Dismantling an Energy Giant

After assuming office in May 2022, Costa Rican president Rodrigo Chaves announced his intentions to revamp the country’s electricity sector. By October, his government introduced Law 23.414 to give private companies a more prominent role in the currently state-dominated energy sector, both in electricity generation and transmission. Legislative discussions of the project remained in full swing in the spring of 2025. 

The introduction of Law 23.414 inaugurated unprecedented efforts to promote energy privatization. Framed as a “harmonization of the national electricity system,” the law proposes to dismantle one of Latin America’s most stable and socially-oriented electricity sectors. Industry proponents claim it will not only attract private investment and reduce costs, but also achieve greater competition and investment in renewable energy, necessary to meet growing demand and ensure reliable service. The threat of power rationing in May 2024 was seen as further evidence of state mismanagement. As critics such as the ecologist organization FECON (Costa Rican Federation for Nature Conservation, or Federación Costarricense para la Conservación de la Naturaleza) have warned, “Privatization means replacing a universal model with one that will guarantee private business at the cost of the social service of electricity.” In reality, the announced power rationing last year was ultimately avoided, but the underlying risk was caused by lack of rainfall, which had affected the availability of hydropower, the backbone of Costa Rica’s electricity system. In Costa Rica, the climate crisis will at the very least result in an energy crisis, but privatization does not appear as a comprehensive solution.

Chaves’s bid to privatize electricity can be viewed amid the contemporary surge of right-wing figures implementing neoliberal policies under the auspices of populist reactions against the “establishment.” His victory came off the heels of the Covid-19 pandemic, during which Costa Rica, heavily dependent on tourism, was severely shaken by travel restrictions and lockdowns. A former World Bank employee, Chaves was removed from his post due to a record of sexual harassment. While voicing an anti-establishment narrative, Chaves has attempted to erase what remains of Costa Rica’s social democratic state. 

Since the 1980s, Costa Rica, once known for its welfare state, strong public education, and health care system, as well as the absence of a military, has come under increasing pressure from international financial institutions seeking neoliberal reforms. Under President Óscar Arias (2006–2010), the free trade agreement with the US known as CAFTA was narrowly approved in a national referendum despite massive opposition from civil society. The agreement was a watershed moment toward market-oriented policies. The current reform proposal builds on this momentum while targeting a key element of the country’s public services.

Across Central America, governments have privatized the energy sector in the last thirty years. To a limited extent, Costa Rica opened up to private energy projects in 1990. Honduras opened the energy market in 1994, and Nicaragua changed the legal framework for electricity in 1995. Guatemala, El Salvador, and Panama soon followed suit, and together these countries established a regional electricity market. Expectations were high, not only for the creation of a Central American market, but also for the hope of sending electricity exports north by connecting the Central American grid to Mexico. The transmission line, SIEPAC (Central American Electric Interconnection System, or Sistema de Interconexión Eléctrica para Países de América Central) became operable in 2014. The regional electricity market has thus compelled a turn to privatization across the isthmus. Costa Rica has managed to maintain its publicly-owned model, until now.

Building a giant

The ICE (Costa Rican Institute of Electricity, or Instituto Costarricence de Electricidad) has supported Costa Rica’s social democracy since the mid-twentieth century. In the 1920s, protests against the American and Foreign Power Company (a subsidiary of the Electric Bond and Share Company, which in turn was owned by General Electric) led to the nationalization of all hydroelectric power production. The result was the SNE (National Electricity Service, or Servicio Nacional de Electricidad ) in 1928. However, during the Great Depression, coverage remained limited. It was only after the 1948 civil war that the Founding Council of the Second Republic under President José Figueres established the ICE in 1949. 

Between 1950 and 1980, the state embarked on large-scale development plans to spur industrialization and economic growth. This included state-owned corporations whose production ranged from sugar to aluminium, and included policies of import substitution and investment in technology and innovation. The government’s plans were modeled on the development paradigm of the United Nations Economic Commission for Latin America and the Caribbean and saw the nationalization of banks, the passage of landmark labor rights legislation, and the abolition of the army. At the unique juncture marking the end of the civil war, this development model was supported by industrialists, small businesses, small and mid-sized peasants and farmers, and public sector workers, while it was opposed by traditional land-owning factions and non-progressive clergy. Costa Rican social democracy also hedged in the more radical demands for social change by landless peasants, jornaleros, and other marginalized groups.

The ICE held a state monopoly on energy generation, forming part of a new, social-democratic state that would provide the most essential services for its citizens and do away with electricity shortages and lack of access. The provision of electricity was seen by politicians as a cornerstone of social development, along with health care, education, and water supply. Essential infrastructure provided by the state was meant to build a stronger middle class, allow for more long-term policy goals, and ultimately, encourage more equally distributed economic growth. 

