Without Electricity There Can Be No Recovery, Growth, or Prosperity

On Monday, October 15, an event called “Venezuela: A Productive Power” was held which brought together the National Executive with the governors and mayors of the country. According to what was said, the purpose of this event was to consolidate strategic development plans for the regions. Among the featured announcements was the creation of a revolving fund of 20 million Petros for the financing of projects.

The initiative is plausible, especially because it seeks to systematize plans which have already been made – or at least announced – in an isolated way. This systematization within the overall framework of the [Government’s] Plan for Economic Recovery, Growth and Prosperity [which includes recent macro reforms, savings plans, and the launch of a cryptocurrency, the Petro] – is something new, as of course is the use of Petros, despite these not being in circulation still.

However, ironically, much of the country could not follow the event because they were in the midst of another power outage. It is almost impossible to keep track of or tally our power cuts, because while those of great magnitude are not things of everyday occurrence, they are becoming more frequent.

The fact that Caracas still escapes from the recurrences thereof (although less so every day), does not make them less severe. There are regions where it is unusual to pass an entire day without the power going out [at least once]. The best-known case is that of Zulia State. But it also occurs in Bolivar state, which is paradoxical because that is where the Guri [hydroelectric dam, which supplies over half of the countries electrical needs] is located. Without going so far afield, in cities like Los Teques, Guarenas or Guatire [in Miranda State] and even in the surroundings of the capital in sectors like Mariches or Baruta in their higher parts, electrical service interruptions (which often include cuts to telephone service) are daily.

So complex is the problem that, although it has gone somewhat unnoticed, the Professional Baseball League agreed to change the schedules of games this season, which is just beginning. Thus, we have the case of games that start at 2pm [instead of traditional evening starts] as they anticipate that should the electricity in the stadiums fail, the games would still be able to continue by sunlight.

But what does this problem have to do with the aforementioned event, with the idea of turning our country into a productive power and with the national executive’s Plan for Economic Recovery, Growth and Prosperity, or with [economic] stability? Plenty.

Economic development = Higher electrical consumption

To put it simply, when you address economic growth and development, you have to take into account the existence of a limiting factor that is not strictly economic, but without which the economy literally “doesn’t start”: electricity.

It is the case that even if all conventional and existing economic restrictions and problems were solved (stabilizing the exchange rate, a torrent of investments, the end of the blockade, etc.), we will not be able to advance without solving the electrical problem.

What we are pointing to is this: the electrical problem must no longer be seen simply as a problem of social discontent, of which there is already plenty, but must start to be viewed as an economic problem. In our view, electrical supply is one of the two greatest constraints that we suffer from today, constraints not only on growth – which is too much to talk about right now – but on the “simple” stabilization of the economy.

As long as [state oil firm] PDVSA is not re-activated and levels of oil production restored, everything else risks imminent short-term wreckage due to the lack of funding. It is also the case with the national electrical system: as long as this does not recover, it will not be possible grow, develop or prosper.

Here are some numbers to see the issue in better perspective:

1. In 2014, when the last development projection of the National Electrical System (PDSEN) was published, the data offered was the following: the Total Time of Interruptions (TTI), which is the number of hours a person spends without electricity at the end of a year for reasons attributable to service providers was, as a continental average, 7 hours. In our case, however, that number was 24.96 hours. Already in 2013 – the year that the PDSEN numbers correspond to – we had 3.5 times more hours without electrical service than our regional peers.

2. The causes are explained in the same PDSEN report: for 2013, the total energy demand was 18,689 MW. Whilst the installed generation capacity of the national electric grid (SEN) was 27,496 MW, much of this installed capacity represented a token offer; due to problems within the generator system, the real supply was 18,715 MW. If to these problems we add those at the level of distribution, we start to get a picture of a quite fragile system, in which any slight alteration will cause a breakdown in the provision of the service at some point.

3. Because of this diagnosis, the PDSEN proposed the goal to undertake a period of adaptation and expansion of the supply of the SEN up through 2018, both to optimally meet then current demand as well as the future projected demand. As part of this last point, PDSEN estimations were deemed to be conservative: an increase in the demand in national electricity consumption to 24,000 MW by 2018, which implied recovering electrical generation capacity then disabled for various reasons, as well as improving the distributive capacity and undertaking investments in the diversification of the sources of generation, as ways of reducing the dependence on hydro sources.

Now, what is today’s reality? Since there is no official published data, it is impossible to know for certain what the current reality of the SEN is. However, it seems obvious that it is not better than then: not only have the PDSEN goals not been met, but we have also gone backwards (the current Total Time of Interruptions, for example, may perfectly well be twice that of 2013).

