In recent years, broad and rolling blackouts have crippled Venezuela’s electricity system – and with it, the country’s economy and the provision of critical services including healthcare, drinking water supply, public transport and education. The reasons for the failures are multiple: poor maintenance, insufficient effective investment, a lack of market incentives, excessive state intervention, the declining professional capacity of CORPOELEC, and a failure to anticipate and respond to challenges arising from the existing system’s generation mix.
Hydroelectric capacity constitutes just less than one-half of installed generating capacity, with gas and diesel/fuel oil accounting for a little more than a quarter each. Historically, however, to minimize operating costs and save fuels for export in exchange for hard currency, hydropower supplied a large share of generated power relative to other assets – typically two-thirds or more. In 2010 this policy of overrunning hydropower, combined with drought conditions, corruption and incipient availability problems at thermal plants, led to rolling blackouts to save power and rebuild water levels behind dams. A similar situation occurred in 2016, with blackouts of four hours per day over a 40-day period, and government employees being ordered to work a four-day week.
The power crisis escalated in 2019, with a widespread blackout between 7 and 14 March that affected all 23 states, Caracas and the neighbouring Brazilian state of Roraima. The prolonged power outage had significant humanitarian consequences across the healthcare, water supply and public transport systems, as well as disrupting industry, the commercial and retail sectors, and oil production.
Unconfirmed reports placed the blame for the blackout on a fire in uncut vegetation under a high-voltage transmission line from the Guri Dam to population centres. Other observers have emphasized a wider lack of maintenance and system management. Guri accounts for 10 gigawatts (GW) out of roughly 36 GW of total installed capacity. Whatever the ultimate cause, the outcome was damaged substations and water turbines at the dam.
At approximately 10.5 GW, the capacity that was actually available nationally in 2019 was less than one-third of total installed capacity, with a disproportionately sharp decline occurring in thermal generating capacity. The extent of the damage to the grid, coupled with a lack of technical capability to repair and manage both the system and the prevailing fuel shortages, led authorities in 20 of Venezuela’s states (notably excluding the district of Caracas) to implement power rationing. Unscheduled blackouts continue to be common, particularly in western regions. On 1 March 2020 a blackout extending across 14 states was reported; in 2021 ongoing load-shedding was being used to reduce demand to match available capacity, although supply to Caracas has been prioritized. More recent reports indicate that load-shedding has spread to Caracas.
A number of analyses of the state of Venezuela’s electricity sector have been undertaken, many containing proposals for its reconstruction. These have included a section dedicated to electricity in the National Assembly’s 2015 policy agenda, Plan País, and two Inter-American Development Bank (IDB) reports on Venezuela which included analyses of the electricity sector (A Look to the Future for Venezuela and – more within the context of constraints to Venezuelan businesses – The Venezuelan Enterprise: Current Situation, Challenges, and Opportunities, which were published in 2020 and 2021 respectively). While these reports agree on the economic and humanitarian cost of the current state of Venezuela’s electricity service, Plan País and the IDB diverge in the priorities and strategies for rebuilding the system, each of which has different implications for the cost of restoring the electricity system. Analysts also differ in the degree to which they attribute the 2018/19 blackouts primarily to poor maintenance, and in their interpretations of the broader problems of drought (stemming from worsening climate change) and excessive reliance on hydropower – which then minimizes critical questions on asset prioritization when rebuilding the country’s broader electrical system. In their similarities and differences, these studies reveal the need for flexible innovations to address short-term priorities and urgent needs, both in management and in providing fast relief for humanitarian demands. As one analyst told the authors of this paper, the goal needs to be not ‘rebuilding the Rolls-Royce’ system of the past, but adapting the existing infrastructure to new technologies in order to meet immediate needs and take up opportunities while realistically addressing constraints.
Several in-country experts have estimated that the first three years of reconstruction will require funding of approximately $13 billion.
The differences between recreation and adaptation and quickly meeting urgent needs will affect cost expectations. Several in-country experts have estimated that the first three years of reconstruction will require funding of approximately $13 billion. The totals – and at least the publicly available details – indicate a tendency to focus on rebuilding past infrastructure. The proposed amounts also point to a tension between the state of the existing infrastructure, ambition, available finance and the practicality of efficient execution. The IDB’s 2020 report A Look to the Future for Venezuela estimates the cost of improvements to the electricity sector for the first five-year period at $7.1 billion, with the minimum funds necessary for the first year estimated at $217 million, potentially increasing to $1 billion if funding becomes available. These costs would include provision for activities aimed at improving generation, transmission and distribution.
