This, together with its high dependence on oil for electricity generation (the highest in the region), led to an energy crisis in 2006 from which the country has not fully recovered yet.

[3] The large difference between nominal and effective capacity is due to the existence of old thermal plants that do not operate properly and that should be either refurbished or replaced.

The consumption share for the different economic sectors was as follows:[1] Maximum demand has increased in Nicaragua at an annual rate of about 4% since 2001,[1] which has led to a low reserve margin (6% in 2006).

[4] However, the situation worsened during the energy crisis in 2006, when large sections of the country suffered continuous and lengthy blackouts (See Recent developments below).

This problem is partially caused by the widespread existence of illegal connections, altered metering systems and low bill collection capacity in certain areas.

The number and type of plants operated by each company was as follows:[1] Source: CEPAL 2007 In Nicaragua, 100% of the transmission is handled by ENATREL, which is also in charge of the system's dispatch.

[1] The "Indicative plan for the generation in the electricity sector in Nicaragua, 2003-2014" does not set any target or legal obligation for the development of renewable resources in the country.

As a response to the recent (and still unresolved) energy crisis linked to Nicaragua's overdependence on oil products for the generation of electricity, there are plans for the construction of new hydroelectric plants.

In 2006 the Central American Bank for Economic Integration (BCIE) and the Government reached an agreement by which the BCIE will provide US$120 million in the next five years (2007–2012) in order to finance several hydroelectric projects:[12] In March 2008 the government of Iran approved a US$230 million credit for the construction of a 70 MW hydropower plant by the name of Bodoke on the Tuma River in the northern department of Jinotega.

[13] Micro hydropower also continues to be a popular sustainable energy resource, particularly in isolated rural regions of Nicaragua which are currently not electrified [1].

It is located about 35 km (22 mi) east of San Pedro del Norte, where the Río Grande de Matagalpa meets the Tuma River.

Nicaragua is a country endowed with large geothermal potential thanks to the presence of volcanoes of the Marribios range along the Pacific Coast.

[20] Until the early 1990s, the electricity sector in Nicaragua was characterized by the presence of the State, through the Nicaraguan Energy Institute (INE), in all its activities.

Created in 1979, INE had Ministry status and was a vertically integrated state monopoly responsible for planning, regulation, policy making, development and operation of the country's energy resources.

The reform of the INE led to the creation of the National Energy Commission (CNE), which assumed the policy making and planning responsibilities.

[21] The privatization process that started in 2000 with a public offering of the four generation companies was complicated due both to legal problems and to lack of interest by investors.

Hidrogesa remained in public hands as the only player in hydroelectric generation while its profits serve to finance the losses of GECSA, which owns the thermal plants that did not attract private interest, and the rural electrification plans in isolated areas.

Moreover, the generation capacity added in the last decade has been mainly dependent on liquid fuels, making the country more vulnerable to rising oil prices.

The reform also aimed at implementing gradual changes in electricity tariffs that would reflect costs, which proved to be politically unfeasible.

The financial burden of the higher generation costs was thus passed on to the privatized distribution company, which has, partly as a result, been suffering severe losses.

[24] In January 2007, shortly after President Daniel Ortega took office, a new law created the Ministry of Energy and Mines (MEM), which replaced the CNE.

The government committed to pass a law to combat fraud,[25] which will help reduce distribution losses and Unión Fenosa will develop an investment plan for the period up to 2012.

In 1996, the six countries (Panama, Honduras, Guatemala, Costa Rica, Nicaragua and El Salvador) signed the Framework Treaty for the Electricity Market in Central America.

As for the infrastructure, EPR (Empresa Propietaria de la Red S.A.) is in charge of the design, engineering, and construction of about 1,800 km of 230kV transmission lines.

[22] In August 2007, Unión Fenosa committed to elaborate an investment plan for the period up to 2012. Financing sources for rural electrification are limited.

The National Fund for the Development of the Electricity Industry (FODIEN) receives its resources from the concessions and licenses granted by the Nicaraguan Energy Institute (INE).

[21] The World Bank (through the PERZA project) and the Swiss government (through FCOSER) have also contributed funds and assistance to advance the objectives of rural electrification in the country.

Currently (November 2007), there are only two registered CDM projects in the electricity sector in Nicaragua, with overall estimated emission reductions of 336,723 tCO2e per year.