In research conducted by consulting sources linked to the sector (workers and technicians), we obtained the following data. This is not official data, but given the public dearth of official figures, it is the most that we can hope for, so as to underscore the necessity of quickly tackling solutions to the issue, no longer viewed as a social problem, but as a condition of possibility (or impossibility) for National Executive’s productive economic plans.

1. According to the sources consulted, the current national electricity demand has contracted since 2012 to 14,000 MW. This is consistent with the fall in the GDP by 35 percent in the period 2012-2017 and projected to be around 50% by the end of 2018.

2. This fall in demand has many dimensions: it is estimated that 3,000 MW correspond to the contraction of industrial, commercial activity and services. And more or less 1,500 MW to a decrease in household consumption.

3. In terms of supply, all respondents claim that it has expanded, above all due to the incorporation of thermal plants. However, here is a problem, because even though apparently the current generating capacity is around 30,000 MW (twice the demand), in reality only 13,800 MW are available due to diverse operational problems.

4. What this means in practical terms is that although demand was significantly reduced, the system did not reach optimum operating levels due to a parallel deterioration of the electrical generation and distribution systems.

5. Together, both factors show that the case is that any given eventuality will overload the system and knock it out, facilitating sabotage of the SEN.

6. However, the wider looming issue is the following: if, as announced, in a period of two years a restoration in the economic activity and therefore the well-being of the Venezuelan people is to be expected, this will mean recovering the productive and commercial apparatus of the country which necessarily translates into an increase in household consumption. This will inevitably demand greater power consumption.

7. If we take 2013 as a base year, which is the last year of GDP growth before the current debacle, this means that electricity demand should pass from the current 14,000 MW to roughly the 18,000 MW seen then. This implies that generation must also increase in the same time period by at least 4,000 MW, which would keep the system fragile but operating. In any case, whatever the estimates that are used, the truth is that at the same rate that the economy is intended to recover and grow, the SEN must also necessarily grow. There is no way that, in its current state, it will support a process of economic recovery and growth, less still if this growth is not based on local production.

8. Concerning this last point, we take as an example the following data: due to its significant level of population and industrial concentration, one of the areas of the country traditionally with more electrical demand is the Aragua-Carabobo axis [in northern, central-western Venezuela], whose demand currently sits at approximately 2,300 MW. After the Guyana region [of Bolivar State], it is the region which has the greatest installed generation capacity: 5,900 MW. However, of those 5,900 MW, only 30% are available, meaning that an important part of the above-mentioned demand is covered with energy “imported” from other areas. It is estimated that given the contraction of the industrial sector of the region, demand has fallen by roughly about 1,000 MW. This means that to reactivate this industrial activity, first (at least) 1,000 MW generation capacity should be restored, because if not, when these industries [begin to] operate [once again] they will leave homes without electricity. It is estimated that about US $5 billion is needed to restore just the SEN’s installed but inactive generation capacity.

9. In the case of cryptocurrency mining that is being promoted, it must be taken into account that this implies an additional consumption of electrical energy that makes things even more difficult. We do not know how many crypto-mining machines are in the country, but press reports refer to about 50,000 people who have signed up on the [cryptocurrency mining] registry carried out by the government. Surely not all those registered are mining or have mining machines, but also surely all those who are mining and do have mining machines will have signed up. In a January interview with the former superintendent of cryptocurrencies, Carlos Vargas, he speaks of ten thousand registered machines. Assuming this figure – which must be more – we are talking about approximately 2,000 MW of demand only for this activity, much of which will fall on the SEN (a smaller part will work with self-standing electrical generators or self-generation) not only because it is more practical for those who mine, but because one of the incentives which has been used to promote mining is the low cost of electricity in our country, as Vargas says.

10. But in that same interview, the then superintendent of cryptocurrencies responds to the question of whether in the promotion of mining farms they had considered the exponential demand for electricity the activity entails, replying “yes,” that in conversations with [the state-run national electrical corporation] CORPOELEC they had decided to put farms in areas where the decrease in economic activity allowed a “surplus” of electricity. We hope that since January the authorities’ answer to this dilemma has evolved, since promoting cryptocurrency mining on the backs of a weakened SEN and contracted economic activity is a highly dubious plan and obviously contradicts the declared plans to industrialize.

Translated by Paul Dobson for Venezuelanalysis.

The views expressed in this article are the author’s own and do not necessarily reflect those of the Venezuelanalysis editorial staff.