Part of the response to these issues of cost and priorities will depend on the state of Venezuela’s electricity sector at the point when policy, institutional and legal/regulatory reform are possible, and political will exists. For now, there is no complete, detailed picture of the state of the system: this gives rise to one priority requirement for the future – a project manager with technical support, as proposed in the IDB’s 2020 report. Such a body will be necessary to collect data on critical areas of relevance, such as the condition and maintenance of equipment and infrastructure; technical capacity in CORPOELEC, and its local staffing levels; losses of electricity through theft; subsidy structures and their impact on services; and areas of urgent humanitarian need. In addition, this body would help to establish rules and processes for the procurement of materials and services.
Such is the imperfect picture, compiled from multiple sources – including, but not limited to, the sources mentioned above – of the causes of the current collapse of Venezuela’s electricity sector. As mentioned earlier, to understand and eventually address this collapse, it must be understood within the context of the collapse of the Venezuelan state. This failure is deeply rooted in the country’s political deterioration, and has resulted in a politicization of the government, the deterioration of the monopoly on the legitimate use of force, an inability to make and enforce effective policies, and an increase in corruption and criminality. These broader factors will present multiple challenges for the reconstruction and reform of the state and of the country’s electricity sector, as well as for the effective ongoing maintenance and management of the electricity system. Within these broad themes, the following specific issues exist.
- Degraded generation and transmission: In recent years, capacity in both generation and transmission has been seriously degraded and will need to be either rebuilt or, in some cases, replaced. According to the IDB reports, this includes the central command and control centre for the system. While a detailed picture (site by site, or by regional grid) is not available, there is evidence that such is the current status of some units and regions. According to one report, produced by a group of local energy professionals, by 2019 there was a national deficit in generation of 900 MW. If deficits resulting from transmission difficulties are included, Venezuela’s total electricity deficit in 2019 was 1,640 MW. This shortage has occurred even as the country’s gross domestic product has contracted by an estimated two-thirds in the past seven years. Generation at both hydroelectric and thermoelectric plants has experienced problems. According to the same report, because of difficulties at hydroelectric facilities, including drought and maintenance issues, availability plunged from 65 per cent of total generation capacity in 2006 to 48 per cent by 2015. In the case of thermoelectric generation, by 2019 the system was operating at only 40 per cent of capacity. Some of that generation capacity included plants that originally had been configured to rely on natural gas, but that had been obliged (due to a lack of capacity to produce the cleaner alternative) to burn diesel and fuel oil, both of which have also been in short supply. With respect to transmission, the same report identifies a number of systems that are carrying far smaller amounts than intended, or that are disabled altogether. The latter include lines in San Gerónimo and La Horqueta, as well as the installations around Guri, three cables that cross Lake Maracaibo, lines from Tablazo-Cuatricentenario, and transmission systems from Occidente and the Costa Oriental del Lago Maracaibo.
- Professional capacity: A number of interviewees have highlighted that the poor management of the sector has been driven by political decisions. This is undoubtedly true and supports the conclusion that recovery can only occur with the restoration of competent management with political support. According to several sources, this is also true at operational level, on the ground. Technicians are often underpaid, underqualified and underequipped, leading to difficulties and setbacks in maintenance and repair, as well as in some cases to injury and death.
- Corruption: While it is difficult to separate from management incompetence and the politicization of the sector’s governance, there is evidence that corruption has played a part in the Venezuelan electricity crisis. High-profile examples include the estimated more than $2 billion spent on the expansion of the 1.4-GW Termozulia combined-cycle gas turbine (CCGT) plant in Zulia state and the $9.4 billion budget for the 2.3-GW Tocoma dam, both of which are not generating. A 2018 report by Transparencia Venezuela concluded that, of the projects initiated between 2000 and 2014 that were supposed to generate a capacity of 17.5 GW, only 4.3 GW were commissioned, and their excess costs could be as high as $14.6 billion, or more. As a result, projects and infrastructure listed as currently available may amount to less than the capacity commissioned because of a subsequent lack of maintenance, grid connection breakdowns and the lack of fuel.
