(Sinalevi Note: The present policy was extracted from the website of the Ministry of Environment and Energy and is transcribed below:)
Policy for the utilization of surplus resources in the National Electric System for the development of a green hydrogen economy.
I. Table of Contents
I.Table of Contents.......................................................................................... 1 II. Acronyms and Abbreviations.......................................................................... 2 III. Introduction.............................................................................................. 3 IV. Background.............................................................................................. 5 International context...................................................................................... 5 National context............................................................................................... 6 V. Legal Framework............................................................................................ 13 VI. Institutional Framework.................................................................................... 16 VII. Guiding Principles........................................................................................ 17 VIII. Policy Statement / components......................................................................... 18 General objective......................................................................................... 18 Strategic guidelines....................................................................................... 18 Management model......................................................................................... 18 IX. Bibliographic References................................................................................ 20
II. Acronyms and Abbreviations
ARESEP: Regulatory Authority of Public Services BTU: British thermal unit CCSS: Caja Costarricense del Seguro Social CO2: Carbon Dioxide DE: Energy Directorate GAM: Greater Metropolitan Area GEI: Greenhouse Gases ICE: Instituto Costarricense de Electricidad Kg: Kilogram MER: Regional Electricity Market NDC: Nationally Determined Contributions MM: Millimeter MINAE: Ministry of Environment and Energy MS: Ministry of Health PNE: National Energy Plan. PnD: National Decarbonization Plan PNDIP: National Development and Public Investment Plan SEN: National Electric System
III. Introduction
The National Decarbonization Plan establishes the strategic actions to enhance the decarbonization of the Costa Rican economy, which requires that the conditions for the sustainability of the energy transition be enabled, such as: the price of electricity, competitive affordability of new low-emission technologies, an enabling regulatory framework, taking advantage of the opportunity offered by the optimization of the existing resources of the SEN.
Currently, we do not find conditions that provide better opportunities for electricity over other energy alternatives based on fossil fuels; this represents an obstacle to the fulfillment of the National Decarbonization Plan, and will imply that the current trend of market share of fossil fuels in the Costa Rican energy market continues, contrary to the commitments contracted with Costa Rican society and the international community in the Nationally Determined Contribution (NDC).
The industrial and health sectors being among the most affected by the accelerated growth of emissions from the intensive use of hydrocarbons.
Table 1. Structure of final consumption of secondary energy at the country level and CO2 emission potential
| Secondary Energy | Structure of final consumption of secondary energy at the country level (1) | Emissions per kg CO2 per 1MM BTU |
|---|---|---|
| Electric Energy | 36.72% | 7.36 |
| Hydrocarbons | 63.28% | |
| LPG | 63.18 | |
| BUNKER | 65.31 | |
| DIESEL | 73.32 | |
| NATURAL GAS | 53.18 |
Source: (1) Data from the Comptroller General of the Republic. Challenges of the Energy Transition from the perspective of Public Finance. March 2021, p. 14. Compiled with: (2) data from the RECOPE Product Manual, EIA Data and (3) National Meteorological Institute, Greenhouse Gas Emission Factors 2021.
As shown in Table 1, the energy matrix of the industrial sector has a considerable impact on CO2 emissions. On the other hand, the State must be the guarantor of the Right to Health and promote a healthy environment, through the creation of the legal instruments and public policies necessary to guarantee sustainable development.
Under the approach of the National Decarbonization Plan, the SEN has the following favorable conditions:
· A surplus generation capacity (existing idle capacity, once demand and operational safety criteria according to best international practices have been met), whose behavior is clearly registered at the public and private level in the SEN · The energy demand of electric companies with a tendency to be satisfied by alternatives such as self-generation, distributed generation, purchase from private generators and the deceleration of the local and regional market.
· A robust electric transmission system with growth capacity as a complement for the electrification of processes that foster the energy transition.
· The quality of the provision of electric service that allows the electrification of complex and critical productive processes and services, through the electrification of industrial and hospital boilers, bakery ovens, installation of electrolyzers for the decarbonization of industrial processes.
· An increasingly competitive Regional Electricity Market (MER) environment, which hinders the placement of available surpluses (in the last 5 years, the ICE has placed on average 48% of surpluses at the MER level).
