Petitions for rate setting must conform to Law No. 7593, its Regulation, and this Regulation." The comprehensive analysis of the detailed legal framework allows concluding that in accordance with the provisions of Articles 3, 4 subsection f), 5 subsection a), 6 subsection d), 9 and 31 to 36 of Law No. 7593, numerals 4 subsection a) point 2), 14, 15, 16, 17 and 41 of Executive Decree No. 29732-MP, Article 6 subsection 16 of the RIOF, Article 14 of Law No. 7200, numeral 20 of Executive Decree No. 37124-MINAET, Articles 23 and 26 of the "Sectoral Regulation for Electric Services," Decree 29847-MP-MINAE-MEIC, it corresponds to Aresep to set the prices and rates of said public services, as well as to establish the rate methodologies or models that will determine them. The foregoing is consistent with reiterated jurisprudence of the corresponding courts and the criteria of the Attorney General's Office of the Republic.
In this way, it is evident that cogeneration in the sense proposed by this rate methodology must be a service covered not only by Law No. 7200, but also by Law No. 7593 and its regulation, which provides regulation functions for the Regulatory Authority.
6.4. Exercise of the rate-setting and methodological power of Aresep, in relation to private generators covered by Chapter I of Law No. 7200 In the case at hand, it is necessary to identify that the methodologies and rate models that Aresep issues, in order to carry out the rate setting for the electricity generation service produced, in this case, from biomass using combustion processes, are exclusively applicable to private generators covered by Chapter I of Law No. 7200, excluding those that generate under Chapter II thereof (added through Law No. 7508).
The foregoing is based not only on the inclusion of generation as one of the stages of the electricity supply service stipulated in subsection a) of Article 5 of Law No. 7593, but also on Law No. 7200 itself, Article 14, and on the Regulation to Chapter I of said Law (Decree No. 37124-MINAET), Article 20.
On the other hand, the rates referring to electricity sales made in light of Chapter II of Law No. 7200, regardless of their source, are defined within the public bidding procedures carried out by ICE in order to make the required contracting, in which there is competition of sale prices, according to Article 21 of the aforementioned Law. Therefore, Aresep has no direct interference in the definition of such rates.
7. GENERAL CHARACTERISTICS OF THE PUBLIC SERVICE OF ELECTRICITY GENERATION WITH BIOMASS 7.1. Current situation of the costs of energy produced with biomass at the international level According to the intergovernmental organization "International Renewable Energy Agency," Irena, based in the city of Masdar, Abu Dhabi, a specialized body in the promotion of knowledge, adoption, and sustainable use of renewable energies, from the report Renewable-Power-Costs4 (2020, p. 111), some data for generation with biomass are highlighted:
4 https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019 . Between 2010 and 2019, the global weighted average Levelised Cost of Energy (LCOE5) for bioenergy for power projects fell from USD 0.076/kWh to USD 0.066/kWh.
5 The LCOE is the ratio between lifetime costs and lifetime electricity generation, both discounted to a common year using a discount rate that reflects the average cost of capital.
In this report, all financial values are in real 2019 USD (i.e., accounting for inflation). LCOEs are calculated assuming a real cost of capital of 7.5% in OECD countries and China, and 10% in the rest of the world, for all technologies unless explicitly mentioned. All LCOE calculations exclude the impact of any financial support.
. For bioenergy projects commissioned in 2019, the global weighted average total installed cost was USD 2141/kW. This represented an increase from the 2018 weighted average of USD 1693/kW.
. Capacity factors for bioenergy plants are very heterogeneous, depending on the technology and feedstock availability. Between 2010 and 2019, the global weighted average capacity factor for bioenergy projects varied between a minimum of 65% in 2012 and a maximum of 86% in 2017.
. In 2019, the weighted average LCOE varied from a minimum of USD 0.057/kWh in India and USD 0.059/kWh in China, to maximums of USD 0.08/kWh in Europe and USD 0.099/kWh in North America. The above information is summarized in the following graph:
Graph 1 Global weighted average total installed costs, capacity factors and LCOE for bioenergy, 2010-2019 Source: Irena, This first graph shows how the installed cost has varied in recent years, the same has occurred with the capacity factor, and the kWh costs are on a downward trend, currently around $0.066/kWh.
Graph 2 Total installed costs of bioenergy generation projects by selected feedstocks and country/region, 2000-2019 In the previous graph, we can focus on the first box representing the installed costs of bagasse-type biomass (which is the only biomass source with which energy is currently generated in Costa Rica) and mainly for North America; it can be inferred from the information that the average installed cost is less than $2000/kW and that smaller capacities, between 20 and 30 MW, are used for this type of source.
According to Irena (2020), bioenergy-fired power plants can have very high capacity factors, ranging between 85% and 95%, in cases where feedstock availability is uniform throughout the year.
However, in cases where feedstock availability is based on seasonal agricultural harvests, capacity factors tend to be lower.
In the case of Costa Rica, the average plant factor of the 2 bagasse plants that currently sell energy to the SEN oscillates around 65%. In the case of these two plants, given the source with which generation occurs, the available feedstock is seasonal, being based on the sugar cane harvest times, which lasts between three and six months a year, so said plants generate between four and five months a year, which is reflected in the historical records of energy sales maintained by the DOCSE (formerly CENCE) and which are available at Aresep.
In the Irena report (2020, p. 117), fixed operation and maintenance costs include labor, insurance, scheduled maintenance, and routine replacement of plant components, such as boilers, gasifiers, feedstock handling equipment, and other elements.
In total, according to the aforementioned report, these operation and maintenance costs represent between 2% and 6% of total installed costs per year. Large bioenergy power plants tend to have lower fixed operation and maintenance costs per kW, due to economies of scale.
Said report adds that variable operation and maintenance costs, at an average of USD 0.005/kWh, tend to be low for bioenergy power plants, compared to fixed operation and maintenance costs. Spare parts and incremental service costs are the main components of variable operation and maintenance costs, although they also include fuel costs other than biomass, such as ash disposal.
Graph 3 LCOE by project and weighted averages of bioenergy power generation projects by feedstock and country/region, 2000-2019 From the previous graph, it can be observed that the highest weighted average for this period (2000-2019) was USD 0.099/kWh in North America, where the 5th and 95th percentiles of projects fell between USD 0.048/kWh and USD 0.180/kWh.
7.2. The current rate model In relation to the current rate model, as mentioned throughout the document, there are currently two rate methodologies approved by Aresep for electricity generation with biomass, namely:
. "Rate methodology according to the typical cost structure of a model plant for electricity generation with sugarcane bagasse for sale to the Instituto Costarricense de Electricidad and its indexation formula", approved through resolution RJD-004-2010, of April 26, 2010, and published in La Gaceta No. 98 of May 21, 2010, and its amendment.
. "Model and cost structure of a plant for electricity generation with biomass other than sugarcane bagasse and its indexation formula", approved through resolution RJD-162-2011 of November 9, 2011, and published in La Gaceta No. 233 of December 5, 2011, and its amendment.
In the case of the sugarcane bagasse methodology (RJD-004-2010), it is based on the definition of a model plant that considers a model productive structure for the electricity generation activity with sugarcane bagasse based on a benchmarking of investment and operating costs.
On the other hand, the model for biomass other than sugarcane bagasse (RJD-162-2011) is based on a cost model, organized in a calculation spreadsheet, in which a structure of investment, operation, and maintenance costs for the development of the activity was defined; and adds a profitability consistent with the type of activity.
This latter model was approved under the premise that the country had no previous experience in generation with biomass sources other than sugarcane bagasse, and that there is a very wide range of technical and economic production conditions with biomass sources; therefore, it was not decided to establish reference model companies, but rather a method of setting individual rates based on the information to be provided by the enabled interested parties was proposed, within a rate scheme and a clearly defined cost structure. In this model, as the conditions of existence of multiple biomass sources and a wide range of technical and economic conditions persist, the same cost and expense structure of the generation model with biomass other than sugarcane bagasse was incorporated, with individual settings according to the financial-accounting data of each generator.
Both models establish the procedures and formulas for calculating the respective rate, as well as the requirements to implement the respective procedure.