The ICE formed the core of the Costa Rican solidarity model of energy, allowing energy to assume a fundamentally social function. Electricity was provided based on the principles of universality and solidarity. Access to electricity is guaranteed as a public right, and tariffs are uniform across the entire territory. Prices are based on consumption and sector. The Regulatory Authority for Public Services (ARESEP) fixes these prices and tariffs and has a mediating function. This structure ensures that remote or economically marginal regions pay the same rates as urban centers, thus avoiding the spatial price asymmetries typically produced by market-driven energy systems. The state invested heavily to extend the grid to all parts of the country, making social equity a component of the technical infrastructure. The ICE remains Costa Rica’s single buyer. Four cooperatives have owned smaller-scale to off-grid transmission lines, and the municipalities of Heredia and Cartago have supplied energy in some urban areas for which they have geographically defined concessions since the 1960s, while the ICE is responsible for national coverage. Between the 1960s and 1990s, the ICE rolled out near universal electricity coverage across the country. 

The ICE was thus essential to Costa Rica’s development, living standards, and economic position in Latin America, including its consistently high ranking across global development indicators. The ICE has also been influenced by popular mobilization, which has often made it more progressive than intended by initial state planning objectives. In the 1950s, neighborhood councils refused payments and organized marches against rate hikes by the American and Foreign Power Company, which still owned the electricity transmission system. These pressures finally achieved the nationalization of the grid in 1958, a sensitive issue given the global context and involvement of US interests, notably General Electric’s telecommunications investments in the Central American nation.

Creeping toward privatization

In the 1980s, protests—particularly those led by alliances of lower and middle class groups—succeeded in slowing electricity price increases imposed by the ICE. However, structural adjustment programs by the International Monetary Fund (IMF) and the World Bank in the 1980s and 1990s placed Costa Rica under economic pressure. In 1990, law 7200 allowed private electricity generation, as long as those private producers together did not exceed 15 percent of the total capacity. Later, more private generation was allowed under the “Build, Operate, Transfer” label, where the ICE would buy privately produced electricity and later transfer the electricity plant into public ownership.

The last thirty years reveal the ongoing debilitation of the ICE. The major point of inflection was the “Combo,” a privatization reform package attempted by liberal politicians in 2000. The “Combo,” politicians argued, would attract investment in energy and telecommunications, but for that end, it had to dismantle the ICE’s monopoly in electricity distribution alongside that of generation. In response, a broad coalition of activists, unions, experts, student organizations, and the ecological movement united to defend the ICE. The mobilizations were not only driven by economic concerns, but also by deeply held cultural and political values associated with ICE as a pillar of Costa Rica’s identity. With hundreds of protests and road blockages each week, protesters almost brought the country to a standstill. They forced the government to retreat on the “Combo,” and the ICE remained under public ownership. The story of the ICE is thus one of state planning that is responsive to collective demands: since 2021, more than 99 percent of households are connected to the grid. Today, the ICE handles generation, transmission and distribution, although regional (municipality-owned) cooperatives also exist. 

However, the ICE’s current state is much more complex. Since the 2000s, ecological groups, especially in the south of Costa Rica, have drawn attention to the ecological and social risks of hydroelectric power plants. Both the ICE and private companies have planned energy generation projects on numerous rivers, both mid- and large-scale, which have met massive resistance from the population. In particular, activists have criticized ICE’S planning as exclusive, top-down, and inconsiderate, ignoring community concerns and starting constructions prematurely. Inhabitants, especially in rural areas, consider the drying up or rerouting of rivers for the operation of hydropower plants unacceptable. 

Protesters have defended the protection of ecosystems and the importance of rivers as social spaces. One particularly controversial project was the El Diquís hydroelectric project, which would have been the largest in Central America, with a proposed capacity of 650 MW. The project was formally planned by the ICE in 2006, with construction initially scheduled for 2009 to 2016. It would have flooded parts of territory of the Térraba indigenous community without adequate consultation, a clear violation of International Labour Organization (ILO) Convention 169 on indigenous rights. After years of opposition from ecologists and indigenous organizations, the project was ultimately abandoned in 2018.

The “Harmonization” law

The “Harmonization” law, introduced earlier this year, reignited the dispute between a vision of energy as a profit-oriented sector or as a solidarity model. By the end of March 2025, however, the Special Commission for Energy decided to pause the disputed project after lengthy parliamentary debate. “Harmonization” in the government’s proposal meant that private corporations who produce energy—owners of run-of-the-river hydropower plants or wind turbines, but also thermal plants—would be on equal footing with the ICE and allowed to sell electricity directly to large consumers themselves. This would replace the current highly regulated solidarity system and create a national market for electricity production and distribution. The state would lose control over the energy sector, the foundations of the model of energy production behind the ICE.