· Development of distributed resources in the country, whose expansion will be accelerated with the signing of law number 10.086 "Promotion and Regulation of Distributed Energy Resources from Renewable Sources".
· Substitute energy alternatives that strongly press the need to improve and incentivize the participation of electric generation processes from renewable sources in the national energy market. It being increasingly relevant to establish technological transformation mechanisms oriented towards using energy sources from renewable resources.
Therefore, this policy is oriented towards the establishment of regulatory instruments that incentivize the development of a green hydrogen economy as part of the country's efforts in the decarbonization of its energy matrix, the change and introduction of technologies that use renewable and low-emission energy sources, considering economic reactivation. In line with the above, the utilization of existing resources in the SEN for the development of a green hydrogen economy is a mechanism that seeks to promote decarbonization, this in order for electric distribution companies to make better use of surplus resources in the SEN. With this, the State executes its role as guarantor and creates the necessary mechanisms to strengthen the use of electric energy from renewable sources as a way to decarbonize our economy.
The installed capacity of the SEN is superior to what is required to satisfy its demand, stability and backup needs. This surplus capacity can be utilized to reduce the costs of service provision to the extent that it is destined for uses that represent additional demand in the SEN, either through the electrification of processes that use existing fossil fuels or through investment in processes that transform towards the use of renewable energies. The utilization of this capacity requires flexible tariff schemes so that distribution companies can value them in a way that incentivizes their consumption among their subscribers.
IV. Background
International context In the Regional Electricity Market of Central America (MER), conditions characterized by restrictions in regional transmission capacity are brewing that will limit the full utilization of new opportunities for the export of surpluses in the face of a possible increase in demand in the MER, as well as the development of generation projects that compete with the placement of the national surplus in that market. Faced with this reality of the SEN and the MER, it becomes critical to create new demand in the local market. The next entry into operation of new generation plants with firm energy characteristics, without seasonal conditioning, both in Panama and in El Salvador and Nicaragua will increase competitive rivalry in the medium term to place energy in the MER; according to projections by the U.S. EIA.
There is a very clear global trend towards the decarbonization of the economies of leading countries, through the introduction of technologies that use electric energy from renewable sources. It is thus that there has been an emergence of the use of green hydrogen at a global level to support decarbonization processes, for which Costa Rica must take advantage of its conditions to venture into the development of a green hydrogen industry in the country.
The hydrogen economy refers to the construction of societies that use the potential of hydrogen as an energy vector, which allows progress in efforts to achieve energy matrices based on renewable energies, through the promotion of industrial processes low in carbon, as well as the reduction of emissions associated with transport, industrial, agricultural uses, as well as the storage of electric energy. It is thus that green hydrogen as an energy vector contributes to the integration of renewable energies in processes to achieve a reduction in emissions.
National context For the purposes of this policy, surplus is considered to be the available electric energy remaining to be dispatched once the demand of the SEN has been met and the operational safety conditions have been attended to, in accordance with best international practices. Consequently, exported energy and spillage (vertidos) due to low demand are considered surplus electric energy. The electric energy produced by private generators, once their self-consumption is satisfied and which is not acquired by the ICE, forms part of this surplus.
The registered surplus generation capacity from the year 2016 to July 2021 in the National Electric System (SEN) (Graph 1), according to the export data from the ICE Energy Control Center (CENCE) and spillage data due to low demand from the SEN are:
Graph 1: Historical registered surplus capacity in the SEN from January 2016 to July 2021 Source: Data from ICE Energy Control Center and ICE Generation Division. Prepared by D.E. MINAE.
When analyzing the behavior of surpluses, it is possible to determine the conduct of surplus placement in the Regional Electricity Market, resulting in an average of 48% (Graph 2) placement of surpluses in the last five years. Therefore, given the market conditions and the limitations in terms of infrastructure, it is impossible to place 100% of the existing surplus or idle capacity in the SEN in the MER.
Graph 2: Historical % of surplus placement in the MER. Source: Data from ICE Energy Control Center and ICE Generation Division. Prepared by D.E. MINAE.
From the data in Graph 2, the existence of a remnant capacity is identified that could be utilized through regulation and flexible tariffs in accordance with best international practices, in a way that allows distribution companies to carry out commercial management aimed at generating additional demand.
