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.
In short:
(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?
Is there a problem with people stealing electricity and/or the electric company not being very good at collecting its accounts?
Both of these are chronic problems in some places I'm familiar with, and they can have astonishing effects on the availability of electricity. It sounds like Venezuela has a different set of issues; I'm just wondering if these are present too.
Doug M.
Posted by: Doug M. | November 27, 2009 at 11:15 AM
It's a problem, but as you surmised, it's a second-order one.
Opsis has great statistics on electricity use and blackouts; if I had the time it would be possible to identify the location and length of all the outages. On the other hand, Corpoelec (the new state-run electricity retailer) has lousy statistics on revenues. While they must be there, they aren't easy to find.
In EDC's (Electricidad de Caracas) last year before it was nationalized, the company estimated that it lost about 18% of its electricity to theft. That varied between 10% in Caracas and as high as 60% in scattered locations to the east.
The situation, however, does not seem to have been getting any worse. Losses to theft are still estimated around 18%. (An English version of the article is here.) Since theft isn't worsening, it doesn't seem to have much to do with the onset of rolling outages. Of course, the country could prevent outages by simply cutting off the places that don't pay, but that is likely to have unpleasant political consequences.
One smart move that Chávez is considering is to impose a surcharge on households that use electricity above a threshold. That way he avoids the political problems inherent in cutting off very poor people (who may have just purchased their first consumer durables) while still getting a handle on demand. We'll see if the Bolivarian government can actually pull this off. They have been better at building stuff than their critics charge --- better than much of the United States, actually --- but implementation has usually been lacking, and management usually terrible. So I have my doubts.
Posted by: Noel Maurer | November 27, 2009 at 06:46 PM
This is upsetting. I posted a fairly detailed response to Doug, pretty carefully footnoted, and it seems to have disappeared. That has not happened before. Has anyone else had the problem?
To wit: Before nationalization, losses from theft ran ran around 18%. For EDC, right before its nationalization in 2006, losses ranged from a low of 10% in metro Caracas to 60% in some eastern regions. Since nationalization, the figure doesn't seem to have changed: Corpoelec reports losses from theft that run about 18%.
In other words, your intuition is correct: theft is a problem, but a second-order one. Since losses aren't increasing, then they aren't the cause of the recent outages.
The government is considering something fairly smart: imposing surcharges on households that use more than a certain threshold of electricity. That will curb usage, without causing a political outcry from the PSUV's base. The question, really, is whether the government can follow though and implement the surcharge effectively. The record isn't that good.
I wish I knew what happened to my longer post; I'm annoyed that it and the links have all gone up in smoke.
Posted by: Noel Maurer | November 28, 2009 at 12:33 AM
Wow. Has growth really been that dramatic? It doesn't square with a lot of what you read about Venezuela.
Posted by: Scott | November 28, 2009 at 01:45 AM
Noel,
Very much so, thank you for your efforts, particularly from a sick bed. You did NOT have to go to all that trouble when you are feeling poorly. If you ever find yourself in the Richmond, Virginia area i will be happy to buy you at least one of whatever you are drinking.
Steve
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