- Through a long-standing partnership with the IDB, Costa Rica expanded geothermal generation and upgraded its transmission and distribution systems to strengthen the energy sector.
- Backed by $200 million in IDB financing, these investments improved resilience to climate shocks, eased system bottlenecks, reduced outages, and enhanced service quality for consumers.
Costa Rica’s electricity system has long benefited from a high share of renewable generation, with hydropower accounting for approximately 70% of total electricity supply over several decades.
While this structure supported low-carbon growth, it also increased the system’s exposure to climate-related shocks, particularly droughts that reduced hydropower availability and increased reliance on thermal generation and imports. At the same time, growing demand and aging infrastructure placed additional pressure on transmission and distribution networks, raising concerns about reliability, costs, and system resilience.
To address this challenge, and as part of a long-standing collaboration with the Inter-American Development Bank to strengthen the electricity sector, the country implemented the First Renewable Energy, Transmission and Distribution of Electricity Program, expanding geothermal generation to improve reliability, resilience, and the system’s capacity to manage climate and economic shocks.
Supported by a $200 million Conditional Credit Line for Investment Projects from the IDB, the program builds on a long‑standing, programmatic and selective approach to energy sector development that traces back to the IDB’s first engagement with Costa Rica in the 1960s.
Under this approach, which has relied on phased investments, system‑wide planning, and sustained institutional strengthening, the country has gradually evolved beyond a predominantly hydropower‑based model to incorporate firm renewable sources such as geothermal energy and, later, wind and solar generation, alongside deliberate efforts to reinforce transmission capacity and modernize distribution networks.
Program Design and Implementation
Besides expanding geothermal generation, which provides stable baseload power largely independent of climate conditions, this latest project financed upgrades to transmission and distribution infrastructure to address bottlenecks, reduce outages, and improve service quality for consumers. Investments were also aligned with Costa Rica’s participation in the Central American Regional Electricity Market, enabling greater use of regional power exchanges to manage supply variability.
The programmatic structure allowed for adjustments over time in response to changing conditions. During periods of fiscal constraint and implementation disruptions related to the COVID‑19 pandemic, resources were reallocated toward technically ready investments, allowing implementation to continue without undermining the program’s core objectives.
Measurable Results Across the Electricity Value Chain
The program delivered measurable results across generation, transmission, and distribution:
- Renewable generation capacity increased with the commissioning of the 55 MW Las Pailas II geothermal plant, raising installed geothermal capacity from 206 MW in 2018 to 261 MW in 2025. In addition, the program financed the acquisition of 1,415 hectares of land for the Borinquen I geothermal project, expected to enter operation in 2029.
- Transmission reliability improved significantly: the time of energy not served due to failures declined from 31 to 10 minutes per year between 2018 and 2025 and the digital modernization of 56 substations, also contributing to greater regional exchange capacity with Regional Electric Market.
- Distribution service quality improved through the upgrade of 273 kilometers of distribution lines, modernization of 117 circuits, installation of 212,600 smart meters, and replacement of public lighting with 67,457 LED streetlights. As a result, the frequency of service interruptions declined to 5.26 events per year, and the average duration of outages fell to 10.22 hours.
- Labor participation outcomes exceeded initial targets, with female participation in construction-related activities increasing from 1.5% to approximately 11%, demonstrating that infrastructure investments can broaden participation in technical sectors when inclusive measures are incorporated into implementation.
Lessons Learned
The Costa Rica experience highlights several lessons relevant for electricity system transformation. First, resilience gains are strongest when investments address the electricity system as a whole, combining generation diversification with grid modernization.
Second, flexible financing instruments support continuity and adaptability under uncertainty, allowing countries to respond to shocks while maintaining long‑term objectives. Third, investments in digital substations, advanced metering, and network modernization can generate sustained improvements in reliability and operational efficiency.
Overall, the program illustrates how a programmatic approach—grounded in long-term planning, adaptable financing, and evidence-based implementation—can strengthen electricity system resilience while supporting reliable service delivery and development outcomes.