- Theft: In addition to the corruption in investments, construction and the maintenance of key assets, there is also the challenge of electricity theft – a historic problem that predates the current government. According to Plan País, an estimated 40 per cent of electricity generation is lost to theft, and the state only collects a ‘negligible’ amount of revenue for the electricity provided to users. While addressing the issue of small-scale individualized or community theft may not be a priority in the first stages of reform and renewal, bringing informal users under the formal grid as paying customers will be essential in later stages in order to build a sustainable system.
- Sector governance: Venezuela’s current system of oversight and management of the country’s electricity system does not conform to international best practices. Many of the problems experienced in the sector are parallel to the institutional problems and dysfunction that exist in the state oil and gas company, Petróleos de Venezuela SA (PDVSA). While in May 2020 a new president was appointed to the state-owned electricity company, CORPOELEC (the post was previously occupied by the minister of electrical energy) the direction of Venezuela’s sole electricity body is still not independent from the state. Since 2007, CORPOELEC has both operated the high-voltage grid and run generation and local distribution assets, with no effective oversight of its operations. A power grid is a natural monopoly, so international best practice is for the transmission system operator (TSO) to perform the role of balancing the system: it should be separate from the system itself and closely regulated, so that generation and supply entities can access the power market and compete for business. This best practice separates the operation of the transmission system from the ownership of the grid or other assets. Even in a state-owned system, it is possible to have a separate and regulated TSO. Any long- or even medium-term reform of the sector will require the unbundling of these roles, not just for the management of the sector, but also in terms of soliciting investment, regulating the sector and injecting market incentives to build a more transparent, flexible and sustainable electricity system.
- Supply instability: The status of generation and transmission assets is highly uncertain, with frequent reports that thermal units, hydropower turbines and key grid connections are being poorly maintained or have suffered damage. Available capacity is currently estimated to be as low as 34 per cent of total installed capacity. For thermal assets, available capacity could now be as low as 2 GW, or just 10 per cent of installed capacity. Typical capacity utilization rates on a well-maintained and -operated system will vary with the type of generation assets, but average and peak utilization rates of around 40 per cent and 70 per cent respectively are worldwide industry norms. This indicates that the current system could generate around double its current peak output after repairs, maintenance and improvements in management capability and fuel availability.
- Drought risk: In the future, operational costs may be higher than in the past, if capacity utilization of hydropower assets is lowered and that of gas/oil assets is increased to reduce the risk associated with drought. The current system design is such that thermal assets should provide the supply flexibility to mitigate drought risk. However, with effective grid operation it should be possible for most future capacity additions to be augmented with intermittent renewables (wind and solar) – rather than just with gas/oil assets – while maintaining system stability and improving resilience to drought conditions by utilizing the ability of hydro assets to store energy. In the longer term it should be possible to retire first oil then gas assets as they reach the end of their operational life, replacing them with renewables.
- Excess demand: Electricity prices to end-consumers are heavily subsidized, at an estimated cost of $3.0 billion–$3.8 billion per year. In practice, the subsidy rate is close to 100 per cent, with tariffs in devalued local currency having been frozen since 2002. This leads to excess and wasteful demand: at its peak in 2013, per head electric power consumption in Venezuela was around double that in neighbouring Colombia. In addition, much of Venezuela’s oil industry relies on grid supplies of power. Typically, international oil and gas producers have on-site power supplies, often running off co-produced gas. This lowers demand on the grid, forces oil producers to bear the full capital and operating costs of production and reduces flaring.
- A fragmented (and fragmenting) electrical system: An increasing number of individual businesses and better-off communities are relying on individual electricity generation. Partly, this is due to the breakdown of the market economy, stemming not just from the nationalization of CORPOELEC but the shift to a state-centric economy more generally. While these individual off-grid solutions may be understandable, they reflect a potentially worrying trend: unequal access to electricity for those who can pay for their own. The existing situation is one in which those with the means – businesses and communities – fund their own electricity generation, leaving those that remain on the grid with unreliable supply that they cannot afford to improve. Given the likely slow process of electricity sector reform in the future, this model is likely to expand. There are several risks.
The case of Iraq (see Box 1) can provide useful insights into the potential pitfalls for Venezuela in terms of the recovery and rebuilding of the electricity sector, and of financing the reform process. In Iraq, the most accessible generators are fuelled by diesel, which creates more pollution than other options (in terms of carbon emissions, air quality and noise) and also incentivizes theft in low-income communities.