7.3. Needs of the regulated sector As part of the regulatory improvement process, highlighted in the definition and review of rate methodologies, Aresep has sought to detect, in the exercise of its work established by Law No. 7593, opportunities for improvement of its regulatory instruments, without prejudice to the various substantiated observations that may be known from a provider or interested third party and that are susceptible to being considered in the process.
7.3.1. Observations from ICE ICE has sent Aresep a series of concerns regarding the bagasse methodology (RJD-004-2010 and RJD-027-2014), through official letters 0510-905-2017 and 0610-094-2018. In this regard, the following stand out from said statements:
. Disagreement that rates be in dollars, given that companies make most of their expenditures for operating and administrative costs in colones.
. The inconvenience of applying the "model plant" methodology, the cost values specific to the companies El Viejo S.A. and Taboga S.A., since these costs are inconsistent with the costs of a model plant, because the inefficiencies of existing companies are charged to prices, with final consumers assuming these inefficiencies.
. Age of the plants that generate electricity with bagasse in the estimation of investment costs. The methodology simulates an efficient model company that begins operations in year zero; however, the reality is that the thermal generation plants with bagasse, to which this methodology has been applied, have been repowered and have been operating for several years prior to the first rate setting with this methodology, so their assets are partially or totally depreciated.
. Adjustment by price indices, because investment costs and total costs change when updated by indices; however, in model companies, the goal is for costs to be updated by technological improvements and even exclude those costs or increases that do not represent any efficiency for the plant, and for this to incentivize generators to be more efficient and thus seek the improvement of their production systems.
. Questioning of the bagasse reserve percentage.
. Distribution percentages of energy for own consumption and energy for sale and their impact on the production costs of the energy generation activity.
. Recognition of expenses not considered in other methodologies, including income tax expense and financial expenses.
In this regard, regarding ICE's observations, these have been analyzed, and where appropriate, will be included in the proposal.
7.3.2. Observations from the IE The IE, as the applicator of the current rate methodologies, has detected some opportunities for improvement, which were sent to the CDR, through official letters OF-1450-IE-2019, OF-1017-IE-2020, and IN-0131-IE-2020, covering the following aspects:
. Scope of extraordinary rate settings. . Lack of clarity in the methodology on which variables can and must be updated in rate settings. . Inclusion of the use of information from regulatory accounting. . Recognition of income tax within rate costs. . Recognition of financial expenses within rate expenses. . The indexation of total costs. . The profitability calculated on an investment amount that considers a plant always new. . The advisability of setting rates in dollars.
In relation to the observations submitted by the IE, it is highlighted that these have been analyzed, and where appropriate, will be included in the proposal.
7.4. Analysis of the sector's needs After the assessment of the sector's needs by ICE, the providing companies, and the needs identified by Aresep's technical teams, the consolidation of the methodologies for plants generating with sugarcane bagasse and biomass other than bagasse into a single methodology is proposed, which will consider both plants with current contracts that currently operate in the sector, and plants that sign a contract in the future.
In this regard, another consideration analyzed for the definition of the methodology is that, in the current context, ICE is not renewing contracts with private generators for the entire maximum 20-year concession period permitted by Law No. 7200, and in some cases, it is not renewing contracts at all. In that sense, this is due to the current rate scheme and the current energy need conditions of the National Electric System (SEN, Sistema Eléctrico Nacional); therefore, it is considered convenient to propose a methodology that provides rate flexibility to energy purchase-sale negotiations.
In that sense, in the regulation of the electric sector, it has been visualized that rate flexibility not only provides incentives to improve the sector's efficiency, but also allows the market to be energized when negotiating contract renewals, given that according to current national legislation, ICE is only allowed to buy energy through the mechanisms provided in Law No. 7200, and it is ICE that must define the quantities to buy and from whom.
Additionally, given that Aresep only has the operational and financial-accounting information of two very different plants, both in the amount of energy they generate and their investment, operation, and maintenance costs, it is proposed to determine maximum rates per company, so that the parties can agree on a rate.
Given the particularities of cogeneration with biomass and the availability of financial-accounting information from the providers to whom this methodology would apply, it was decided to abandon the model plant scheme, so that the real information of each of the sector's plants is considered.
(.)" That from the technical report IN-0021-CDR-2024, of April 12, 2024, which corresponds to the "Addition and clarification to the technical report IN-0018-CDR-2024 of the post-hearing analysis of the proposal for an Ordinary methodology for setting rates for cogeneration of electricity with different biomass sources", and which contains aspects related to the "Remaining utilization factor (FU, Factor remanente de utilización)", which is part of the basis for this methodological proposal, it is appropriate to extract the following:
"(.)
On the clarification and addition Once the sections of the rate methodology proposal ordered by the Board of Directors were submitted to a new public hearing on September 28, 2023, opposition was again received from several participants of the held hearing, who argued that it must be considered that the useful life of generators can be greater than 40 years and that on many occasions, these assets remain in operation beyond the useful life established by the manufacturer.
Once this argument was analyzed in report IN-0017-CDR-2024 of March 14, 2024, and this change was incorporated in technical report IN-0018-CDR-2024 of the same date, the following was indicated:
"(.)
Given this, it is indicated that the selection of this useful life must adjust to the reality of each company according to the useful life of the generators it uses, and with this data, the Remaining utilization factor (Fu) is estimated.
In turn, the opponent's argument regarding the few incentives private generators have to continue operating is considered, if only operating costs are recognized, especially because useful lives can range between 40 and 50 years and equipment can remain in operation for more than 50 years; therefore, it is agreed that incentives need to be added to keep cogeneration plants in operation.
While the inclusion of a residual value can maintain a level of profitability consistent with the value of the asset during the cogeneration plant's operating period exceeding the useful life, it tends to overestimate the Fu during the plant's useful life years, as indicated in report IN-0029-CDR-2023 of June 29, 2023, where it is specified as follows:
"(.)
In that sense, the opponent is right in that the Remaining utilization factor (Fu) in the case of electric cogeneration should not contemplate the residual value, because, when considered, the asset used for electric generation could be exceeding its useful life and, therefore, would be having a value higher than the total value of the asset.
(.)" Therefore, it is determined that the best alternative to avoid overestimating the Remaining utilization factor (Fu) during the useful life or depreciable life of the plant and to grant sufficient incentives to private generators to continue providing the electricity cogeneration service once said useful life has ended, is to establish a restriction on the Fu variable so that its result cannot be less than 10%, whereby cogenerators obtain a profitability consistent with cogeneration plants that remain in operation beyond their useful life, because total depreciation of the asset was already recognized during the useful life period and profitability is not overestimated during the asset's useful life. For this reason, section 8.9 of the proposed methodology is modified as follows:
"8.9. Remaining utilization factor (Fu) The remaining utilization factor of each cogeneration plant represents the remaining percentage of the asset's value for a specific moment in the useful life based on the age of the main asset. The remaining utilization factor is determined with the following equation, subject to the indicated restriction.
Subject to the following condition Fu ≥ 10% Where:
Fu = Remaining utilization factor for each provider (%). Vu = Useful life indicated by the manufacturer for the most important asset of the plant. AT = Year prior to the year in which the rate calculation is performed. AF = Year of manufacture of the generating plant. Vd = Depreciable value of the generating plant.
The condition Fu ≥ 10% establishes that the Remaining Utilization Factor (Fu) can never be less than 10%, as long as the cogeneration plant is generating energy for sale to the SEN. That is, plants will reach 90% of their useful life, and the remaining 10% will remain constant, and that percentage will adjust the investment, on which the profitability to the provider will continue to be recognized.
Some considerations of the previous parameters are specified below.
1. Useful life (VU): The useful life is the period in which the most important asset of the plant (in this case the generator) is expected to be used to produce energy and, in turn, the time during which the loss of the asset's value occurs. The useful life of the biomass electricity generation plant will be calculated according to the information provided by each of the providers according to the useful life of the turbogenerator used. In the event that several turbogenerators are used, each with a different useful life, the useful life will be determined by a simple average. The maximum useful life to recognize is 50 years.
2. It is established that the minimum value of Fu corresponds to 10%, this supported by the "Terms and conditions for determination of tariff for renewable energy sources" of various energy regulatory commissions of States of India (New Delhi, Rajasthan, Maharastra, Bihar, among others) and research that places the salvage value of the technology used for energy generation with bagasse and biomass gasifiers at 10% (Kale, R. & Pohekar, S. (2014) and Perwez, U. et al. (2015)).