For a strategic combination of the surpluses of the SEN with the other resources available in the national and regional electric market, the seasonal availability of the set of SEN resources must be taken into account, for proper dispatch (despacho) management which must follow the strategic guidelines of this policy.
The statistical analysis of the behavior of the last 5 years of the SEN surpluses, based on historical data from 2016 to July 2021, results in the behavior described in the following Graph 3:
Graph 3: Record of ICE surplus capacity, considering seasonality from the year 2016 to 2021. Source: Data from ICE Energy Control Center and ICE Generation Division. Prepared by D.E. MINAE.
From the previous graph, the consideration based on the Fisher method is identified, with a confidence of 95%, by grouping the months under seasonal consideration into two groups:
Group 1: Low surplus season: February, March, April and May. Group 2: High surplus season: June, July, August, September, October, November, December and January.
It is important to mention that the operational and maintenance costs of the generation plants that make up the SEN are included in the tariff, whether their generation capacity is used or not. Consequently, the creation of demand that absorbs this capacity represents a benefit for the SEN and for all its users.
The following graphs show the surplus capacity available in the contracts with expirations for the period 2020 to 2028, according to the Recommended Expansion Plan 2020-2035.
Graph 4: Record of generation history from the year 2000 to 2020, of Private Generation under contract Law 7200. Source: Data from ICE Energy Control Center by D.E MINAE.
Graph 5: Record of generation history from the year 2000 to 2020, of Private Generation under contract Law 7200. Source: Data from ICE Energy Control Center by D.E. MINAE.
As a conclusion from the graphs, we obtain an annual average between 2016 and 2020 of 917.4 GWh/year of surplus capacity, which can be used for the fulfillment of this policy. The optimization of surplus capacity in the SEN must take into account private generation with contracts expired or soon to expire, therefore it is important to consider the history of the behavior both in level of generation and seasonality.
The great country opportunity is evidenced by the complementarity of the existing capacities of private generation both with contracts already expired in 2020 and as of 2028, with the surplus capacity of the SEN, whose plants have already been amortized. Where the low surplus season of SEN capacity is complemented by private generation in the same months of the year.
Graph 6: Record of the country's secondary energy consumption from the year 2012 to 2019 in terajoules. Source: SEPSE Energy Balance Data. Prepared by D.E. MINAE.
In the PEG 2020/2035, the retirement of a large number of private plants is proposed, and the possibility of being re-contracted at a much lower tariff is omitted, as these investments have been amortized.
Graph 7: Comparison of historical Generation projections used in 2014, 2016, 2018, 2020 Expansion Plans (GWh) Source: Presentation and Document Generation Expansion Plan 2020-2035. Prepared by Planning & Sustainability, Electricity Management, ICE.
The Comptroller General of the Republic itself, in its report number DFOE-AE-OS-00001-2021, titled "Challenges of the Energy Transition from the perspective of Public Finance," points out the opportunity to improve the utilization and optimization of existing resources:
As one of the crucial challenges from the perspective of Public Finance: "Third, the efficient and sustainable management of public resources, where the need to take advantage of the high installed renewable generation capacity of the National Electric System stands out, in order to impact other sectors with electrification," page 7.
"The National Electric System (SEN) currently possesses an installed capacity of 3,566 MWh, which is 108% higher than the maximum recorded demand, of 1,716 MW," page 15.
"The main challenge in this aspect lies in overcoming the legal, contractual, regulatory and technical barriers that prevent the optimization in the use of electric generation assets -existing and future- by the System Operator, to achieve the highest possible levels of efficiency in the SEN." Page 31.
Likewise, the future expansion of generation must focus on reducing the average cost of generation, without losing its characteristics of energy from renewable sources. For this, ARESEP must promote and make available the necessary regulatory and tariff instruments to facilitate the absorption of the surplus capacity shown in the previous analysis on the surplus capacity of the SEN and Private Generation with or without contracts, without displacing existing demand.
Based on the above information, the interactions that allow the deployment of a green hydrogen economy must be generated, through the creation of measures that facilitate the use of renewable energies for the production of hydrogen; it implies a preparation of regulation mechanisms and policies, as well as the preparation of markets associated with the production and use of green hydrogen.
