No, it’s pretty clearly the flu. I’m completely laid up. Ugh. Misery, compounded by the Broncos piling up 16-0 lead. Yes, I’m a Patriots fan, in my one sporting concession to my new home town. But I retain a little bit of love of for the Giants and Jets. Not being returned so far. Still, hearing that series of curses from the Bronco’s coach was awesome.
But Stephen Rogers wants to know about Venezuelan electricity, so I dig around to find out about Venezuelan electricity. Why is an energy-rich country experiencing periodic blackouts? I mean, there are a lot of things about the Bolivarian Republic which are in cloud-cuckoo land, not least the place where I was in the above photo. But generating power should not be one of them, should it?
The immediate reason for the shortages is: a really bad drought this year. Venezuela, sensibly, does not burn exportable hydrocarbons for electricity. The country has been slow in exploiting its natural gas resources, but given its immense hydro capacity, that is far from a disaster. (Venezuela’s natural gas reserves are “associated,” which means that they require larger up-front investments to extract.) In fact, the country has ramped up an almost-astounding amount of hydropower in recent years.
Unfortunately, this year the rains have almost dried up. (Ecuador has also been hit.) This has caused hydro production to dip on the national level ... but Guayana, the big industrial province, only has one 15 megawatt diesel generator at Puerto Ayacucho as a backup.
(Data comes from Venezuela's system operator, called Opsis.)
That’s a problem, but it wouldn’t be a huge problem if it weren’t for the fact that Venezuela's grid is in worse shape than America’s. In 2006, Venezuelan transmission and distribution losses ran 22%, against 7% in the United States. That’s a crappy grid. With a crappy grid, it is not easy to get electricity from where it is to where it is needed when the baseload capacity declines. Blackouts result. In October, Opsis carried out 48 planned outages and suffered 66 unplanned ones, even with all the diesel and gas peakers run way above their normal capacity.
In fact, there is a second constraint on the grid. Venezuela has managed to produce a lot more thermal electricity by running its thermal peakers at their maximum for more time ... but what it cannot do is get them to produce more power than their rated maximum at any given moment. According to Opsis, peak demand is running 7.0% higher this year than in 2008, which was up 5.1% on 2007. Overall load factors are down, but on those days when power spikes, there is nothing to be done. Especially in Guayana.
Of course, one has to ask: if Venezuela has succeeded in its heroic efforts to increase hydro capacity, why did demand outstrip supply this year? Well, that’s easy to answer ... the government froze electricity rates in 2002. Given the awesome scale of economic growth since then, and the even more awesome scale of consumption growth, and galloping inflation, what would you expect to happen? Exactly.
A lot of very poor people bought lamps and satellite dishes, a lot of slightly less poor people bought refridgerators and air conditioners, a lot of not-really-poor people got dishwashers and giant plasma screens, and a lot of not-poor-at-all people stopped caring and began to run their air conditioners with the balcony doors open. If you aren’t going to ration by price, you've got to ration by other means, blackouts being one. After all, in 2006, Chile was hit by a perfect storm when Argentina cut off the gas, a drought shellacked the dams, and oil prices spiked. Was a lousy year for consumers and a lousier year for energy-company shareholders, but there were no blackouts.
(1) Investment in generation has been just short of heroic. ¡Viva la revolución Bolivariana!
(2) Investment in the not-as-sexy business of getting the stuff from where it’s generated to where it’s consumed has not been quite as heroic. In fact, it’s been bloody awful. ¡Malditos chavistas!
(3) Demand has quite deliberately been allowed, nay encouraged, to explode.
Problems (2) and (3) were eventually going to outrun advantage (1). This happened to be the year.
The government faces three long-term choices. First, direct more-and-more-and-more investment into generation, first hydropower, then CCGT, maybe even nuclear. Of course, that means burning associated gas instead of exporting it to (say) Trinidad’s industrial sector. It also means diverting limited resources away from other things that might have much larger economic or political payoffs. And it would force the government to have to show a level of execution that it hasn’t quite demonstrated, massive investment notwithstanding.
Second, cut demand. Which means raising rates. Won’t that be popular!
Third, get used to blackouts. Hey, the Philippines lived with ‘em for a very long time, so have many other countries. In fact, if Corpoelec can get good enough at directing where the power will go out, selective outages could be a win-win for the Socialist Party.
Stephen, that answer your question?