(. .)
Taking the foregoing into account, once the variable Vr (residual value) has been eliminated from the equation of the Fu formula, and given that the variable Vd is determined as Vd = 1-Vr, when the value Vr disappears from the equation, Vd can automatically only obtain the value of 1.
Under that described consideration, the proposal was submitted to the public hearing; however, for the sake of precision, and since said variable has an effect within the Fu formula, the corresponding consequence is its elimination from the equation and from the definition of the variable.
Furthermore, based on the indicated condition of Fu ≥ 10%, the remaining utilization factor will be 10% as the end of the asset's useful life approaches; and while it continues in operation, the recognition of its utilization corresponds to the aforementioned percentage and does not depend on the depreciation value.
As indicated, considering the variables contained in equation 12, all of which are related to the useful life and age of the asset, the text of section 8.9 is adjusted as follows:
(. .)
8.9 Remaining utilization factor (Fu) The remaining utilization factor of each cogeneration plant represents the remaining life of the asset at a specific point in its useful life as a function of the total age of the main asset. The remaining utilization factor for plants that have not reached their useful life is as follows.
Subject to the following condition Fu ≥ 10% Where:
Fu = Remaining utilization factor for each provider (%).
Vu = Useful life indicated by the manufacturer for the most important asset of the plant.
AT = Year prior to the year in which the rate calculation is performed.
AF = Year of manufacture of the generating plant.
(. .)" Having made this adjustment, the variable Vd is eliminated from formula 12, and Vd is eliminated from the variable summary table.
All else remains as indicated in report IN-0018-CDR-2024.
(. .)" Whereas the technical basis for this methodological proposal is based on report IN-0018-CDR-2024, dated March 14, 2024, entitled "Post-hearing technical report on the proposal for an Ordinary methodology for setting rates for the cogeneration of electricity with different biomass sources," as well as on report IN-0021-CDR-2024, dated April 12, 2024, entitled "Addition and clarification to technical report IN-0018-CDR-2024 of the post-hearing analysis of the proposal for an Ordinary methodology for setting rates for the cogeneration of electricity with different biomass sources," prepared by the task force and forwarded by the CDR via official letters OF-0081-CDR-2024, dated March 19, 2024, and OF-0106-CDR-2024, dated April 17, 2024, respectively.
Whereas on March 20 and April 18, 2024, respectively, the SJD forwarded to the DGAJR the technical documentation related to the proposal for an "Ordinary methodology for setting rates for the cogeneration of electricity with different biomass sources," as well as the response report to the positions presented at the public hearing, for the respective post-public hearing analysis. Whereas the DGAJR, via official letter OF-0271-DGAJR-2024 dated April 26, 2024, issued its respective opinion, recommending to the Board of Directors of Aresep the following: "1. Submit for the knowledge and assessment of the Board of Directors of Aresep, the proposal for an 'Ordinary methodology for setting rates for the cogeneration of electricity with different biomass sources,' presented by the Dirección General Centro de Desarrollo de la Regulación, via official letter OF-0081-CDR-2024, dated March 19, 2024, and supplemented and clarified via official letter OF-0106-CDR-2024, dated April 17, 2024." Whereas, based on the preceding findings and consideranda, it is appropriate to: 1- Issue the Ordinary methodology for setting rates for the cogeneration of electricity with different biomass sources. 2- Consider as a response to the positions presented at the public hearing held on September 28, 2023, what is indicated in report IN-0017-CDR-2024, dated March 14, 2024, and express gratitude for the valuable participation of everyone in this process. 3- Instruct the Secretaría de Junta Directiva of Aresep to proceed to notify Mr. Yordi Magin Sotomayor, Azucarera El Viejo Sociedad Anónima, Cogeneradora Tempisque Sociedad Anónima, Instituto Costarricense de Electricidad, and Ingenio Taboga Sociedad Anónima of the response to the positions presented at the public hearing, as well as this resolution, in a single act. 4- Repeal resolution RJD-004-2010, "Tariff methodology according to the typical cost structure of a model plant for generating electricity with sugarcane bagasse for sale to the Instituto Costarricense de Electricidad and its indexation formula," published in La Gaceta No. 98 on May 21, 2010, and its amendments. 5- Repeal resolution RJD-162-2011, "Model and cost structure of a plant for generating electricity with biomass other than sugarcane bagasse and its indexation formula," published in La Gaceta No. 233 on December 5, 2011, and its amendments. 6- Instruct the Secretaría de Junta Directiva of Aresep to proceed with the publication of this resolution in the official gazette La Gaceta. 7- Instruct the Dirección General Centro de Desarrollo de la Regulación to coordinate with the Departamento de Comunicación Institucional the dissemination of this methodology on the institutional website. 8- Communicate this resolution to the Dirección General Centro de Desarrollo de la Regulación, the Dirección General de Atención al Usuario, and the Intendencia de Energía, for the corresponding purposes.
Whereas, in session 42-2024 held on May 28, 2024, and ratified on June 6, 2024, the Board of Directors of the Autoridad Reguladora de los Servicios Públicos, based on the final technical report IN-0018-CDR-2024, dated March 14, 2024, and its addition and clarification made in technical report IN-0021-CDR-2024, dated April 12, 2024, prepared by the task force, official letters OF-0081-CDR-2024, dated March 19, 2024, and OF-0106-CDR-2024, dated April 17, 2024, from the Dirección General Centro Desarrollo de la Regulación, as well as OF-0271-DGAJR-2024, dated April 26, 2024, from the Dirección General de Asesoría Jurídica y Regulatoria, agrees to issue this resolution as set forth.
Based on the powers conferred by the Ley de la Autoridad Reguladora de los Servicios Públicos (Ley 7593), in Decreto Ejecutivo 29732-MP "Reglamento a la Ley 7593" and in the "Reglamento Interno de Organización y Funciones de la Autoridad Reguladora de los Servicios Públicos y su Órgano Desconcentrado" (RIOF); the following is provided:
THE BOARD OF DIRECTORS OF THE AUTORIDAD REGULADORA DE LOS SERVICIOS PÚBLICOS
I.To issue the ordinary methodology for setting rates for the cogeneration of electricity with different biomass sources, in accordance with the following:
"ORDINARY METHODOLOGY FOR SETTING RATES FOR THE COGENERATION OF ELECTRICITY WITH DIFFERENT BIOMASS SOURCES" Contents (. .)
4. ABBREVIATIONS, ACRONYMS, AND DEFINITIONS USED IN THE METHODOLOGY .............................. ..................................................................................... 43 (. .)
8. DEFINITION OF THE PROPOSED METHODOLOGY ...................................... 45 8.1. Scope .................................................................................................... 45 8.2. General objective ....................................................................................... 46 8.3. Specific objectives ............................................................................... 46 8.4. General formula of the methodology .......................................................... 47 8.4.1. Maximum rate .................................................................................... 48 8.5. Annual exploitation cost (Ce) .............................................................. 49 8.5.1. Concept: .......................................................................................... 49 8.5.2. Source of information ....................................................................... 49 8.5.3. Exploitation cost per contracted kW (Cekw) ................................ 50 8.5.4. Indexation of the exploitation cost .................................................. 50 8.6. Hours in operation (H) ............................................................................ 52 8.6.1. Concept: .......................................................................................... 52 8.6.2. Source of information ....................................................................... 52 8.6.3. Calculation of average operating hours ..................................... 53 8.7. Return for development (R) .................................................................... 53 8.7.1. Cost of debt (KD): ......................................................... 54 8.7.2. Cost of equity (KE): ............................................................ 55 8.8. Investment amount (I) ........................................................................... 58 8.8.1. Concept: .......................................................................................... 58 8.8.2. Source of information ....................................................................... 58 8.8.3. Investment per contracted kW (Ikw) ....................................................... 60 8.9. Remaining utilization factor (Fu) ........................................................ 60 9. APPLICATION OF PERIODIC ADJUSTMENTS .......................................... 62 10. POWERS OF THE INTENDENCIA DE ENERGÍA OR THE INTERNAL BODY OF ARESEP IN CHARGE OF SETTING RATES .................. 62 11. OBLIGATIONS OF OPERATORS OR AGENTS .............................. 62 12. OTHER CONSIDERATIONS ....................................................................... 63 13. REPEALS ........................................................................................... 63 15. ANNEXES ......................................................................................... 64 15.1. List of equations .......................................................................... 64 15.2. List of rate model variables ............................................... 65 "(. .)
