Will Nicaragua turn to coal to lower energy costs?

Second in a two-part series on the future of Nicaragua’s energy sector

Petrona Calero, the matriarch of a humble Granada household of 11, finally made the tough decision this month to disconnect her family’s refrigerator. She can no longer afford to keep it running.

Calero’s electricity bill this month came to 1,450 córdobas ($60)—or 60% of her salary. Two years ago, Calero’s average electricity bill was around 350 córdobas, just a quarter of what she’s charged today.

¡Dios mío mi lindo!” Calero says, covering her face with her hands. “We don’t consume any electricity anymore. I have a fan that I use at night for the mosquitoes, but the only light we have in living room is from the television.”

“I used to sell sodas and juices for 3 córdobas, but I had to disconnect my refrigerator so now I don’t sell anything,” she says.

Calero’s plight is increasingly common in Nicaragua, where energy costs are climbing to dizzying heights and electricity bills seem to be determined by a roulette wheel rather than scientific measurement. 

“We are receiving around 190 consumer complaints each day about alterations in people’s electricity bills—people who normally pay 300 córdobas ($12.30) each month are suddenly getting charged 1,500 ($61.50),” says Marvin Pomares, director of the Nicaraguan Institute of Consumer Defense (INDEC). “The number of daily complaints we get about alterations in people’s electricity bills has more than doubled in the past year. It’s by far the No. 1 consumer complaint we receive.”

Officially, Nicaraguans’ electricity costs have been hiked by 38% since President Daniel Ortega returned to office with the promise of solving the country’s energy crisis with the help of the Venezuelan-propped Bolivarian Alliance for our Americas (ALBA). While the ALBA business arrangement led to a dramatic increase in Nicaragua’s energy production and provided subsidies to more than 600,000 users who consume less than 150 kilowatt hours per month (more than 80% of the population, according to the government), the situation is grinding on small businesses and pinched middle class.

Nicaragua now has the highest energy costs in the region—and all to pay for its rinky-dink tin pot electrical grid that can’t seem to keep the lights on through a rain shower or regulate the flow of electricity with any semblance of precision (the lights in an average Nicaraguan household dim and flicker more than do on death row in a Texas prison).

The government recently announced an extension of its electricity subsidy through 2015, but instead of ALBA picking up the tab now the bill will now be paid by other Nicaraguan users. The government is also threatening to start enforcing a 2007 reform to the penal code that calls for economic and jail sanctions for those who steal energy—a conduct the administration refers to as “not in solidarity.”

INDEC’s Pomares says if the government wants to start locking up people who steal energy, the law should be reciprocal for power company employees who intentionally manipulate people’s power bills.

“By altering electricity bills, the power distributor is stealing people’s money,” Pomares told The Nicaragua Dispatch. “It happens so frequently that it’s hard to believe it’s by error.”

How can Nicaragua reduce its energy costs?

Even after the government is done incarcerating everyone who steals electricity (they’ll need to build a lot more jails first), Nicaragua still won’t have fixed the problem of its astronomical energy costs. To bring those down, Nicaragua needs to get off its deleterious dependency on fuel oil, industry experts say.

Nicaragua has made remarkable strides to adopt new clean energy technologies over the past five years. But the benefits of the country’s gradual switch to renewable energy are not trickling down to consumers. Six years after the darkest days of Nicaragua’s power-rationing blackouts, Nicaragua’s electricity-distribution system (now controlled by TSK-Melfosur Internacional) remains on the verge of collapse, operating at a $50 million annual loss.

Nicaragua now has a surplus of power, yet energy costs continue to climb, crippling household economies and keeping small businesses from aspiring to become big businesses. To fix the pricing problem in the short term, Nicaragua may consider switching from oil to coal.

César Zamora, president of AEI (photo/ Tim Rogers)

“In the past five years, Nicaragua’s first priority was to start producing more energy and to reduce its dependency on bunker oil. And the country has been successful at that. But renewable energy is not cheap energy,” says César Zamora, president of Nicaragua’s leading energy-generation company, AEI Nicaragua. “Nicaragua has a good mix of renewable energy sources, but we need to get away from expensive bunker baseload plants; they need to be substituted by geothermal or coal. Geothermal is expensive, so coal would be optimal. The government is now considering it.”

Due to the seasonal volatility of wind and hydroelectric power sources, Nicaragua is unlikely to switch 100% to renewable energy sources—even though the country has the potential to produce way more renewable power than it can consume. Nicaragua needs to maintain reliable baseload plants to provide a regulated energy flow that can be dialed up or down depending on fluctuating demand during the day. And as long as Nicaragua’s baseload power continues to be provided by expensive fuel oil plants, consumers are not going to feel much benefit from the country’s switch to renewable energy sources, industry leaders say.

Massive-scale hydroelectric plants and large geothermal plants have the capacity to produce renewable baseload energy, but they take years to build and are expensive to install. Nicaragua needs a quicker and more economical solution, Zamora says.

The proposal, which is still in the early phases of consideration, is to start transforming Nicaragua’s aging oil-burning plants into coal plants—a conversion that would cost around $100 million per plant, according to Zamora. In addition to burning cleaner than fuel oil, coal would help Nicaragua lower its energy costs and become more competitive, Zamora says.

