COSTA RICA: POSSIBLE PATHWAYS TO REGIONAL ENERGY

UNCLAS SAN JOSE 000823 SIPDIS DEPT FOR WHA/CEN, WHA/EPSC:MROONEY, SGARRO AND FCORNEILLE, EEB/TTP/BT:RMANOGUE, EEB/ESC/IEC/EPC E.O. 12958: N/A TAGS: ECON ENRG EINV PGOV PREL CS SUBJECT: COSTA RICA: POSSIBLE PATHWAYS TO REGIONAL ENERGY PROSPERITY ¶1. SUMMARY. In their September 16-17 trip to Costa Rica, the Pathways to Prosperity team of WHA/EPSC Director Matt Rooney, WHA/EPSC Trade Officer Susan Garro and EEB/TPP/BT Director Robert Manogue met with three energy-sector leaders: Pedro Pablo Quiros, executive President of the Costa Rican Institute of Electricity (ICE); Mario Alvarado, executive director of the private energy producers' association ACOPE; and Julio Matamorros, Vice Minister of the Ministry of Energy, Environment and Telecommunications (MINAET). All three experts discussed the Central American Power Interconnection Program (SIEPAC, reportedly operational within 18 months) and the future of the electricity market in Costa Rica. Key concerns included the reliability of SIEPAC generated supply, Costa Rican development of excess capacity, and energy reform. Julio Matamorros also spoke of successive measures that Costa Rica will be taking in coming years to convert the transport sector from hydrocarbon fuels to electricity and hydrogen. Costa Rica has admirable vision for its domestic energy future; U.S. diplomacy can help them be similarly visionary about the potential regional market. End summary. -------------- MANAGING SIEPAC SUPPLY -------------- ¶2. ACOPE's Mario Alvarado emphasized private industry's desire to join ICE as party to SIEPAC and enter into long-term cross-border supply contracts. ICE's Quiros' view seemed to center on SIEPAC as a mechanism available to the grid operator (ICE) to facilitate exports of excess Costa Rican electrical power. Quiros, focused on instability among Costa Rica's northern neighbors, clearly did not feel that regional power market integration could contribute to Costa Rican security in any other way. He did acknowledge the interest of a proposed sea link from Panama to Colombia (and hence to Venezuela and Ecuador). Alvarado's take on SIEPAC was less focused on the instability of Costa Rica's northern neighbors; he emphasized that a strong regional regulator would have to be in place to ensure that national regulators have the power and the will to force generators under their jurisdiction to honor cross-border contracts, even when prices are rising in their national market. In this regard, Alvarado referred to an incident in 2007 when Panama's energy regulator exacerbated a Costa Rican power shortage by prohibiting export of energy to Costa Rica, despite a signed contract, because Panama was short on electricity. -------------- WHO BENEFITS FROM SIEPAC? -------------- ¶3. Vice Minister Matamorros commented that the Costa Rican consumer needs to benefit from SIEPAC, with the clear implication that the system needs to be managed properly in order for this to be the case. COMMENT: We note that Laura Chinchilla, front-runner in Costa Rica's upcoming presidential elections, wrote an opinion piece on September 19, 2009 in which she advocated the construction of excess hydroelectric capacity and export of that energy until such time as drought-reduced supply meets national demand. This appears consistent with Quiros' and Matamorros' vision of SIEPAC's role. End Comment. -------------- REFORM IS DESIRED BUT WHEN IS THE RIGHT TIME? -------------- ¶4. In reference to a recently introduced Energy Bill designed to begin the unbundling of the Costa Rican power sector and increase the role of private electricity generators in the market, Quiros stated that he isn't opposed to a more liberal model of energy generation but doesn't believe that the timing is right for reform in Costa Rica. He cited the fact that this is an election year and that the ICE unions are already upset with the Telecom market reform established by CAFTA-DR. Matamorros, who has been the principal official advocate of this legislation, also acknowledged that the proposal will not be addressed until the next administration. Both Quiros and Matamorros emphasized the importance of fomenting local research and development in the energy sector. Furthermore, they emphasized the attractiveness of cooperation with U.S. research and development entities through mechanisms such as the Energy and Climate Partnership of the Americas, noting that Costa Rica had written to the U.S. Department of Energy in support of a proposal for a regional energy efficiency center made by the Natural Resources Defense Council. The proposed center, to be located in San Jose, would build on the Central American experience with electricity market integration and promote broader knowledge of best practices in efficiency and reliability of grid management. -------------- COMMENT -------------- ¶5. These conversations show the core challenge of successful completion of the SIEPAC process: SIEPAC can only succeed if the Central Americans come to see the market as a truly integrated regional whole. A regional market that each party sees as a dumping ground for cheap excess power will not result in renewable energy investment which is needed to secure the economic and climate benefits that are possible. U.S. diplomacy under the banner of ECPA can help the parties achieve more. BRENNAN