Given that the name of this blog is “The Power and the Money,” I have to write the following post.
I am sympathetic to President Macri, I really am. He got hit with a crisis not of his making. But in all seriousness, the fellow went into the crisis with far less goodwill than he should have. Here I am going to lay out one of the missteps Macri made; in the next post I will explain why the poor guy probably did not have another choice. In his own words: “Veníamos bien, pero pasaron cosas.”
Which is probably a good a way as any to sum up Argentine history, but I digress.
One of the big problems Macri faced when he came into office were subsidized electricity prices combined with a growing power shortage. This needed to be fixed. So he raised prices. That angered people, but the only other choice would have been to let the Argentine grid go the way of Venezuela only without the big dams. One of the reforms consisted of Resolution 21/2016, which allowed the country’s independent system operator, CAMMESA , to contract for new capacity. (An alternative link to the resolution is here.) Basically, new generators were given long-term fixed-price contracts and a promise to buy a minimum amount of power.
Still, you would think that the folks at CAMMESA would want to keep the price of electricity down as much as possible. Sure, it was an emergency, but if prices gotta rise it behooves you to make them rise as little as possible. So obviously one would expect the wholesale price of power from those sources to be in line with fossil fuel generators in other countries. It certainly should have been in line with the unsubsidized cost of fossil fuel electricity inside Argentina. Call it 4¢ per kilowatt-hour, maybe 9¢. (See Table 53.)
Well, when power prices under Macri rose and kept on rising, the good people at Risk Event-Driven and Distressed Intelligence (REDD) got curious about how much CAMMESA was paying for these new sources of power. And what did they find? Costs of 18.6¢ in August 2018 and 9.3¢ in February 2019. That compares to 5.5¢ and 4.1¢ respectively for other thermal generators in Argentina in the same period.
You got it. These new plants, with new technology, coming on-line in 2017 and 2018, cost two to three times what other plants cost. To be fair, they only provided about 6% of Argentina’s electricity demand. But, come on, President Macri! This kind of thing is not helping your case. It looks terrible!!
But wait. Might there be an innocent (or at least sensible) explanation?
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