Guatemala is the only country in Central America that produces energy from coal. Consequentially, Guatemala is able to produce energy that’s 40% less expensive than Nicaragua’s, Zamora says.

“Bunker fuel is an anchor tied around Central American economies,” Zamora says.

Converting a bunker plants to coal would take about 36 months, Zamora says. “It’s fast and it would lower electricity costs faster than anything else because it would give the country stability in its baseload production that renewables don’t.”

Javier Chamorro, executive director of investment-promotion agency ProNicaragua, confirms that the Nicaraguan government is open to the possibility of coal, as well as other energy sources, such as natural gas.

‘Central America needs a new competitive edge’

While coal could provide a quick fix, many hope the long-term solution to Central America’s baseload problem will be provided by U.S. natural gas. U.S. President Barack Obama, who visited Costa Rica earlier this month, mentioned the possibility of using the U.S.-Central American Free Trade Agreement (CAFTA) as a platform to export liquefied natural gas to the region.

If that happens, it would be a game-changer for Central America, Zamora says. If the proposed gasoduct gets built within the next decade, the region’s energy costs would drop dramatically making Central America competitive for reasons other than its cheap labor force, Zamora says. Reduced energy costs would help attract new investment to the region, create new jobs and reduce the pressure of immigration flows, the energy expert says.

And Petrona Calero could reconnect her refrigerator.

Read part I in this series here.

 

 

 

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  • Derryl Hermanutz

    Natural gas is historically cheap right now, barely profitable for producers. Many of the US shale gas leases come with the condition that the lessee (leaser) must produce the field within 2 years or lose the money he paid for the drilling rights. So lessors are producing gas into a glut market at low or no profit just to hold their leases. If too many countries convert their baseload to gas, watch the gas price go from $3 (now) back up to $12-13 where it was in 2006. Imported LNG is not “salvation” for electricity generators. It is more like a bait-and-switch. Importers sink $100s of millions into new gas-fired generators to take advantage of cheap gas, then gas becomes expensive and they’re worse off than they started, because in addition to the high cost of fuel they have to add the high cost of paying for all the new gas-fired plants onto everybody’s electricity bills.

  • car

    i simply do not believe the premise of this piece. oil has not increased in price at anywhere near the same rate electricity prices have increased. much the same was gas and diesel prices soared in nica as they did everywhere. yet, unlike most other places, the prices have not come down by the same amount after the spike was over.

    corruption, inefficiency, ignorance and greed. these are the reasons electricity is so costly in nica. corruption leads to the hiring of ignorant, untrained, uneducated people, who are then placed in charge of matters in which they have not a clue. sending 15 people to do the work of 5, which is absolutely typical of just about everything in nica. yes, labor is dirt cheap. but this is a sign of a greater inefficiency in operation. rather than have 15 people doing one job, send the extra 10 on other jobs.

    last year, in my neighborhood, they changed all the electric meters and installed new, digital ones on the closest pole–no longer on the houses. (first month my consumption went down, and has basically remained constant while prices went up). there were literally 15 workers milling about the street. 5 were working, 10 stood around jerking off.

    once again, the article points out that nica has an ENERGY SURPLUS. yet they keep producing excess power??? how stupid is that?

    “hey, with that new 80 megawatts of power being produced in Rivas, we now have 80 extra megawatts from our oil powered plants!”

    “ok, bueno. keep the plants going at full capacity and burn all that extra, expensive oil. that way we can continue to raise the price.”

    i kinda figured the 29% price increase i experienced last month was what the article said it was–a forced subsidy for others.

    as for a quicker, cheaper solution, i know just about ZERO about power, but have a friend who does. aging, slapped together systems such as nica’s grid lose almost as much power as is actually used. to remain efficient, the grid itself needs to be updated and maintained well. see those rats nests of wires at just about every street corner? tons of leaked power through each of them. enough, possibly to power petrona calero’s home.

    alas, our fearless leaders are not so much interested in efficiency and modernization, as doing so would hinder their ability to continue to rape the public with artificially increased rates.

  • http://no Damian

    On of the reasons that electricity cost are higher in Nicaragua now and before is that the country is a oil small buyer. It can not negotiate the same deals as other nations that buy in bulk and lots of it. So now that Nicaragua is trying to flip it’s energy matrix in favour of renewables this means that the oil companies “punish” them with higher prices since they are buying less volumes. So Nicaragua is betting on the future with it’s energy decision and I certainly agree with getting away from oil, coal and gas. But this unfortunately means higher short term costs. At this moment it costs around on average 9 cordobas/Kwh in a normal household. To stay below the the subsidized 150Kwh depends on how energy efficient your equipment is – Fridges, light bulbs, electric stoves etc….

    • car

      i’m not sure that nica is paying higher prices because it buys small amounts of petroleum. on the contrary. since it is “buying” a large portion, if not most of its oil from venezuela–the gist of which is because it is supposedly cheaper–how do you figure?

      as for the price increases being temporary, i’d bet that they are not. as i stated earlier, during the last petroleum market spike, costs of fuel skyrocketed. take for example gas prices in the US. last year they were around $4.50 per gallon. now? $3.60 per gallon. gas prices in nica, on the other hand, spiked and stayed high…maybe they dropped 1/2 cordoba per liter. why? price gouging. nothing more.