1. (. .)
2. (. .)
3. (. .)
4. ABBREVIATIONS, ACRONYMS, AND DEFINITIONS USED IN THE METHODOLOGY Units:
kWh: kilo Watt hour MW: Megawatt kW: Kilowatt Acronyms:
Aresep or ARESEP: Autoridad Reguladora de los Servicios Públicos CAPM: Capital Asset Pricing Model CDR: Dirección General Centro de Desarrollo de la Regulación DGAJR: Dirección General de Asesoría Jurídica y Regulatoria DOCSE: División de Operación y Control del Sistema Eléctrico, previously Centro Nacional de Control de Energía (CENCE) DR-PO-03: Procedure for developing and modifying rate models and technical regulations, version dated March 18, 2022.
ICE: Instituto Costarricense de Electricidad IE: Intendencia de Energía IRENA: International Renewable Energy Agency LGAP: Ley General de la Administración Pública MINAE: Ministerio de Ambiente y Energía OS: System Operator PGR: Procuraduría General de la República PNDIP: Plan Nacional de Desarrollo y de Inversión Pública (PNDIP) (*)(Note from Sinalevi: Its name was thus modified by subsection a) of article 43 of the Reglamento para la Implementación de la Ley N°10441 of March 13, 2024, and the Funcionamiento del Sistema Nacional de Inversión Pública, approved by Decreto Ejecutivo N° 45163 of August 8, 2025. Previously it was referred to as "Plan Nacional de Desarrollo (PND)") PNE: Plan Nacional de Energía RIOF: Reglamento Interno de Organización y Funciones de la Autoridad Reguladora y su órgano desconcentrado SEN: Sistema Eléctrico Nacional c. Definitions:
Sugarcane bagasse: Residue obtained from the sugar manufacturing process from sugarcane; it is a source of biomass.
Biomass: Organic matter of biological origin, composed mainly of lipid and carbohydrate structures and another series of biomolecular compounds, normally accompanied by high percentages of moisture. Not derived from petroleum, which can be used to produce renewable energy.
Installed capacity or plant capacity: It is the production potential or maximum production volume that a particular company or plant can achieve during a determined period of time, taking into account all available resources, be it production equipment, facilities, human resources, technology, experience/knowledge, among others.
Electric power station or power station or electric power generating plant: Industrial installation designed to convert mechanical energy from water, biomass, bunker fuel, gas, or others, into electrical energy.
Cogenerator: Power plant or station that generates electrical energy for its normal production process of its economic activity and supplies the surpluses to the public electricity grid for the sale of energy to the ICE.
Combustion: Process by which the burning of any substance occurs, in this case, biomass, to produce heat.
Concession: Authorization that the State grants to operate, exploit, and provide the generation service.
Biomass generator: Power station designed to generate electrical energy from biological residues or biomass. A natural or legal person that owns an electric power station is also called a generator.
5. (. .)
6. (. .)
7. (. .)
8. DEFINITION OF THE PROPOSED METHODOLOGY 8.1. Scope This methodology will apply for the setting of ordinary rates, ex officio or at the request of a party, for the purchase and sale of electrical energy produced with different biomass sources, with an annual application frequency, under the technical conditions established in our country by Aresep and that comply with the applicable legal system, as well as the current regulations and the considerations, premises, and criteria set forth for this methodology or those established in the future.
The purpose of this methodology is that there be a clear, consistent, updated, and flexible mechanism that allows for calculating the maximum reference rate per provider for the sale of electrical energy produced with different biomass sources with combustion processes, both for plants that currently have a contract for the sale of energy and for plants that in the future sign a contract for the sale of energy produced with biomass, which can be used by the agents participating in electricity cogeneration with said source, who meet the legal and technical requirements for that purpose, and that considers the plants' own information.
The foregoing, in accordance with article 20 of the Reglamento al Capítulo I de la Ley N°7200 "Ley que Autoriza la Generación Eléctrica Autónoma o Paralela", N°37124-MINAET, which in its article 20 indicates that "The rates, both for new plants and for existing plants, may be set under the modality of a maximum price, or a band with a maximum price and a minimum price, and may have a disaggregated structure by times of year, hours of the day, energy and power, defined in accordance with the projected evolution of SEN costs." Considering the foregoing, the proposed methodology has its field of action in the sale of electrical energy produced by private cogenerators to ICE, in light of Chapter I of Ley N°7200. In this case, it concerns energy produced with sugarcane bagasse and any other biomass source in combustion processes only, so that it does not include energy production from municipal solid waste, nor processes such as gasification, pyrolysis, plasma reactors, among others.
The methodology considers that the biomass source originates from the operation of an existing production process that possesses an electrical cogeneration plant; therefore, the biomass residue is used to produce energy for sale to ICE.
The methodology will use, as input for its application, the financial-accounting information provided to Aresep by the providers of this service, coming from the audited Financial Statements and homologated to regulatory accounting according to the formats and deadlines established by the Intendencia de Energía. In the event that information other than that included in the Financial Statements is used, it is required to justify the reason for its inclusion and indicate what the source of the information is. For its part, it is clarified that the determination of a rate for energy production with biomass sources other than bagasse (given that information is currently only available for the two plants that generate with bagasse) is subject to the financial-accounting information provided by the interested party, in accordance with the provisions that Aresep has established or establishes in the future on this matter.
8.2. General objective To establish a tariff methodology that promotes efficiency through the definition of a maximum rate per kWh for the sale of electrical energy produced with different biomass sources, between private cogenerators and ICE, under the protection of Chapter I of Ley N°7200.
8.3. Specific objectives i. Define the procedure for performing the rate calculation.
ii. Establish a flexible mechanism for determining the rate that allows the parties to agree on the rate for the sale of energy.
iii. Establish the sources of information for the variables used by the methodology.
iv. Establish the information that providers must supply for the application of the rate.
8.4. General formula of the methodology This methodology establishes the calculation process for the maximum rate for the service of selling electrical energy produced with biomass between ICE and private cogenerators.
Given that the plants can be used to produce energy for self-consumption, this rate considers only the costs and expenses adjusted by the proportion of the contracted power for the sale of energy to ICE. This rate will be considered as the maximum rate; this mechanism aims to provide flexibility so that the parties determine the amount to be billed according to the maximum rate established by Aresep and the kWh sold. The rate per kWh may not exceed the established maximum price and must harmonize and balance the interests of the service provider and the interests of the user, so that, when defining the rate, both financial equilibrium for the benefit of the provider and respect for service at cost for the benefit of the user must be sought.
It is necessary to make clear that the application of the maximum price concept in public services is not alien to the work of this Regulatory Authority, since it is framed within the excluding and exclusive powers that the legal framework allows it to establish to balance the interest of the operator and the users in setting prices and rates.
In the process of determining the value of the kWh for the purchase and sale of electricity between ICE and the cogenerator, an hourly, seasonal, or hourly-seasonal structure may be defined; ICE must establish the applicable parameters in the contracting terms or leave it open to the presentation of sales offers from private generators to whom this methodology applies.
Furthermore, ICE may define or request this structure by energy blocks; all the foregoing must be justified based on the needs detected in the Sistema Eléctrico Nacional and the optimization of the generation fleet available at all times. If a structure is defined, at no time may the rates be higher than the maximum rate defined by this methodology.
For determining the cost of the kWh, as indicated in article 22 of the Reglamento al Capítulo I de la Ley N°7200 "Ley que Autoriza la Generación Eléctrica Autónoma o Paralela", N°37124-MINAET, "ICE must consider the supply needs of the Sistema Eléctrico Nacional (SEN), the validity period of the public service concession, the remaining useful life of the plants, the public interest, the estimated cost of the contract, the optimal continuity of service provision, the sectoral public policy, as well as the convenience, economic optimization of the service, and the operational security of the Sistema Eléctrico Nacional (SEN) within the limit authorized by article 7 of Ley N º 7200." For the purposes of this methodology, providers must supply information related to both the total generation of electrical energy and the cogeneration related to the sale of energy; in order to analyze, assess, and establish, in accordance with article 32 of Ley N°7593 and under the principles of proportionality, reasonableness, and service at cost, which of the costs and expenses required for the production of electrical energy are linked to the generation for sale to ICE, this to determine the rate considering, solely and exclusively, the costs and expenses that correspond to the public service.
