Nicaragua's privatized energy system
Nicaragua's privatized energy system has evolved significantly since the 1990s, transitioning from state control to private investment in an effort to improve electricity access and efficiency. The country relies heavily on oil imports, primarily from Venezuela, and biomass fuels, with a substantial portion of the population lacking reliable access to electricity. As of the 2020s, Nicaragua had the lowest electricity generation rate in Central America and a significant rural electrification gap, with only 66.3% of rural areas having access to electricity by 2022.
In response to these challenges, the government initiated privatization reforms, allowing private entities to engage in electricity generation and distribution. This included the establishment of the Nicaraguan Electricity Company (ENEL) in 1994 and the subsequent privatization of its distribution companies in 2000. Despite these efforts, the anticipated improvements in rural electrification and reduction of fossil fuel dependence did not fully materialize. However, there has been a notable shift towards renewable energy sources, with approximately 69% of the country’s electricity coming from renewables by 2021. Projects such as hydropower, wind farms, and geothermal energy are underway, aiming to harness Nicaragua's rich natural resources and reduce reliance on imported oil. Additionally, Nicaragua is part of the Central American Electrical Interconnection System (SIEPAC), which aims to enhance regional electricity cooperation and stability.
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Nicaragua's privatized energy system
Official Name: Republic of Nicaragua.
Summary: Nicaragua’s population depends largely on wood fuel and oil imports, although in the twenty-first century the renewable energy sector is growing rapidly. The country’s power production and distribution system underwent a process of privatization in the 1990s.
Nicaragua has the lowest electricity generation in Central America. As of the 2020s, it was the poorest country in Central America and also had the lowest percentage of population with access to electricity. The majority of the population, 42.1 percent, rely on oil as the primary energy source, while a significant number (38.9 percent) use biomass (such as burning wood), for their energy.
In 2004, the National Energy Commission (CNE) developed the National Plan for Rural Electrification (PLANER), which aimed to bring power to 70 percent of the rural population by 2005 and 90 percent of the rural population by 2012; nonetheless, by 2022 only 66.3 percent of rural areas had electricity. The National Interconnected System (SIN), the Nicaraguan electricity system, covered 90 percent of the territory where the country’s population lives. The other regions are covered by small generation systems. Nicaragua has been very dependent on imported oil for electricity generation, with nearly all oil imports coming from Venezuela. Nicaragua has one oil refinery. The electricity sector was controlled by the state through the early 1990s. The Nicaraguan Energy Institute (INE) was created in 1979. INE was responsible for the policymaking, regulation, development, and operations related to the country’s energy resources. INE faced many difficulties in the 1980s. Civil war interfered with electricity generation and distribution. Furthermore, INE faced a lack of investment resources for the electricity system, currency devaluation, and a trade embargo imposed by the United States. However, as stability slowly returned in the twenty-first century, these barriers receded, and the country began to invest in its extensive renewable energy resources. As a result, by 2021 about 69 percent of Nicaragua's electricity came from renewable sources.
Reforms and Renewables
In the 1990s, a series of efforts to encourage privatization was intended to promote more widespread delivery of electricity, economic efficiency, and private and foreign investment. INE was allowed to negotiate contracts with private investors beginning in 1992. The Nicaraguan Electricity Company (ENEL) was created in 1994. ENEL was a state company with the responsibility of generating, distributing, and commercializing electricity generation.
Its area of responsibility became separate from that of INE, which was to regulate and oversee the hydrocarbon and electricity sectors and apply appropriate taxation policies. In 1998, the government called for the separation of generation, distribution, and transmission assets from ENEL. The government privatized the distribution companies of ENEL in October 2000. The Spanish company Union Fenosa bought the distribution companies.
In 1998, further reforms of INE led to the creation of CNE. CNE took over planning and policy-related responsibilities and was given special responsibility for the development of rural electrification. The Ministry of Energy and Mines (MEM) was created in 2007 and replaced CNE. Also, the hydrocarbons division of INE was transferred to MEM.
The reforms of the 1990s did not result in the more widespread and efficient system that was envisioned. The proper oversight and institutional framework did not exist during the privatization process, and years of civil war continued to deter foreign investment. The extent of rural electrification has largely remained the same, despite initial beliefs that rural electrification would improve. However, the privatization efforts also did little to reduce the country’s dependence on fossil fuels.
In 2004, the economic potential of renewable energy was five times higher than the national power capacity. The Renewable Energy Promotion Law was adopted in 2005. It did not outline quantifiable targets, but it does assert that renewable energy is a national priority and outlines a few economic incentives, such as the exemption of renewable energy projects from import duties. As a result, the country's vast water, wind, and geothermal resources are starting to be exploited. In 2016, only about 8 percent of the country's electricity came from hydropower, but additional hydropower plants are under construction. The country's first wind farm, Amayo, came online in 2009 and had a capacity of about 63 megawatts. Another major source of renewable power is geothermal energy from the country's volcanoes. The push to develop renewable energy has begun to reduce Nicaragua's dependence on foreign oil.
SIEPAC
The Central American Electrical Interconnection System (SIEPAC) is a project that was developed to interconnect the electric grid of six of the seven Central American nations: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. The system of electric transmission lines runs from Panama to Guatemala. Planning for the SIEPAC project began in 1995, and it was completed in 2013. Funding was initially provided primarily by the Inter-American Development Bank. The Spanish power company Endesa and Central American Bank for Economic Integration (CBEI) also provided monetary support, with Central American countries providing in-kind contributions such as existing facilities and infrastructure.
Bibliography
"Nicaragua." CIA World Factbook, 30 July 2024, www.cia.gov/the-world-factbook/countries/nicaragua/. Accessed 7 Aug. 2024.
"Nicaragua." International Energy Agency, 2024, www.iea.org/countries/nicaragua. Accessed 7 Aug. 2024.
Otis, John. "Nicaragua's Renewable Energy Revolution Picks Up Steam." NPR, 11 Mar. 2015, www.npr.org/sections/parallels/2015/03/11/392111931/nicaraguas-renewable-energy-revolution-picks-up-steam. Accessed 7 Aug. 2024.
“Renewable Energy Sources in Latin America and the Caribbean: Situation and Policy Proposals.” Economic Commission for Latin America and the Caribbean, repositorio.cepal.org/entities/publication/8866ea5a-88cb-4220-82c3-f9b3756200d5. Accessed 7 Aug. 2024.