Caracas Chronicles

Energy nerds like me relish in the Energy Trilemma. What, you haven’t heard? It’s a trendy framework coined by the  the World Energy Council linking the three elements of energy sustainability: Energy Security, Energy Equity and Environmental Sustainability.

It’s a trilemma because normally progress towards meeting any two of these goals creates problems in terms of meeting the third. Reliable, universal access is easy enough to achieve…if you don’t mind cranking out heavier greenhouse emissions. If you reduce the environmental impact of energy consumption as much as possible, you can end up loading on costs, weakening economic growth.

Eventually, improved technology in renewable sources and energy efficiency might vanquish the trilemma. For now, trade-offs have to be made. Of course, leave it to Venezuela to think outside the box: here, we’re batting zero for three.

The Trilemma in Paris

The Trilemma became a popular framing device during the COP21 negotiations last year which led to the landmark Paris Agreement: a treaty based on a long term commitment to keep global temperature from rising more than 2°C by 2050. In order to do so, countries made a pledge to curb down carbon emissions and make major investments in greener technologies.

The beauty of the Paris Agreement, as UNFCCC Executive Secretary Christiana Figueres says, is that “it is built on the enlightened national interest of each country…on a very detailed analysis of what is possible”. Implementation will be based upon Intended Nationally Determined Contributions (INDCs), meaning there is no one-size-fits-all solution. 

Each country will evaluate which strategy makes more sense for themselves and work on it. If they have abundant solar radiation, they may encourage the development of solar plants, or if they have a lot of cheap clean electricity, they might electrify mass transportation. In general, all countries must find a way to decarbonize their energy mix (the combination of primary sources used to generate electricity and fuels) and reduce their energy intensity (how much energy they use to generate one unit of GDP).

Now, I know some of this may sound too foreign for a country like Venezuela, struggling to make ends meet in such deep debt that even oil service giant Schlumberger announced it will reduce its activities because PDVSA is years behind on its bills.

Why would Venezuelans worry about such complex issues like energy sustainability in the middle of all this turmoil? Maybe we should just concentrate on the Revocatorio and wait for the best, right?

NO! That is precisely the kind of blinkered thinking that has put us in this electric crisis, and will continue to erode our living conditions as months go by. A crisis, to me, is the best moment to rethink the long term.

The time to have this discussion is now, so I’m gonna go ahead and put some ideas out in the open and hope for some feedback.

Venezuela’s Energy Trilemma

Energy Security

All you have to do to realize how bad Energy Security has gotten in Venezuela is flick a light switch. We are talking about an electric system so weak that the government has declared a two-day working week for public employees amid electric shortages and at least 4-hour-long daily rationing episodes in some parts of the country. The authorities’ narrative has been that El Niño has hit hard Venezuelan hydropower plants, making it impossible for the system to stay afloat.

Now, it is true that we’ve gone through an unusually long dry season for three years, but climate models have been predicting longer droughts for over two decades. As the world becomes warmer, the weather becomes more extreme. And that includes recurrent phenomena like El Niño and La Niña, which will continue to intensify as global temperature rises.

That’s why everyone needs to adapt their energy systems, so that predictable droughts and floods don’t catch us unprepared. Planning ahead for widely foreseen contingencies is sort of governing-101, isn’t it?

Take Colombia’s reliability fee policy. Utilities charge electricity consumers an extra fee destined to invest in backup thermal generation capacity for drought periods. Although it hasn’t been managed in the most pristine way, it has helped Colombia throughout this El Niño episode with no rationing so far.

The Venezuelan equivalent of this process has been an increase in the ownership of small electric generators in private buildings. In this way, the government has allowed the rich to protect themselves from CORPOELEC’s incompetence, while leaving the bulk of people uncovered, not to mention the inefficiencies in both investment and fuel consumption this has encouraged.

And let’s make this clear, backup capacity is not the same thing as capacity expansion. Some people have blamed Derwick’s corruption scandal for the electric shortages, but it’s more complex than that.

The largest additions to the grid were supposed to come from Guri’s refurbishment and Tocoma’s entry to operations. Both projects are years behind schedule, neither is online yet. For this reason, new thermoelectric generation had to be quickly incorporated in Zulia, Carabobo and Los Valles del Tuy in order to cover the growing demand, while still neglecting the maintenance needs of the older thermoelectric plants like Tacoa and Planta Centro. Those plants were never intended as back up capacity for the hydroelectric plants.

In other words, supply has been unable to keep up with demand, which is why ever since 2009’s electric crisis CORPOELEC has had to ration electricity consumption everywhere but the capital, and most importantly, cut off electricity provision to Guayana’s heavy industries.

Furthermore, grid upgrading has also been delayed, because why invest in preventive maintenance and grid expansion when your house is on fire? CORPOELEC is always two steps behind the curve.

So today we have an outdated, under-maintained, undersized electric grid, entirely dependent on a variable we cannot control: rain. This is not the way to Energy Security.

Universal Access

At first sight, universal access to energy services doesn’t seem like a problem. Most Venezuelans are connected to the electric grid, have modern cooking facilities and access to cheap transportation fuels. But we are far from saying that either of them are of good quality or financially sustainable.

For one thing, a lot of homes are not formally connected to the grid. They rather rely on informal hookups that draw electricity from the public lighting system. Their demand is inelastic: they pay nothing.

Secondly, in most of the country service is constantly interrupted. If there are two words many consumers en el interior will never attach to CORPOELEC’s service it’s “reliable and convenient”.