In Costa Rica, small-scale research efforts have been developed, in order to carry out pilot projects for the production and use of green hydrogen for mobility. Furthermore, in the Study carried out by HINICIO "Study of the possibilities of production, use and export of green hydrogen in Costa Rica" for the Costa Rica Hydrogen Alliance, it is indicated that efforts for the development of hydrogen in Costa Rica should focus on efforts for the decarbonization of the transport sector, it being necessary and highly relevant to count on the surpluses from the electric generation processes from renewable sources.
Based on the data presented here, Costa Rica has a high potential for renewable electricity generation, and domestic demand would not be affected in the next 30 years with the introduction of green hydrogen production. However, mechanisms must be established to ensure the development of the green hydrogen ecosystem in the country, in order to create legal certainty and promote the development and incorporation of associated technologies.
Likewise, proof of concept tests (pruebas de concepto) may be developed at the storage level that allow assessing the opportunity to achieve greater utilization of variable renewable energies using hydrogen as a mechanism for energy storage and SEN optimization, just as many countries are exploring together with battery systems.
V. Legal Framework
· The Political Constitution in its article 50 establishes the obligation of the State to guarantee, defend and preserve the right to a healthy and ecologically balanced environment that every person enjoys.
· The General Law of Public Administration, Law No. 6227, in its article 28 establishes within the competencies of the ministers, to prepare and present to the President of the Republic the decrees and other acts that must be jointly signed relative to the matters attributed to their Ministry.
· The Organic Law of the Environment, Law No. 7554, in its article 4 establishes within the purposes of the law to foster and achieve harmony between the human being and their environment, satisfy basic human needs, prevent and minimize damages to the environment, regulate human conduct and public and private activity regarding the environment, as well as establish the principles that guide the activities of the Public Administration in environmental matters.
· The Organic Law of the Environment, Law No. 7554, in its article 59 defines that environmental contamination (contaminación del ambiente) is understood as any alteration or modification of the environment that may harm human health, threaten natural resources or affect the environment in general of the Nation. It indicates that the State shall adopt the measures that are necessary to prevent or correct environmental contamination.
The short, medium, and long-term vision of the Energy Subsector has been set forth in the VII National Energy Plan 2015-2030, which establishes as an objective "to guarantee that the price of fuels is efficient and contributes to the country's competitiveness" and as a required action "to prepare a pricing proposal that is consistent with international market dynamics, that recognizes the import quality of fuels, and that enables investments in the supply chain, including local production." The VII National Energy Plan establishes the policy with a central orientation of energy sustainability with a low level of emissions, based on the use of clean and renewable sources. It is evident that its actions must be aligned towards the improvement of the transportation sector from all its angles, since it is the sector responsible for the largest amount of GHGs and polluting gases.
The National Decarbonization Plan establishes in its axis 2, the change of 60% of the light vehicle fleet - private and institutional - will be zero-emission, with higher percentages for those with commercial and governmental use. By 2035, 25% of the fleet will be electric, as well as the implementation of an extensive electric recharging network throughout the country and with complementary infrastructure for zero-emission technologies, for example, hydrogen stations.
The Decarbonization Plan establishes in axes 4 and 6, that the industry will consolidate a national electric system with the capacity, flexibility, intelligence, and resilience necessary to supply and manage renewable energy at a competitive cost, and likewise will migrate towards high-value activities, with high levels of electrification and better international practices in its processes to minimize emissions.
The Law of the Regulatory Authority for Public Services, Law 7593 establishes in its first article that the Regulatory Authority will not be subject to the guidelines of the Executive Branch in the fulfillment of the powers granted to it in this Law; however, it will be subject to the National Development Plan 2015-2018, the corresponding sectoral plans, and the sectoral policies issued by the Executive Branch.
The United Nations Framework Convention on Climate Change, approved by Law No. 7414 and its Protocol ratified by Law No. 8219, establishes commitments on the reduction of greenhouse gases as the ultimate objective to achieve the stabilization of their concentrations in the atmosphere at a level that prevents dangerous anthropogenic interference in the climate system, for which the parties must promote and support the development, application, and diffusion, including the transfer of technologies, practices, and processes that control, reduce, or prevent emissions.
The Paris Agreement establishes as a goal to maintain the increase in the global average temperature well below 2 °C above pre-industrial levels, and to pursue efforts to limit that temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would considerably reduce the risks and effects of climate change.