Only costs corresponding to the cogeneration of electrical energy that correspond to the contracted power for sale to ICE will be recognized, excluding any other production belonging to activities unrelated to said service.
For the purposes of this methodology, when reference is made to the last harvest period6 considered in the financial-accounting information, it will correspond to the data from the months or period of the harvest that occurred between the months considered in the fiscal period authorized by the Ministerio de Hacienda for each company to which the rate applies, or failing that, the fiscal year-end established at the national level by Law; under no circumstances will information that does not correspond to the aforementioned period be used.
8.4.1. Maximum rate The maximum rate is calculated as:
Where:
Tm = Maximum rate for the provider.
Cekw = Annual unit exploitation cost per contracted kW. See section 8.5 called "Annual exploitation cost (Ce)." Ikw = Unit investment per contracted kW. See section 8.8 called "Investment amount (I)." Fu = Remaining utilization factor for each provider (%). See section 8.9 called "Remaining utilization factor (Fu)." 6 The use of other biomasses such as pellets, bricks, or raw materials derived from wood is not ruled out.
R = Rate of return for development. See section 8.7 called "Return for development (R)." H = Average number of annual hours that the plant was in operation generating electrical energy. See section 8.6 called "Hours in operation (H)." 8.5. Annual exploitation cost (Ce) 8.5.1. Concept:
The annual exploitation cost includes the costs necessary to maintain and operate an electricity cogeneration plant, in which only and exclusively the costs proportional to the power contracted by ICE are recognized. The exploitation costs consist of operating, maintenance, administrative costs, and other general expenses, within which the regulatory fee is considered.
The exploitation cost does not include: a) depreciation expenses b) financial expenses and c) taxes associated with profits or earnings, in accordance with current applicable regulations. In turn, the value and transport of the raw material will not be recognized as exploitation costs, because it is understood that the raw material (biomass) is a by-product of the company that is alternatively used in the electricity generation plant, and given that both the company and the generation plant are on the same site, it would not require transport of that raw material to the generating plant.
8.5.2. Source of information The calculation of this value will be made using the financial-accounting information of the providers to whom this methodology applies, and only the costs necessary to maintain and operate the power generation plant, adjusted to the proportion of the power contracted by ICE, which corresponds to the regulated public service, will be recognized in the calculation.
That information must pass the verification filters established by article 32 of Ley N°7593, such that the following will not be considered: a) costs that do not correspond to those necessary to maintain and operate the power generation plant; b) costs that are not technically demonstrated and justified as necessary for the provision of the regulated public service, and c) costs that are disproportionate for providing the regulated public service, which is solely the generation of electrical energy proportional to the power contracted by ICE.
Considering that biomass cogeneration plants are in operation during the harvest, it is expected that in the off-harvest months, the exploitation costs reflect the fixed costs and the preventive maintenance of the plant; for this, it will be necessary for the annual exploitation cost information to be presented with a monthly breakdown, in order to analyze this cost behavior. Likewise, it is reiterated that all costs must be duly justified.
The financial-accounting information from the latest available annual report will be used, in accordance with the regulatory accounting provisions issued for this sector.
The cut-off date of the data, which will be used as input to perform the rate calculation, will be the fiscal year-end date authorized by the Ministerio de Hacienda for each company to which the rate applies, or failing that, the fiscal year-end established at the national level by Law.
The start date of the rate-setting process and the opening of the respective files for the rate studies will contain the updated information for all variables as of the same cut-off date mentioned above.
8.5.3. Exploitation cost per contracted kW (Cekw) The annual exploitation cost is determined with the following formula:
Where:
CekW = Annual unit exploitation costs per contracted kW.
Ce = Annual plant exploitation cost for the sale of energy according to the power contracted by ICE.
Pcon = Contracted power in kW of the plant at the time of the rate study.
8.5.4. Indexation of the exploitation cost If the period to be considered for the exploitation costs does not correspond to the period established in the methodology, that is, with the fiscal year-end date authorized by the Ministerio de Hacienda, or failing that, the fiscal year-end established at the national level by Law, it will be necessary to index the exploitation costs to update them. The indexation is performed using the Índice de precios al productor de la manufactura (IPP-MAN), which is published monthly by the Banco Central de Costa Rica or the index that replaces it. Indexation will only be applied in exceptional and duly justified cases for the company to which the rate applies.
For the calculation of the indexation of the exploitation costs, firstly, the exploitation cost update factor (FCe) is estimated as follows:
Where:
FCe = Exploitation cost update factor.
Icrw = Índice de precios al productor de la manufactura of Costa Rica (IPPMAN) for month "w".
IcrM = Índice de precios al productor de la manufactura of Costa Rica (IPPMAN) for each of the months "M".
M = Each of the months considered in the Financial Statement of the company to which the rate is applied.
W = Fiscal year-end month authorized by the Ministerio de Hacienda, or failing that, the fiscal year-end established at the national level by Law.
1 = First month of the data considered in the Financial Statement of the company to which the rate is applied.
N = Number of months considered in the Financial Statement of the company to which the rate is applied.
The formula for the exploitation cost updating factor seeks to estimate a factor between the IPP-MAN of the fiscal year-end month authorized by the Ministry of Finance, or failing that, the fiscal year-end established at the national level by Law, over the average of the indices (IPP-MAN) contemplated in the Financial Statement used for the rate estimation.
To estimate the updated exploitation cost, the following equation is applied:
𝑪𝒆 = 𝑭𝑪𝒆 ∗ 𝑪𝒆𝒂𝒄𝒕 Formula 4 Where:
Ce = Annual exploitation cost of the plant for the sale of energy according to the power contracted by ICE.
FCe = Exploitation cost updating factor.
Ceact = Exploitation cost to be updated.
When it is necessary to index the exploitation costs, the result of the previous equation is introduced into formula 2 for the estimation of the unit annual exploitation cost per contracted kW (CekW); otherwise, the exploitation costs corresponding to the public service are introduced, coming from the Audited Financial Statements and homologated to the regulatory accounting according to the formats and deadlines established by the Energy Superintendence.
8.6. Hours in Operation (H) 8.6.1. Concept:
It corresponds to the number of hours the plant was in operation cogenerating electrical energy during the harvest period. It is based on an efficient operation that depends only on the existence of raw material; therefore, the hours in operation to be recognized correspond to the maximum hours of operation of the plant in the harvest period.
8.6.2. Information Source To calculate this value, it is necessary for the providers to which this methodology applies to indicate the annual harvest period (in days) for the last 5 periods to stably reflect the behavior of the variable.
The last harvest period for calculating the hours in operation will correspond to the last harvest period included in the available financial-accounting information, prior to the start of the rate-setting procedure, which ends on the fiscal year-end date authorized by the Ministry of Finance, or failing that, the fiscal year-end established at the national level by Law.
Based on this information, Aresep will calculate the hours in operation by estimating the simple average of the harvest days for the last 5 periods. In the case of a new provider, if information is not available for this period, the estimation may be carried out with a minimum of 3 periods; if the provider cannot provide information for at least 3 periods, a simple average of the average harvest days calculated for the other biomass cogenerators operating in the Costa Rican market, calculated based on information from the last 5 periods, will be used. The use of the harvest average of the other cogenerators will apply until the new provider completes 3 years of operation.
8.6.3. Calculation of Average Hours of Operation The number of hours the plant was in operation cogenerating electrical energy during the harvest period will be estimated, considering the maximum hours that could be worked in this period, in other words, operation at maximum capacity. The formula used to perform the estimation is as follows:
𝑯 = 𝟐𝟒 𝒉𝒐𝒖𝒓𝒔 ∗ 𝑫 Formula 5 Where:
H = Average annual number of hours the plant was in operation generating electrical energy.
D = Average harvest days. See formula 6.
The average harvest days for the last 5 cogeneration periods for the plant are obtained as follows:
Where:
D = Average harvest days.
Dz = Number of harvest days in each period "z".
z = Each of the harvest periods from 1 to 5.