Third, home appliances as well as our ridiculously cheap electricity and fuel tariffs are subsidized with oil rents. So, if we accept the lower for longer market sentiment about oil prices and see the declining demand trend, we realize the financing model has become unsustainable, too.

In the end, a system that can’t produce enough electricity for everyone offers the polar opposite of Universal Access. Go ask the people who work at the Sambil de Maracaibo how Universal Access is. Or the managers at SIDOR. Without a financing model that works, Universal Access is a chimera.

Environmental Sustainability

Venezuela needs to revise its energy mix planning for the domestic market. Most of new generation additions in recent years have been thermoelectric plants, making our energy mix more carbon intensive. In other words, we have increased our carbon emissions per unit of GDP.

Moreover, such thermoelectric plants were designed to run on natural gas, but constrains in gas production and transportation delayed its entry, which forced CORPOELEC to run them on diesel – a premium fuel. Diesel is much more expensive than natural gas, and it also has a higher carbon content, but was available, at least at the beginning. After the accident in the Complejo Refinador de Paraguaná –Amuay and Cardon– in 2012, workers and locals have reported interruptions the in the refining process, and more recently, some full stops in refining.

Besides, the technology of the thermoelectric plants installed after the 2009/2010 electric crisis is apparently designed to serve as backup units, not as main generators. Constant use shortens their lifespan. That’s no way to invest.

Then there are the gasoline and diesel subsidies. They’ve destroyed incentives to use other sources of energy for transportation, making Venezuela dependent almost 100% on fossil fuels for transport. Time was when PDVSA ran its own Natural Gas for Vehicles program. No more.

And let’s not leave out the perverse incentives set out by our draconian energy subsidies; with energy being virtually free, people overconsume…massively. The International Energy Agency has pointed out that for countries like Venezuela, simply reforming fossil fuels subsidies could probably be the most effective measure to reduce carbon emissions.

The Bolivarian government has shown little to no intention to help reduce global CO2 emissions, arguing that developing countries have no historical responsibility on the climate issue. This can be verified in the Kafkaesque INDC document delivered by the Venezuelan delegation at the COP21.

Additionally, the few non-conventional renewable investments made in the country, namely La Guajira and Paraguana’s wind farms quedaron pa’ la foto. Neither of them are working or even connected to the grid. Yet, the Electric Energy Ministry and CORPOELEC keep announcing that this time they sure will be incorporated to the national system.

It is a shame these plants have not been incorporated and developed further. Studies in Brazil and Colombia have shown the complementarity of the wind and hydro regimes, meaning that when droughts become more intense, the wind blows harder. This finding makes wind generation a great complementary source of energy in countries with a high contribution of hydropower generation, particularly those affected by El Niño.

But whether it is with wind technology or any other energy source, Venezuela has to bring its mitigation and adaptation to climate change strategy up to date, or else, it will continue to suffer chronic energy shortages that will hinder the country’s growth.

On Balance

As you can see, Venezuela does badly on all three corners of the Trilemma. Having abandoned long term planning and investment in the energy sector for several years, Venezuelan authorities have made the system more vulnerable altogether.

They’ve put the Venezuelan people in at risk. Electric shortages are affecting hospitals, schools, businesses, the already damaged food chain and so forth, progressively degrading our quality of live.

They’ve put a cap on economic growth. Energy services are a sine qua non condition for development, so as long as the energy crisis continues, the country will not overcome depression.

Bottom line: you can’t abandon the energy sector for over a decade and expect no consequences. Like anything else, if you don’t invest in it, time will rust its foundations and the whole system will start to crumble before you can do anything to stop it.

What could we do?

This is no time for despair. It’s a time to realize urgent action is needed, and to start on it right now. For instance:

• We could reevaluate the operational model for energy service provision. By this, I mean that a super centralized CORPOELEC has failed to provide any improvements to end users, and the regulator should consider some form of subregional independence or – preferably – privatization to encourage efficiency in the decision making process of running the business. The same thing applies to PDVSA Gas and PDVSA Gas Comunal, clearly overwhelmed by the public’s needs. In order to do this, both corresponding laws (electric service and gaseous hydrocarbons) should be revised.
• We could put economic rationality back into energy bills. Energy prices should at least cover service cost in order to be sustainable. This would help make consumption more rational.
• We could at least start running serious feasibility studies to determine which types of alternative energy sources can be incorporated to the system.
• We could update Venezuela’s energy mix plan, taking into account demand expansion, as well as mitigation and adaptation strategies to climate change and El Niño/La Niña.
• We could revise the financing and transparency mechanisms for the electric and oil and gas sectors. Currently, the secrecy about both is absolute.
• We could develop a plan to increase energy efficiency within the energy sector, since most of the equipment and infrastructure is aging, causing major inefficiencies.
• We could close the cycles in all of the recently built thermoelectric plants.
• We could fully substitute diesel consumption for electricity generation with natural gas.
• We could bring forward transportation projects that either reduce or substitute the use of fossil fuels.

That’s just a start. In fact, there’s tons more we could do.

Venezuela’s energy sector has been just as aggressively mismanaged as the rest of its economy. For people who profess to believe in Central Planning, the folks who govern us seem curiously averse to any form of planning at all. And if there’s one thing the Energy Sector cannot abide it’s that: lack of planning. But we can plan. We must plan. And we better start planning, right now.