In the current model, electricity provision is not determined by competition, but rather the need to guarantee general coverage. The ICE currently buys electricity from private generators at long-term prices, but in 2021, the ICE did not renew existing contracts, considering conditions to be too unfavorable for the state. Relations between the ICE and private electricity generators have since been tense. The Association of Private Energy Producers (ACOPE) has repeatedly urged ICE to use the electricity produced by disconnected plants. Since the ICE is the main distributor and purchases energy from private companies, it can theoretically decide which plants remain connected to the grid.

Unsurprisingly, the industrial sector in turn argues that electricity prices for industry are too high, and the Costa Rican Chamber of Industry is heavily in favor of privatizing energy. According to the Chamber, the electricity demand has grown much more than expected in the past years, and the lack of installed capacity means more fossil fuels are used for generation, causing electricity prices to rise. Industrialists are arguing this may lead to more electricity rationing, arguing:

Where will the energy to attend this growing demand come from? We see this initiative as an opportunity to open space for more investment in electricity generation through renewables, which will guarantee that us consumers will in the next years enjoy a continuous, high quality service, but above all at competitive prices.

Activists have countered that this is, of course, an argument for better management rather than privatizing the sector. ANEP, one of the ICE’s unions, even suspected that recently appointed ICE managers had deliberately switched off ICE’s thermal back-up plants in August 2022, to then contract private thermal plants in October 2023, as the state utility’s electricity generation dropped. According to ANEP, this was “a plan designed to weaken the institution . . . to justify the opening (privatization) of the electricity sector.” It appears the thermal plants have now become even more important, balancing out in part the loss of reliable hydropower. In a market-based sector, the ICE would still shoulder the burden: it would have to mediate fluctuations of electricity flow in the system and back up electricity in times of scarcity.

Trade unions, ecological movements, and academics have strongly criticized the proposed legislation, warning of growing social injustice, as rising energy prices as a result of market-based mechanisms would particularly affect rural and economically weaker sectors of the population. They argue that electricity, characterized by universal coverage and considered a “bien común” (common good),1While Costa Rica’s Political Constitution does not explicitly define energy as a common good, Article 50 recognizes natural resources and essential services—such as energy—as matters of public interest, thereby aligning them with the principles of the common good. could become a luxury product as a result of the planned reforms. Profits would be privatized while losses would continue to be shouldered by the public sector—especially if ICE is forced to buy electricity from private companies at high prices.

Union representative Sergio Ortiz, president of the Asociación Sindical Costarricense de Telecomunicaciones (ACOTEL), argued the only thing the initiative would harmonize “are the private interests of the country’s large consumers and energy producers so they can maximize their profits.” ICE staff have also expressed concern, emphasizing that despite ongoing criticism of the institution, “an opening could even be dangerous to manage, very delicate.”2Interview with ICE engineer, 13th June, 2022).

Ecological groups such as Movimiento Ríos Vivos have also suggested that in a deregulated market, corporate interests could drive the reactivation of previously rejected hydropower projects. Experience from neighboring countries such as Panama and Guatemala shows that large hydropower plants under private management have led to deforestation, loss of biodiversity, and displacement of local communities. These risks are receiving increased attention in Costa Rica, as the opening of the energy market threatens to weaken democratic control. 

Cheaper energy, price hikes, or transnational business?

Echoing industry’s demands, Chaves repeatedly promised to “get the electricity rates down” quickly, as he did in July 2022, and he ultimately reduced prices in January 2025. However, this price decrease came at the cost of major risks to the system, including electricity shortages. This decision went against the recommendation of ARESEP, the entity regulating electricity prices, which had advised a 30 percent increase in prices in 2024, with slight differences between the ICE and the municipal distribution companies, given its debt for electricity imports and for private thermal plants from the previous year. 

Still, compared to the rest of the region, Costa Rica has the best developed electricity grid and the lowest electricity prices. Prices have fluctuated, as the ICE has reduced prices for residents at moments when its budget allowed. In 2022, when exports were high, consumer prices for electricity fell by almost 20 percent. Gains were forwarded to consumers and reinvested, and ARESEP has been, since 1990, responsible for a “social” politics of electricity prices. Contrary to the government’s argument that competition in rounds of tenders for private generators would reduce prices, data show that prices would increase. Starting with the necessity of corporations to satisfy shareholders, profit transfer into reducing prices would be unlikely. In fact, prices would likely rise.