8.7. Return for Development (R) The calculation of the rate of return for development (R) is performed by applying the Weighted Average Cost of Capital (WACC), as shown in the following equation.
Formula 7 Where:
R = Rate of return for development.
KD= Cost of debt. See section 8.7.1 called "Cost of Debt (KD)" TI = Tax rate. It will be determined as indicated in agreement 15-149-99 of the Board of Directors of the Regulatory Authority (session record 149-99 of August 19, 1999) which indicates "That the Income Tax should not be recognized in the cost structure of any public service regulated by this Regulatory Authority" or whatever the Board of Directors of Aresep provides at the time.
VD = Value of debt. Only obligations with a financial cost exclusively for the cogeneration of electrical energy are considered. Data from the Audited Financial Statements homologated to the regulatory accounting and complementary information thereto, as established by Aresep, is used, with a cutoff at the fiscal year-end authorized by the Ministry of Finance for each company to which the rate applies, or failing that, the fiscal year-end established at the national level by Law.
VCP= Value of the equity corresponding to own resources or net worth exclusively for the cogeneration of electrical energy. Data from the Audited Financial Statements homologated to the regulatory accounting and complementary information thereto, as established by Aresep, is used, with a cutoff at the fiscal year-end authorized by the Ministry of Finance for each company to which the rate applies, or failing that, the fiscal year-end established at the national level by Law.
KE = Rate of return on capital contributions. See section 8.7.2 called "Cost of Equity (KE)".
8.7.1. Cost of Debt (KD):
To obtain the cost of debt (KD), the lowest average between: a) the negotiated lending rate (Tasa Activa Negociada, TAN) for the industrial sector, in colones, for the public sector and b) the negotiated lending rate (TAN) for the industrial sector, in colones, for the private sector will be used. Both averages estimated on the values of the last twelve months with a cutoff at the date of the financial-accounting information used for the rate-setting, which corresponds to the fiscal year-end date authorized by the Ministry of Finance, or failing that, the fiscal year-end established at the national level by Law, according to the monthly publication made by the Central Bank of Costa Rica called "Tasa activa negociada (TAN), by economic activity and by financial intermediary group, in colones".
8.7.2. Cost of Equity (KE):
The calculation of the return on equity contributions is determined using the method called the Capital Asset Pricing Model, commonly known as CAPM.
The CAPM method is based on considering that changes in the return of an asset are related to the risk associated with it and can be separated into two major components: the risk related to the market as a whole (systemic risk) and that derived from specific investments (specific risk).
To estimate the cost of equity (KE), the result of the CAPM application must be expressed as an equivalence in colones, given that the information used is based on rates expressed in United States dollars, it is considered necessary to perform an equivalence to colones, therefore, the use of covered interest rate parity is proposed. Said "parity condition states that the differential between the interest rate in local currency and in foreign currency is equal to the expected exchange rate variation (Durán & Tenorio, 2008, p. 8)"7, the above is also consistent with what was stated by Rojas (1997)8, who in turn indicates:
7 Durán, R., & Tenorio, E. (2008). Costa Rica: sensibilidad del capital de cartera al premio e implicaciones para la política económica (1991-2007). San José, Costa Rica: BCCR.
8 Rojas, Á. (1997). Descomposición del Diferencial de Tasas de Interés entre Chile y el Extranjero: 1992-1996. Santiago, Chile: Documento de Trabajo N° 22: Banco Central de Chile.
"Covered interest rate parity establishes that, given that there are international capital flows free from all types of restrictions, the returns of an investment domestically or abroad will tend to equalize when measured in a common currency. Another way of specifying covered parity is to point out that the interest rate differential between two assets identical in all respects except the currency of denomination should be zero, once the coverage of exchange risk has been made in the corresponding forward market". (Rojas, 1997, p. 7).
Therefore, this equivalence is 𝑲𝑬 = 𝑲𝑬$ ∗ 𝑬𝑫 + (𝑲𝑬$ + 𝑬𝑫) Formula 8 Where:
KE = Rate of return on capital contributions.
KE$ = Rate of return on capital contributions in United States of America dollars (USD).
ED = Rate of the rate adjustment. The variation is estimated using the data from "Market or the publication that replaces it in the future. It is calculated as a simple average of the data for the 12 months considered in the financial statements incorporated in the rate application to Aresep.
$ = United States of America dollars (USD).
For the estimation of "KE$", the CAPM method will be used through the following procedure:
𝑲𝑬$ = 𝑲𝑳 + 𝛃𝐚 ∗ 𝐏𝐑 + 𝛌𝐑𝐏 Formula 9 Where:
KE$ = Rate of return on capital contributions in United States of America dollars (USD).
KL = Risk-free rate, which corresponds to an investment alternative that has no risk for the investor.
PR = Risk premium.
RP = Country risk. It is the risk of an economic investment due solely to specific and common factors of a certain country.
βa = Levered beta of the investment. It is the covariance of the return of a determined asset and the market return. It is called "levered" when part of the investment is financed with debt.
𝜆 = Country risk absorption factor. Estimated using the unlevered beta of the industry (βd, which corresponds to the one used in formula 10).
The levered beta is obtained from the following formula:
Where:
βa = Levered beta of the investment.
KE = Rate of return on capital contributions.
KE$ = Rate of return on capital contributions in United States of America dollars (USD).
ED = Rate of the rate adjustment. The variation is estimated using the data from the "Market expectations on 12-month exchange rate variation" published by the BCCR or the publication that replaces it in the future. It is calculated as a simple average of the data for the 12 months considered in the financial statements incorporated in the rate application to Aresep.
$ = United States of America dollars (USD).
βd = Unlevered beta.
VD = Value of debt. Only obligations with a financial cost exclusively for the cogeneration of electrical energy are considered.
Data from the Audited Financial Statements homologated to the regulatory accounting and complementary information thereto, as established by Aresep, is used, with a cutoff at the fiscal year-end authorized by the Ministry of Finance for each company to which the rate applies, or failing that, the fiscal year-end established at the national level by Law.
VCP = Value of the equity corresponding to own resources or net worth exclusively for the cogeneration of electrical energy. Data from the Audited Financial Statements homologated to the regulatory accounting and complementary information thereto, as established by Aresep, is used, with a cutoff at the fiscal year-end authorized by the Ministry of Finance for each company to which the rate applies, or failing that, the fiscal year-end established at the national level by Law.
TI = Tax rate. It will be determined as indicated in agreement 15-149-99 of the Board of Directors of the Regulatory Authority (session record 149-99 of August 19, 1999) or whatever the Board of Directors of Aresep provides at the time.
The sources, specifications, and characteristics of the parameters required to estimate the return on equity contributions are as follows.
1. Risk-free rate (KL): It is the nominal rate (TCMNOM) of the United States of America (USA) Treasury Bonds with a maturity period of 10 years, which is available on the website of the Federal Reserve of the United States, at the internet address: http://www.federalreserve.gov/datadownload/Build.aspx?rel=H15.
2. For the risk premium (PR), the variable called "Implied ERP (FCFE)" or the variable that replaces it will be used, and for the country risk (RP), the value published for Costa Rica is considered, from the data called Risk Premiums for the other markets and where the country risk is called Country Risk premium. The values of these variables will be obtained from the information published by Dr. Aswath Damodaran, at the internet address http://www.stern.nyu.edu/~adamodar. If the information source becomes unavailable, another source will be used that comes from a public access, reliable source, specialized in the generation of technical information, which is traceable, continuous, and with the most recent information. The decision to use this variable or another if it is not available must be technically justified, as established by article 16 of the Ley General de la Administración Pública.
3. The Unlevered Beta will correspond to the sector called "Utility (general)" and will be obtained from the information published by Dr. Aswath Damodaran, at the internet address http://www.stern.nyu.edu/~adamodar. If the information source becomes unavailable, another source will be used that comes from a public access, reliable source, specialized in the generation of technical information, which is traceable, continuous, and with the most recent information. The decision to use this beta or another if it is not available must be technically justified, as established by article 16 of the Ley General de la Administración Pública.
For the determination of the "Cost of Equity," data corresponding to one year will be used, because the methodology is applied once a year, and this allows changes in the industry environment to be reflected in a timely manner.