  • Jild

    Not solar power???

  • Maya

    Sr. Zamora of AEI is categorically wrong and is selling the public a line of BS. The plain truth of the matter is that coal and natural gas producers see a window of opportunity (because of the death of Chavez) to sneak in and make the country dependent upon another fossil fuel source. The article states:

    “Nicaragua now has a surplus of power, yet energy costs continue to climb, crippling household economies and keeping small businesses from aspiring to become big businesses.”

    The primary way for this to happen is if there is a monopoly, which there is. Where competition exists and there is a surplus, prices naturally decrease. Do not fool yourselves, prices are being kept artificially high, most likely out of greed. High prices is what will get the public to swallow the poison pill of switching over to coal and natural gas. But this will not help the people at all. In fact it will just put more millions of dollars into the pockets of guys like Zamora and members of the government.

    It is a fallacy to say that we lack baseload capacity. We, like many other countries, simply lack the will to do what is right. Baseload capacity becomes critically important when power is supplied through a centralized infrastructure. However, the more decentralized the infrastructure, one that capitalizes on renewable opportunities at regional and local levels, the less baseload capacity becomes an important factor.

    Coal companies in the U.S. are not very happy these days because natural gas has taken a lot of their market share. They are desperate to establish new markets for their filthy product. Nicaragua, and more broadly Central America, represents fertile ground for them. But consider that right now our baseload energy is oil that is shipped from Venezuela. How is coal (or natural gas) that is shipped from the U.S. going to make our energy cheaper when transportation costs, at best, will be the same and it will cost $100 million to retrofit each plant? The math just does not add up.

    Puerto Rico also has high energy costs. It generates its power by burning a coal byproduct supplied by Big Coal in the U.S. So, simply burning coal does not automatically translate to lower energy costs. I really hope that Nicaragua does not make this switch, but I have a suspicion that it already might be a done deal. Instead, I would like to see renewable energy prioritized, innovation by breaking monopolies and encouraging competition, and government and business corruption is controlled.

    As for my family, we are “off the grid”, meaning that we generate sufficient electricity from solar to meet our needs. We are hoping that the government does not eventually move to consider not being hooked into the grid as being “not in solidarity”.

  • Concerned

    I own a property in beautiful Nicaragua and dream to move permanently there. I currently live in Canada, most of the electricity in my province is generated through burning coal and some natural gas and it is not cheap, have in mind we do not have to import it from elsewhere, it is however much cheaper than oil burning electric generation and my province has lots of oil.
    Now, you must know that the northern coutries are aming at renewable energy, such wind and solar and that coal burning is harmfull to the environment, natural gas is cheaper and it is environmentally friendly.
    With this disussion the 70’s come to mind when Somoza wanted to develop geothermal plants, guess what? He was blocked, guess which country could not allow this to happen. The thought of a small coutnry in Central America becoming non oil dependant for power generation, or being financially estable? No way.
    Now we all now, enough supply, high demand and no competition not healthy at all let’s party and make money. It seems to me what business people are trying to do is just what they do “Money”
    If really they want Nicaragua to become a hot destination and appealing to people my age looking at retirment and make of this an industry they have to get their act clean and together.
    What kind of statment is the one published? so contradictory :”Due to the seasonal volatility of wind and hydroelectric power sources, Nicaragua is unlikely to switch 100% to renewable energy sources—even though the country has the potential to produce way more renewable power than it can consume ” something is not adding or logical in the statement can supply 100% or more of demand, but unlikely to switch because of volatility? Excuse, me be serious. Nicaragua with so much water, so much sun and so much wind, volatile? What if you combine the three sources? there will be no volatility in production. But maybe no business for the bloodsuckers.

    • Kelvin

      This is from February 2013

      “As Nicaragua continues to produce more and more home grown energy using renewable resources, the old power plants that burn diesel bunker fuel will become obsolete. Cesar Zamora from AEI, one of the power generation companies in Nicaragua, suggested that Nicaragua would be able to sell energy to other countries that require it. Zamora indicated that the plants could be used to generate power for the grid that is purchased by other countries in Central America and therefore they may be able to keep the generators working. However, if that is not possible they would be closed”.

  • Concerned

    Here is more, today’s news May 29. Guess who is going into the power generation business Agricorp. Read below:
    “The joint development agreement was co-signed by Viaspace CEO Dr. Carl Kukkonen and Grain Hill/Agricorp CEO and Board President, Amilcar Ybarra-Rojas. ”
    Do you know who Amiilcar Ybarra is? Is the doctor link to the President’s economic advisor B.A. C? that is why Geothermal energy is not viable, because it will interfere in B.A.C. business.

  • John T

    What ever happened to those electric AMR meters which were suppose to be installed by conectisys. They were suppose to help with theft and save people money by being accurate. Was that just another pipe dream by the government to make people think help is on the way.