $107 million from ALBA [a left-leaning alliance of Latin American and Caribbean nations] to prevent power rates from rising. And this year they are loaning us $52 million. Whatever price reductions we get from renewable energy must first go toward paying off those debts,” he said. 

While it is certain that producing renewable energy is much cheaper than oil, the Nicaraguan government will have to come up with a firm plan on how to invest, construct and profit from a renewable energy economy in order to reduce the cost for most Nicaraguans. 

The second question is how the government will respond to a regime change in Venezuela. Currently, most of Nicaragua’s electricity demand is still supplied by oil. If ailing Venezuelan President Hugo Chávez was to be ousted from power or die, opposition parties have already stressed that they will end the “solidarity price” of oil to Nicaragua. Would an increasing cost of oil quicken the government’s drive towards renewable energies or would it hamper the effort, diverting funds and effort away from the plan?

These questions remain to be answered, but what is clear is that if Nicaragua can keep up its annual 10 percent increase in renewable energy supplies, and at the same time reduce its dependence on oil, then it is more than likely that it could reach the target of 94 percent by 2017.


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