Average energy prices in Central American countries

Institutional changes envisioned in the “Harmonization” law will also have a big socio-economic impact: The control entity CENCE would move from the ICE to the Ministry for Environment and Energy MINAE. A new, “coordinating entity” would assume its responsibilities in reacting to demand. When interviewed, two representatives of the energy union SITET (Industrial Union of Electric and Telecommunication Workers, or Sindicato Industrial de Trabajadores Eléctricos y Telecomunicaciones) warned that this represents a politicization of the system: “[This] technical entity, the heart of the system, will cease to have technical criteria, and political criteria will interfere.” It is indeed questionable if the control of the system will then shift with each government cycle and who will be responsible for making decisions to avoid instabilities in the grid.

Time and again, private generators have demanded the possibility to feed their electricity into the transnational grid. Under the “Harmonization” law, private companies could sell electricity directly abroad through the regional grid—effectively becoming electricity exporters themselves. An anonymous energy sector insider argued “ICE controls everything. ICE does not allow another operator, another transmitter, another distributor to enter.” Now, private energy producers could finally “bypass” the ICE and move directly to the regional market. Opening exports up would also completely change the idea of responsibility for the national system: “When it sells its surplus electricity to the rest of Central America, ICE may jeopardize national demand. ICE must not sell energy, for example, to Nicaragua or Guatemala, at a more profitable price instead of supplying it to businesses or households within Costa Rica,” stated union spokesperson Jorge Coronado.3Interview with the authors. 

Evolution of the electrical coverage index in Costa Rica

Between 2018 and 2022, electricity exports through the SIEPAC transmission line soared, and the state translated the profits into lower consumer prices. But low rainfall meant that in 2023, electricity exports fell by a shocking 86 percent. In 2024, the surplus of energy that Central American countries could generally export to the regional electricity market shrank by 22.8 percent compared to 2023. This may mean that the prospects for private exporters, if exporting separately from the ICE, are not as positive as the government expected when it first introduced the privatization plans in 2022. 

On the other hand, the ICE, heavily dependent on the large hydropower plants built between the 1970s and 1990s, largely failed to plan for climate crisis. Already, the volatility in rainfall has made the power generation from the country’s large hydropower plants unpredictable. In 2024, these plants entered into critical conditions, with historic lows in their reservoirs. Hydropower challenges, combined with the switch-off of the thermal plants and the reduction of electricity trade across Central America through the transnational transmission line SIEPAC, has resulted in widespread electricity shortages. Critics of the ICE argue that the crisis was man-made—a claim with some merit. The El Niño phenomenon, the cause of the drought, was anticipated but ignored by ICE management and the government. Some have even claimed that the increased reliance on private thermal plants, despite their higher costs, was a deliberate choice to weaken the ICE and the case for public management.

Energy democracy in balance

The privatization of electricity is only one part of the government’s broader neoliberal agenda, in the midst of a political landscape characterized by high social inequality, rising crime, and increasing violence. A 2023 analysis by the University of Costa Rica (UCR) found that the Chaves government is deliberately discrediting the public health insurance system, the Caja Costarricense de Seguro Social (CCSS). His government has failed to ratify the Escazú Agreement, a regional agreement on the protection of human and environmental rights, and has suggested opening gas plants and legalizing gold mining. Impunity for the murderer of Jehry Rivera, an environmental activist assassinated in 2020, also speaks to the violence of Chaves’s environmental record. The indigenous land rights activist had protested the Diquís hydroelectric project and sought to defend indigenous territory. The perpetrator—though publicly admitting to the crime and receiving a court sentence of twenty-two years—was acquitted in 2024. Moreover, Chaves’s repeated attacks on the judiciary and bouts of corruption have showcased disturbing parallels to the right-wing governments of Donald Trump and Nayib Bukele. 

While the Energy Commission paused the government’s initiative for privatization, debates around the future of Costa Rica’s energy sector are far from over. Some progressives have suggested that the pause is simply a tactical move ahead of the upcoming elections. At stake is more than just a technical or economic adjustment, but rather the preservation of a development model that has long ensured equitable access and shaped the country’s social fabric. Nonetheless, discussions around alternatives for energy production and decentralization, ranging from solar and off-grid solutions to mid-scale energy cooperatives, have increasingly entered the national sphere. These models not only offer the potential to reduce the country’s dependency on large-scale projects—often associated with high social and environmental costs—but also promote genuine energy sovereignty, particularly for indigenous peoples and other remote communities, while maintaining a reliable grid for urban Costa Ricans that can prove resilient to growing climate crisis. 

The uncertain future of the ICE prompts a revaluation of Costa Rica’s solidarity model and its place in an increasingly transnational mode of energy production and distribution. Debates over energy invoke debates around democratic control over energy supply through political participation, societal self-determination, and sovereignty. Market-oriented technical solutions will likely fail to resolve these fundamental tensions rooted in the identity of the Costa Rican state.