Electricity has been utilized as a public service for almost a century and a half. In Costa Rica, San José was lit up in 1884. In general terms, throughout this time, electricity evolved: electricity coverage expanded to become a practically universal public service, its sources of generation increased and diversified (hydroelectric, geothermal, wind, thermal, solar, and even waste utilization), and the quality of the service became more stable. In the case of Central America, the SIEPAC Network connects the region from Guatemala to Panama, allowing for energy exchanges that have generated opportunities and benefits in terms of the supply and cost of electricity.
The evolution of electricity is changing radically, as technology is allowing for electricity to be generated at consumption sites (homes, businesses, industries) through the installation of solar panels. This has lowered the cost significantly in the last decade. Additionally, the paradigm of not being able to store electricity in large quantities has been broken with the introduction of larger and lower-cost batteries.
The scheme of electricity being generated at one site and then transmitted to populated areas for distribution is still predominant. However, the trend of users generating their own electricity (distributed generation) is increasing. In Costa Rica, it is currently being debated whether the 15% limit on distributed generation in each circuit should be increased.
The economic implications of this paradigm shift are very important. The majority of electricity costs are fixed, which means that, regardless of electricity sales, the costs remain the same. At the distribution level, the cost of installing electricity grids is a cost that does not vary depending on how much electricity is being sold. The installation of the grid has an investment cost, which is mostly fixed. This cost must be paid over time, and additionally, the maintenance of the grid must be added. Regarding electricity generation, millions are invested to install new generation sources, which are paid for through financing that electric companies request. In Costa Rica, the installed capacity in renewable energy has increased significantly in the last decade. This has allowed for an annual renewable generation of over 98%. However, this has implied an investment of more than 2,500 million dollars in new wind, hydroelectric, and geothermal projects, financed for at least the next fifteen years, so there is a fixed cost regardless of electricity sales. The increase in distributed generation leads to lower energy purchases by some users, and this implies that the fixed costs must be distributed—or re-allocated—among the rest of the users, resulting in an increase in rates. This is where the interest in regulatory attention to this situation comes from.
When a service has such a high fixed cost component, the key is to see it as an opportunity to encourage greater consumption of the service. By increasing demand while costs remain the same, economies of scale can be generated, which translate into better rates for users. It is necessary to reverse the trend of fixed costs making the price of electricity more expensive, to create flexible rate schemes that encourage an increase in the demand for electricity from users.
Technology is creating this paradigm shift in electricity consumption through distributed generation, but technology also brings the solution to maintain and increase electricity consumption from investments already made, since the rise of electric vehicles is increasing and will imply a significant increase in electricity consumption. If in the next five years the electric vehicle fleet in our countries goes from hundreds to thousands, the electrical demand will not only allow for current costs to continue to be covered but may also require new investments, causing the electricity market in the world and in Central America to grow.