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Steep Electricity Hike Hits Costa Rica

Electricity prices have spiked over 8% this month in Costa Rica, marking the steepest single monthly increase since February 2023, according to new data. The price hike was anticipated by the state-owned Costa Rican Electricity Institute (ICE) in light of amplified production costs stemming from greater reliance on thermal power plants amid worsening drought conditions.

Prolonged dry weather associated with the El Niño climate cycle has severely reduced water levels at the country’s hydroelectric dams, lowering output. ICE indicated the resultant decline in hydroelectric generation has necessitated the activation of supplementary thermal generating facilities powered by expensive imported bunker fuel.

“The reduced rainfall from El Niño means our dams cannot produce enough hydroelectricity to meet demand. We must therefore ramp up electricity from our bunker-fueled thermal plants despite the great cost,” said Irene Cañas, Executive President of ICE’s Electricity Sector.

Statistics from the National Institute of Statistics and Census show January’s 8.11% price surge marked the most pronounced upward pressure on household budgets as well as business expenses last month across all goods and services. Over 2023, electricity rates rose sporadically between 0.3% to 15.3% across Costa Rica’s various distribution firms.

The latest increase accounts not only for ICE’s additional expenditures in 2024 due to operating costly thermal plants but also deferred expenses from 2023 linked to managing backup generators through past droughts. ICE projected spending 94.7 billion colones on fuel over 2024.

Cañas indicated this fuel expenditure will be concentrated heavily in March, April and May when rainfall shortage is forecast to peak. ICE plans to disburse over 70 billion colones on fuel for drought-necessitated thermal power in these three months alone, representing nearly 75% of expected annual fuel costs.

While electricity prices escalate, inflation persists in negative territory across Costa Rica’s broader economy and continues trending downwards as per the national consumer price index. Economists project inflation could fall over 2 percentage points year-over-year if electricity costs remain stable.

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