The information source chosen for the variables described in points 1, 2, and 3 will be used consistently, regarding the length of the historical series (1 year) and the frequency of the observations (one observation per year). In the event that, to obtain the annual observation, it is necessary to apply a monthly average, a period similar to that used in section 8.7.1 called "Cost of Debt (KD)" will be used; otherwise, the annual data corresponding to the previous fiscal year will be used.
8.8. Amount of Investment (I) 8.8.1. Concept:
The investment cost to be recognized corresponds to the cost of infrastructure, machinery, and equipment used to cogenerate electrical energy adjusted to the proportion of the power contracted by ICE, with any biomass source and not exceeding 20MW as indicated in Law N°7200. The amount of the investment will be adjusted by means of the remaining utilization factor (factor remanente de utilización) which allows estimating the residual value of the asset at a specific point in its useful life.
8.8.2. Information Source The calculation of this value will be made using the financial-accounting information obtained from the Audited Financial Statements homologated to the regulatory accounting, according to the provisions established by the Energy Superintendence, submitted by each provider to which this methodology applies, and only the investment corresponding to the assets adjusted to the proportion of the power contracted by ICE, associated with the regulated public service, will be considered.
This information must pass the verification filters established by article 32 of Law N°7593, such that the following will not be considered: a) investments not related to the cogeneration of energy for the power contracted by ICE, b) investments that are not technically demonstrated and justified as necessary for the public service, and c) excessive or disproportionate investments to provide the regulated public service, which is exclusively the cogeneration of electrical energy for sale to ICE.
Assets related to other economic activities of the plant, other than cogeneration, will not be recognized. In the case of assets used both in cogeneration and in other economic activities of the plant, only the proportion of the asset amount used for the cogeneration of electrical energy will be recognized.
For this variable, the acquisition value of the fixed asset corresponding to the property, plant, and equipment (accounting term to designate the goods used in the public service) used for cogeneration will be considered, and only the assets adjusted to the proportion of the power contracted by ICE are recognized, with their value updated to the present (in cases where applicable, as detailed below), which will be delivered through the regulatory accounting.
In relation to the present value updating of the investment, the company has the obligation to value its assets as established by the International Financial Reporting Standards (IFRS) on this matter, or in effect the international standard that is adopted at the national level, considering the cost model or the revaluation model; in the latter case, the fair value of these would be estimated, technically supported and justified, and it must also maintain its accounting records in accordance with that regulation, separating the cost balances from the revaluations for their due traceability and monitoring. The companies must justify and present the documentation that demonstrates the accounting policy they have established in accordance with said standards, and it must be endorsed and reviewed by the External Auditors in the audits of the Financial Statements.
In the event that the Audited Financial Statements contain qualifications, whether adverse (negative) or present a disclaimer of opinion by the auditor, and the findings thereof contemplate that the asset valuation does not comply with the indicated standards or the company does not have accounting policies for asset valuation compliant with IFRS (or in effect the international standard that is adopted at the national level), the acquisition value of the investment will be considered as the investment value in the rate calculation.
8.8.3. Investment per Contracted kW (Ikw) The unit investment cost per contracted kW for each provider is obtained from the quotient between the total investment and the number of contracted kW.
Where:
Ikw = Unit investment per contracted kW.
I = Amount of the plant investment for the sale of energy according to the power contracted by ICE.
Pcon = Power contracted in kW of the plant at the time of the rate study.
8.9. Remaining Utilization Factor (Fu) The remaining utilization factor (Fu) of each cogeneration plant represents the remaining life of the asset for a specific point in its useful life based on the total age of the main asset. The remaining utilization factor is as follows:
Subject to the following condition Fu ≥ 10% Where:
Fu = Remaining utilization factor for each provider (%).
Vu = Useful life indicated by the manufacturer for the most important asset of the plant.
AT = Year prior to the year in which the rate calculation is performed.
AF = Year of manufacture of the generating plant.
The condition Fu ≥ 10% establishes that the Remaining Utilization Factor (Fu) can never be less than 10%, as long as the cogeneration plant is generating energy for sale to the SEN. That is, the plants will reach 90% of their useful life and the remaining 10% will remain constant, and that percentage will adjust the investment, on which the return will continue to be recognized for the provider.
Some considerations of the above parameters are specified below.
1. Useful life (VU): The useful life (vida útil) is the period in which the most important asset of the plant (in this case, the generator) is expected to be used to produce energy and, in turn, the time during which the loss of value of the asset occurs. The useful life of the biomass electrical generation plant will be calculated according to the information provided by each of the providers according to the useful life of the turbo-generator used. In the event that several turbo-generators are used, each with a different useful life, the useful life will be determined with a simple average. The maximum useful life to be recognized is 50 years.
2. It is established that the minimum value of Fu corresponds to 10%, this supported by the "Terms and conditions for the determination of tariffs for renewable energy sources" of various energy regulatory commissions of Indian States (New Delhi, Rajasthan, Maharastra, Bihar, among others) and research that places the salvage value of the technology used for energy generation with bagasse and biomass gasifiers at 10% (Kale, R. & Pohekar, S. (2014) and Perwez, U. et al. (2015)). The useful life of the plant will be updated every 5 years with the real information that each provider delivers to Aresep.
3. Year prior to the rate calculation (AT): The year prior to the start of the rate-setting procedure is used, which begins with the opening of the administrative proceeding (expediente administrativo), because the information from the last fiscal year-end authorized by the Ministry of Finance will be used, or failing that, the fiscal year-end established at the national level by Law.
4. Year of manufacture (AF): The year of manufacture of the main asset, which corresponds to the turbo-generator, is used. In the event that a provider's plant is composed of more than one main asset, that is, more than one turbo-generator, to obtain the year of manufacture, a simple average will be calculated among the years of manufacture of these assets, in order to obtain a single value per provider.
The information related to the year of manufacture of the assets must be delivered by each provider according to the formats and periodicity established by Aresep.
9. APPLICATION OF PERIODIC ADJUSTMENTS The updating of rates will be carried out annually, starting the rate-setting procedures with the opening of the respective administrative proceedings (one per provider) on the last business day of August of every year, applying this methodology according to its components, using the available information and in accordance with the criteria indicated in each section.
10. POWERS OF THE ENERGY SUPERINTENDENCE OR THE INTERNAL BODY OF ARESEP IN CHARGE OF SETTING RATES The application of this methodology will correspond to the body to which the Board of Directors has assigned the power to set rates and prices for the electricity sector.
The annual application of this methodology will be carried out through the ordinary rate-setting procedure provided for in Law N°7593 and its respective Regulation; the respective call for a public hearing must be published.
11. OBLIGATIONS OF THE OPERATORS OR AGENTS Private generators that sell electrical energy to ICE under Chapter I of Law N°7200, as providers regulated by Aresep in light of article 5, subsection a) of Law N°7593, will have the obligation to submit to Aresep the information determined by the Energy Superintendence, or the internal area in charge of setting rates for this sector, as provided in articles 14, subsections c) and d) and 24 of the same Law, for the purposes of calculating this rate; for which said area must establish the list of required information, the manner in which they must submit that information, and the periodicity of submission.
In line with the above, private generators will have the obligation to submit to the Energy Superintendence or the internal area of Aresep in charge of setting rates for this sector, the Audited Financial Statements corresponding to the fiscal year-end authorized by the Ministry of Finance, or failing that, the fiscal year-end established at the national level by Law. These financial statements must be submitted annually and no later than the last business day of the fourth month following the respective fiscal year-end.
In turn, they must comply with the submission of the regulatory accounting under the terms established by resolution RIE-132-2017 of December 22, 2017, its update made through resolution RE-0060-IE-2021 of September 21, 2021, and other resolutions issued for the purpose of collecting any information necessary to carry out the corresponding regulatory tasks.
Aresep may request from the providers the information necessary to determine the rate, and if necessary, may request from ICE or the system operator (OS), the information determined by the Energy Superintendence, or the internal area in charge of setting rates for this sector, for the purposes of calculating this rate; for which said area must establish the list of required information, the manner in which they must submit that information, and the periodicity of submission.
12. OTHER CONSIDERATIONS In the event that a plant has not sold energy to ICE within the framework of Law N°7200 and does not have a rate approved by Aresep, in the absence of the required information, the lowest rate set for the providers to which this methodology applies will be taken as a reference. For the following year, the rate will be calculated with the real accounting information that the provider must provide, according to the guidelines established by the Regulatory Authority.
