Land-Water Linkages in Rural Watersheds Case Study Series Cooperation between a small private hydropower producer and a conservation NGO for forest protection: The case of La Esperanza, Costa Rica

This Case Study focuses on a cooperation mechanism developed in Costa Rica between La Esperanza Hydropower Project (downstream water user) and the Monteverde Conservation League, a conservation NGO that owns most of the hydropower plant's upper catchment. The objective of the mechanism is to ensure the conservation of forest cover where it already exists, since forests are perceived to provide a range of downstream hydrological services for which the hydropower producer is willing to pay. The mechanism is centered on a private contract between two parties, where the hydropower producer commits to paying the forest owner in exchange of the latter's commitment to maintain the forest cover on its property. The payment increases through the first five years of the contract from US$ 3 to US$ 10/ha/yr, and from the fifth year onwards US$ 10/ha/yr is used as a reference value in a formula that factors in power produced and the tariff at which the power is sold. Under the agreement, the hydropower producer makes payments to 3 000 ha in the watershed, which is equivalent to 88 percent of the total area. The contract was signed for 99 years. This payment for environmental services (PES) scheme represents a considerable increase in the O&M costs of the power plant (approximately a 21 percent increase) and is a significant contribution to the annual budget of the conservation NGO (approximately 10-25 percent of the annual budget).