Understanding the reasons for the complex, multifaceted collapse of Venezuela’s electricity sector is an essential first step in developing a plan for its reconstruction. The second step is determining priorities.
In Venezuela, as around the world, the supply of reliable and affordable electric power is not just another service: it underpins the provision of vital humanitarian and social services, as well as of public goods such as water, healthcare, urban transport and education. In addition, Venezuela’s recovery from economic collapse and its return to growth – as well as its future economic diversification – will all depend on the reconstruction of the electricity sector. Credible progress on restoring the power supply and the communication of realistic plans are essential for re-establishing political stability in the country.
Although the primary focus of this research paper is to look forward, understanding the history of the power sector in Venezuela – and the decline in its capacity and reliability – is a useful starting point for developing the immediate and long-term solutions to the current acute electricity crisis. Examples of issues central to this process are the balance of hydroelectric and thermal generation assets, their status and relationship with the grid, and the regulation of the state-run monopoly supplier CORPOELEC. These elements have been deeply intertwined in the steady collapse of Venezuela’s state across multiple sectors, further complicating the recovery of the electricity sector and the formulation of necessary policy corrections. Analysis of the history, both before 1998 and more recently, is essential to understand the root causes of the decline, and the specific faults in the current system and policy approach. Chapter 2 of the paper describes the devastated condition of the existing electrical system across the sector – from generation, to transmission, to end use, to pricing, to management and to regulation. These aspects are explored with the explicit aim of identifying not just the priorities for a top-to-bottom repair and reform, but also the stages of that reform.
The power sector is part of the broader Venezuelan economy. As such, in order to achieve reform it will have to compete for financial resources for reconstruction and operation, as well as for priority treatment when it comes to difficult political decisions, such as rationalizing subsidies and reducing theft and corruption. Furthermore, in rebuilding the country’s existing electrical infrastructure, or in upgrading or replacing equipment, Venezuela will need to ensure that it manages carbon emissions. With these considerations in mind, the paper explores three principal questions.
- First, what are to be the priority actions during an initial ‘emergency’ phase, when the electricity sector is key to humanitarian relief operations but is also in competition for resources?
- Second, during a ‘repair’ phase of rebuilding infrastructure, what are the potential choices: are all assets to be recovered, or have their decline and the availability of other options opened up new possibilities? Are there ways the recovery can be carried out so as to conform to climate ambitions and commitments to reduce greenhouse gas emissions?
- Third, what is the best way to lay the groundwork for the necessary long-term reform of the sector, in terms of institutional management, market incentives, and oversight and regulation? Rather than proposing an idealized end state of a well-functioning and fully reformed market, this paper will focus on the key steps that will enable both the start of the reform process, with the initial participation of private sector investors in cooperation with the state, and compatibility with the clean energy transition.
Given sufficient political will within the current regime, some of these processes could begin now – especially those addressing acute humanitarian needs stemming from the lack of electricity. With support and oversight from appropriate international entities (such as the UN) and governments, actions such as a professional and independent evaluation of Venezuela’s electricity requirements could be implemented with immediate effect. Such independent technical evaluations would help to identify and address sector deficiencies in generation and transmission affecting healthcare and water supply systems. They could also provide the basis for a process of rebuilding critical infrastructure.
This paper draws from several analyses conducted on the electricity sector by multilateral banks, the private sector and local experts, as well as from private interviews conducted with individuals who have worked on the topic in various capacities.
Energy needs in Venezuela are both dire and complex, and the rebuilding of such a complicated sector (especially in the face of other, competing, demands, both for reform and for international assistance and investment in the country) calls for up-to-date information, which is limited at present, but which would enable a wider understanding of the situation.
As this paper is derived from multiple analyses and sources, it does not seek to provide specific answers. Instead, the intention is to generate a broad, neutral discussion around existing conditions, urgent demands, reform priorities and the general goals of electricity sector recovery, when the latter is possible. It also reflects the current limited state of knowledge on the electricity sector. To this end, this paper underscores four related, central, issues for debate and broader analysis:
- Reconstructing Venezuela’s historic electricity system vs building new systems: Urgent humanitarian needs and the demands of Venezuelan citizens call for the restoration of electricity supplies. Taking this into account, potential ‘quick wins’ have been suggested, some of which may involve installing local temporary generation units around centres providing humanitarian relief or critical services. In other areas, local community ‘microgrids’ may offer more sustainable long-term options.
- A focus on healthcare, water supply and other public services: Given the extent of the existing – and growing – humanitarian crisis in the country, rebuilding Venezuela’s electricity sector will need to prioritize the restoration of essential public services. This process should not be delayed by broader institutional and management reform. For this reason, a first step should require a project manager and technical team tasked with assessing and overseeing emergency repair or installation.
- Integrating electricity systems into energy policy, and restoring energy production: To support future economic growth, electricity sector reform will need to be developed in coordination with the government’s broader energy policy, and should take into consideration not only restoration and production, but also integration across different energy sectors. One key component of this coordination should be a focus on exploring ways to capture flared or vented gas for on-site or pipeline supply for electricity generation, especially around energy production centres. Capturing these gases will reduce Venezuela’s greenhouse gas emissions, and has the potential to help ‘jump-start’ the country’s economy until its economic base can be expanded.
- Unbundling Venezuela’s centralized, state-centric electricity management system: The regulation of the state-concentrated and centrally managed electricity supply system, as well as the day-to-day management of the state-owned CORPOELEC, will need to be reformed and unpacked. The aims of this process should be: to better incorporate technical professional standards in relevant industrial practices; to recruit technically qualified personnel; to inject market incentives into management and investment; and to provide investors with the necessary transparent and predictable regulatory and legal framework. An initial unbundling and the establishment of effective regulatory structures do not need to be conflated with a potentially difficult political debate on privatization, though structures should be consistent with facilitating new commercial investment – for example, by independent power producers.