The Nationally Determined Contribution is the voluntary commitment in terms of climate action that the country undertook before the international community, within the framework of the Paris Agreement; in December 2020, Costa Rica committed to taking actions aligned with a trajectory consistent with the global goal of limiting the increase in the global average temperature to 1.5 °C.
Directive Number 002- MINAE establishes coordinated actions within the environment and energy sector institutions in order to develop actions to foster the research, production, and commercialization of hydrogen as a fuel.
The Inter-institutional Action Plan for hydrogen has as its objective to address presidential directive No. 002-MINAE, which instructs the environment and energy sector institutions, within the scope of their competencies, to develop an action plan to foster the research, production, and commercialization of hydrogen as a fuel.
The National Climate Change Strategy (ENCC) examines a series of strategic axes of work in the national and international framework, among them the mitigation axis, which contemplates several sub-axes, among which we find the one referring to Energy and Transportation, since this sector "The main emitting sector in our country is transportation, so any action aimed at reducing emissions will have a high impact on the national GHG inventories."
VI. Institutional Framework
The institutions that would be contributing to the implementation of this Policy, due to the competencies they carry out, through teamwork of the governing bodies and leaderships to achieve the fulfillment of the stated objectives are:
- The Regulatory Authority for Public Services (ARESEP), in the exercise of its competencies, plays a fundamental role in the implementation of this Policy by providing a flexible and enabling regulatory framework for the utilization of the surplus capacity of the SEN, to ensure an integral vision for the decarbonization and electrification of consumption. - The Ministry of Environment and Energy (MINAE) plays a leading role by virtue of its condition as governing body in energy matters. Its mission is aimed at contributing to the improvement of the quality of life of the country's inhabitants through the promotion of the management, conservation, and sustainable development of the country's environmental and natural goods, services, and resources. - The distribution companies will leverage regulatory flexibility and enablement to commercially manage their surpluses, to foster the additional demand that absorbs the surplus capacity of the SEN, under an integral vision of decarbonization and electrification of consumption. - In matters related to pollution and its effect on health, we can identify several related institutions, among them the Ministry of Health (MS), the Caja Costarricense del Seguro Social (CCSS), who by virtue of their competencies must address these issues from the administrative and operational side. As well as having a concrete plan to eliminate their emissions from the use of diesel, bunker fuel, and gas.
VII. Guiding Principles
The Policy for the utilization of existing resources in the National Electric System for the development of the green hydrogen ecosystem is based on the guiding principles that will become pillars for achieving the development of the established objectives:
- Right to Health: The right to health based on an environment free from contamination is a fundamental right, so it is the State's obligation to provide its protection, either through general policies to achieve that end or through specific actions by the administration. - Sustainable Development: The State commits to implementing policies focused on meeting the needs of the present without compromising the ability of future generations to meet their own needs, through a process of harmonizing economic growth, social inclusion, and environmental protection, which are interrelated and essential for the well-being of people and society. - Right to a Healthy and Ecologically Balanced Environment: The State has an active role in protecting the environment by guaranteeing that the environment must be healthy and ecologically balanced, through taking necessary measures so that the environment is free from contamination and that the alterations caused by both humans and nature, in the near or distant surroundings, do not constitute harm to the environment or to people's health. - Coordination: It is the State's obligation for its dependencies to adopt and implement all those measures required to organize and harmonize their actions, with the purpose of making administrative management as expeditious and effective as possible for the benefit of the environment. - Efficiency of the Administration: The activity of public entities must be subject as a whole to the fundamental principles of public service, to ensure its continuity, its efficiency, its adaptation to any change in the legal regime or in the social need they satisfy, and equality in the treatment of the recipients or beneficiaries. - Pro-Nature (Pronatura): This is based on the need to take and assume all precautionary measures to avoid or contain the possible impact on the environment or people's health; all actions of the public administration on environmentally sensitive topics must be carried out with the appropriate zeal to avoid serious and irreversible risks and damages. In other words, if there is a lack of certainty about the innocuousness of an activity with respect to causing serious and irreparable harm, the administration must refrain from carrying out this type of activity.