For providers with other biomass sources, upon completing the first year of operation, they must provide Aresep with information on exploitation and investment costs; if they do not submit it, Aresep may carry out an audit to determine the real costs.
Likewise, this rate methodology may be applied to determine the purchase-sale rate of electrical energy between private generators and other buyers other than ICE; provided that the applicable legal system, current regulations, and the considerations, premises, and criteria set forth for this methodology are met.
13. DEROGATIONS By virtue of the proposed changes, it is considered appropriate to derogate resolution RJD-004-2010, "Tariff methodology according to the typical cost structure of a model electricity generation plant using sugarcane bagasse for sale to the Instituto Costarricense de Electricidad and its indexation formula", published in La Gaceta N° 98 of May 21, 2010, and its amendments.
Likewise, the derogation of resolution RJD-162-2011 "Model and cost structure of an electricity generation plant using biomass other than sugarcane bagasse and its indexation formula", published in La Gaceta N° 233 of December 5, 2011, and its amendments, is proposed.
(.)
15. ANNEXES 15.1. List of Equations
| Formula No. | Description | Detail of the Formula |
|---|
| 1 | Maximum rate for the provider | 𝑪𝒆𝒌𝒘 + 𝑰𝒌𝒘 ∗ 𝑭𝒖 ∗ 𝑹 𝑻𝒎 = 𝑯 |
| 2 | Unit annual exploitation costs per contracted kW | 𝑪𝒆 𝑪𝒆𝒌𝑾 = 𝑷𝒄𝒐𝒏 |
| 3 | Exploitation cost updating factor | 𝑰𝒅𝒓𝒘 𝑭𝑪𝒆 = ∑𝒏 𝑰𝒅𝒓 𝑴=𝟏 𝑴 𝒏 |
| 4 | Updated annual exploitation cost of the plant for the sale of energy according to the power contracted by ICE. | 𝑪𝒆 = 𝑭𝑪𝒆 ∗ 𝑪𝒆𝒂𝒄𝒕 |
| 5 | Number of hours the plant was in operation cogenerating electrical energy during the harvest period | 𝑯 = 𝟐𝟒 𝒉𝒐𝒖𝒓𝒔 ∗ 𝑫 |
| 6 | Average harvest days | ∑𝟓𝒛=𝟏 𝑫𝒛 𝑫 = 𝟓 |
| 7 | Rate of return for development | 𝑽𝑫 𝑹 = 𝑲𝑫 ∗ (𝟏 − 𝑻𝑰) ∗ + 𝑲𝑬 𝑽𝑫 + 𝑽𝑪𝑷 𝑽𝑪𝑷 ∗ 𝑽𝑫 + 𝑽𝑪𝑷 |
| 8 | Rate of return on capital contributions | 𝑲𝑬 = 𝑲𝑬$ ∗ 𝑬𝑫 + (𝑲𝑬$ + 𝑬𝑫) |
| 9 | Rate of return on capital contributions in United States of America dollars (USD). | 𝑲𝑬$ = 𝑲𝑳 + 𝜷𝒂 ∗ 𝑷𝑹 + 𝝀𝑹𝑷 |
| 10 | Levered beta of the investment | 𝑽𝑫 𝜷𝒂 = 𝜷𝒅 ∗ [𝟏 + (𝟏 − 𝑻𝑰) ∗ ] 𝑽𝑪𝑷 |
| 11 | Unit investment per contracted kW | 𝑰 𝑰𝒌𝑾 = 𝑷𝒄𝒐𝒏 |
| 12 | Remaining utilization factor for each provider (%) | 𝑽𝒖 − (𝑨𝑻 − 𝑨𝑭) 𝑭𝒖 = ( ) 𝑽𝒖 |
15.2. List of Variables of the Rate Model | Variables | | Description | | --- | --- | --- | | $ | = | United States of America Dollars (USD) | | AF | = | Year of manufacture of the generating plant. | | AT | = | Year prior to the year in which the tariff calculation is performed. | | Ce | = | Annual operating cost of the plant for the sale of energy according to the capacity contracted by ICE. | | Ceact | = | Operating cost to be updated. | | CekW | = | Annual unit operating cost per contracted kW. | | D | = | Average harvest days. | | Dz | = | Number of harvest days in each period "z". | | ED | = | Rate of expected variation (market expectation) of the colón against the dollar for the tariff adjustment. | | FCe | = | Operating cost update factor. | | Fu | = | Remaining utilization factor for each supplier (%). | | H | = | Average annual number of hours the plant was in operation generating electrical energy. | | I | = | Amount of the plant's investment for the sale of energy according to the capacity contracted by ICE. | | IcrM | = | Costa Rica Manufacturing Producer Price Index (IPP-MAN) for each of the months "M". | | Icrw | = | Costa Rica Manufacturing Producer Price Index (IPP-MAN) for month "w". | | Ikw | = | Unit investment per contracted kW. | | KD | = | Cost of debt. See section 8.7.1 called "Cost of Debt (KD)" | | KE | = | Rate of return on capital contributions. | | KE$ | = | Rate of return on capital contributions in United States of America Dollars (USD). | | Variables | | Description | | --- | --- | --- | | KL | = | Risk-free rate. | | M | = | Each of the months considered in the Financial Statement of the company to which the tariff is applied. | | N | = | Number of months considered in the Financial Statement of the company to which the tariff is applied. | | Pcon | = | Contracted capacity in kW of the plant at the time of the tariff study. | | PR | = | Risk premium. | | R | = | Development rate of return. | | RP | = | Country risk. | | TI | = | Tax rate. | | Tm | = | Maximum tariff for the supplier. | | VCP | = | Value of the capital corresponding to own resources or equity exclusive to the cogeneration of electrical energy. | | VD | = | Value of the debt. | | Vu | = | Useful life indicated by the manufacturer for the plant's most important asset. | | W | = | Fiscal closing month authorized by the Ministry of Finance, or failing that, the fiscal closing established nationally by Law. | | Z | = | Each of the harvest periods from 1 to 5. | | Βa | = | Levered beta of the investment. | | Βd | = | Unlevered beta | | 𝜆 | = | Country risk absorption factor. | (.)" To respond to the positions presented in the public hearing held on September 28, 2023, as indicated in report IN-0017-CDR-2024, of March 14, 2024, and to thank everyone for their valuable participation in this process.
To instruct the Secretariat of the Board of Directors of Aresep to proceed to notify Mr. Yordi Magin Sotomayor, Azucarera El Viejo Sociedad Anónima, Cogeneradora Tempisque Sociedad Anónima, Instituto Costarricense de Electricidad, and Ingenio Taboga Sociedad Anónima, of the response to the positions presented in the public hearing, as well as this resolution, in a single act.
To repeal resolution RJD-004-2010, "Metodología tarifaria según la estructura de costos típica de una planta modelo de generación de electricidad con bagazo de caña para la venta al Instituto Costarricense de Electricidad y su fórmula de indexación", published in La Gaceta N°98 of May 21, 2010, and its amendments.
To repeal resolution RJD-162-2011 "Modelo y estructura de costos de una planta de generación de electricidad con biomasa distinta de bagazo de caña y su fórmula de indexación", published in La Gaceta N°233 of December 5, 2011, and its amendments.
To instruct the Secretariat of the Board of Directors of Aresep to proceed with the publication of this resolution in the official gazette La Gaceta.
To instruct the Dirección General Centro de Desarrollo de la Regulación to coordinate with the Department of Institutional Communication the dissemination of this methodology on the institutional website.
To communicate this resolution to the Dirección General Centro de Desarrollo de la Regulación, the Dirección General de Atención al Usuario, and the Intendencia de Energía, for their corresponding actions.
In compliance with the provisions of Article 245 of the Ley General de la Administración Pública, the ordinary motion for reversal or reconsideration (recurso ordinario de reposición o reconsideración) is admissible against this resolution, which must be filed within three days following the day after notification, and the extraordinary motion for review (recurso extraordinario de revisión), which must be filed within the time limits set forth in Article 354 of the aforementioned Law. Both motions must be filed before the Board of Directors of Aresep, the collegiate body responsible for resolving them.
Effective upon its publication in the official gazette La Gaceta.
PUBLISH, NOTIFY, AND COMMUNICATE.