VIII. Policy Statement / Components
General Objective The general objective of this policy is to establish the necessary orientations for the development of a flexible regulatory framework by the Regulatory Authority for Public Services (ARESEP), which facilitates the companies providing electricity service to utilize their surpluses from the SEN, through their commercial management, in order to apply to the incremental demand originating from new electro-intensive operations involved in the production of green hydrogen.
Strategic Guidelines.
- Establish flexible and appropriate regulatory instruments that seek to incentivize incremental demand in the utilization of the existing resources in the National Electric System (SEN). - Foster the absorption of the SEN surpluses through the operational and commercial management of surpluses by the distribution companies. - Develop the instruments and oversee the compliance with this policy.
Management Model.
- ARESEP will provide a flexible and enabling regulatory framework for the utilization of the SEN surpluses in the development of a green hydrogen economy in Costa Rica and the implementation of the National Decarbonization Plan. This regulatory framework will contemplate the following areas: - Flexibility for contracting the installed capacity of the SEN, including private generation plants covered by Law 7200, whose contracts have expired or are about to expire. - Tariff flexibility to allow the utilization of the SEN surpluses by the companies providing electricity service through their commercial management, for the development of a green, decarbonized hydrogen economy and the implementation of the National Decarbonization Plan. - Other regulatory measures focused on the development of a green hydrogen economy in Costa Rica and an integral vision of decarbonization and electrification of consumption. - The distribution companies will design the commercial management models required to incentivize additional demand for the fulfillment of this public policy. These schemes must take into account the following considerations: - The tariffs must apply to the incremental demand originating from new electro-intensive operations that are part of the ecosystem for hydrogen production and the electrification of consumption, including thermal uses. - They must provide the necessary stability for the establishment of new investments through energy purchase contracts between providers and the new operations. - The valuation of resources over time must contemplate the availability of surpluses over time, by season, and by time of day, in a manner that promotes efficiency in their use. - They will submit to the governing body and to the Regulatory Authority the information that they require for the application and monitoring of this policy. - MINAE will monitor the application of this policy for the utilization of surpluses in the SEN for the development of a green hydrogen economy in Costa Rica. For these purposes, MINAE will carry out the following: - It will request the preparation of an action plan for the implementation of this public policy within its scope of competence. - It will request from providers a quarterly report of surpluses and the application of this policy for their utilization. - It will prepare an annual report on the results of this policy. - It will carry out a biennial assessment of the objectives achieved from the application of this policy. - It will issue the enabling titles required for those private generators who wish to participate in this policy and do not have a concession for these purposes.
IX. Bibliographic References
- Government of Costa Rica. 2020. Nationally Determined Contribution. Consulted: 30 Jul 2021. Available at: https://cambioclimatico.go.cr/contribucion-nacionalmente-determinada- ndc-de- costa-rica/ - Government of Costa Rica. 2019. National Decarbonization Plan 2018 - 2050. Consulted: 30 Jul 2021. Available at: https://cambioclimatico.go.cr/wp- content/uploads/2019/02/PLAN.pdf - Government of Costa Rica. 2015, VII National Energy Plan 2015-2030. Consulted: 15 August 2021. Available at https://minae.go.cr/recursos/2015/pdf/VII-PNE.pdf - Government of Costa Rica, DFOE-AE-OS-00001-2021, Challenges of the Energy Transition from the Perspective of Public Finance. Available: https://cgrfiles.cgr.go.cr/publico/docsweb/documentos/publicaciones-cgr/otras- publicaciones/informe-transicion-energetica.pdf - HINICIO, Study of the possibilities of production, use, and export of green hydrogen in Costa Rica, for the Costa Rica Hydrogen Alliance. Available: https://alianzaporelhidrogeno.cr/biblioteca/ - IMN (Instituto Meteorológico Nacional). 2015. National inventory of emissions by sources and absorption by sinks of greenhouse gases in Costa Rica (IMN, 2015). Consulted: 30 Jul 2021. Available at: http://cglobal.imn.ac.cr/index.php/publications/inventario-nacional-de- emisiones-por-fuentes- y-absorcion-por-sumideros-de-gas-efecto-invernadero-en-costa-rica-2015/ - Ministry of Mines and Energy (2021). Energy transition: a legacy for the present and the future of Colombia. Available: https://www.minenergia.gov.co/libro-transicion-energetica.