Waiting to see the light15 October 2003
The energy sector is vital to developing countries in South America. Economic difficulties, natural disasters, political instability and violent opposition, together with a lack of investment, have deterred this region from fully developing its energy market. David Flin examines the different markets in Latin America
Argentina has the third largest power market in Latin America (behind Brazil and Mexico), and has one of the most competitive deregulated power sectors in South America. The government is pursuing an aggressive privatisation programme alongside an open electricity market.
The economy has been in trouble since December 2001, with the GDP falling by some 16% per year on average. Inflation is also high, reaching 30.7% during 2002. While some economists say the worst of this crisis has passed, others think that the export tax will restrict economic growth, agriculture and energy.
Argentina relies mostly on hydro power and natural gas. In 2000, the country had 24GW of installed capacity, of which 54% was based on fossil fuel, 42% hydroelectric and 4% nuclear. The country has electricity interconnections with Chile, Brazil and Uruguay. The connection to Brazil has been in heavy use since the start of Brazil’s drought-related electricity shortage in 2001.
Argentina and Paraguay are planning to build the 3000MW Corpus Cristi hydroelectric dam on the Paraná river, 200km upstream from the existing 3200MW Yacreta dam. In May 2000, the two signed an agreement concerning Corpus Cristi, calling for construction of the dam through international public bidding.
The major environmental issues in Argentina are: erosion resulting from inadequate flood controls and improper land use practices; irrigated soil degradation; desertification; air pollution in major cities; water pollution in urban areas; and rivers becoming polluted due to increased pesticide and fertiliser use.
Bolivia, already one of the poorest countries in South America, is undergoing a period of serious economic difficulties. The weak global economy has stifled Bolivian exports and foreign investment flows into the country.
Approximately 71% of its electric capacity is thermal, with the remaining 29% from hydro power. Bolivia has eight hydroelectric plants, and the country’s significant hydro power potential has not been fully exploited. Several new hydro plants are in various stages of the planning process.
Despite a weak international economy, and the effects of the 2001 energy crisis, the Brazilian economy has remained resilient, posting a 1.5% real GDP growth in 2002. In June 2003, Brazil and the US signed a bilateral agreement on electricity deregulation, offshore safety, and the development of clean energy technologies, and have begun negotiations for Brazil to become a charter member of the Carbon Sequestration Leadership Forum.
The country has an installed power capacity of 73.4GW, of which 84% is hydro power. Together with Paraguay, Brazil maintains the world’s largest operational hydro power complex – the Itaipu facility on the Paraná river, with a capacity of 12.6GW.
In 2001, Brazil faced a critical electricity shortage, caused by
insufficient rainfall and under-investment in the industry. Several
years of below average rainfall had left reservoirs 70% depleted. Consumption had been rising faster than supply capacity and in 2000, consumption was 58% higher than it was in 1990, while capacity had only grown by 32% during the same period. Brazil implemented an energy-rationing programme in June 2001, which prevented rolling blackouts by requiring customers to reduce consumption by 20%. When the government lifted these restrictions, the country had a power surplus, which pushed many electricity companies deep into debt, and has reduced incentives for companies to begin construction of power plants. The energy and mines minister, Dilma Roussef, has warned that the country could face another power crisis by 2007.
In July 2003, Roussef proposed a number of reforms for the electricity sector, including pooling cheaper hydroelectricity with more expensive natural gas-fired thermoplants. By pooling the various sources, the ministry hopes to reduce electricity tariffs and to ensure that power is purchased from newly constructed thermal plants, which are not yet fully amortised. The Brazilian government plans to implement this programme by January 2004.
Central American countries have begun efforts to improve their economies through regional integration. The final negotiations to interconnect the electricity networks of six central American countries (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama) were signed in December 2001, allowing for regional trading among the member states beginning in 2006.
All the countries rely heavily on imported oil and indigenous hydro power to meet domestic energy demand. Historically, hydropower has dominated central America?s electricity sector. However, since opening up to foreign investors in the 1990s, the use of thermal generation has grown rapidly.
As a share of regional electricity consumption, hydro power fell from 80% in 1980 to approximately 60% in 2000.
A project is underway in Belize to build a new 7MWe dam, Chalillo, upstream from the Mollejon dam on the Macal river. The Chalillo dam will also store water upstream to be fed into Mollejon during the dry season, thereby increasing production at Mollejon as well. The project has been the focus of significant attention and criticism from environmental groups. A case against the project is currently pending at the Belize Supreme Court.
Nearly 90% of Costa Rica’s electricity is from hydro power with numerous new hydro plants being developed, including the 39MW Brasil II plant on the Virilla river and the 128MW Pirris plant, which is located on the Pirris river and due to enter service in 2005.
The only country in central America that is a self-sufficient electricity producer is Honduras. Some 62% of the country?s installed capacity in 2000 was hydro power, most of this coming from the 300MW El Cajon hydro plant and the 290MW Rio Lindo/Yojoa plant.
Demand for electricity has been growing rapidly in recent years, reaching 10% annually. Parliament has been pressing the central government to call for bids from private companies to construct another 200MW hydro power project in Honduras.
Hydroelectric generation accounts for 75% of Panama’s total energy production. Electricity demand is expected to grow significantly in the near future, and new projects are planned to help meet this demand. Construction of AES’ US$200M 132MW Esti hydro power project began in August 2000. Esti is made up of two plants, Guasquitas and Canjilones, on the Chiriqui river. In November 2001, the Panamanian subsidiary of Union Fenosa of Spain announced plans to invest US$90M over the next ten years in hydro power and wind energy projects.
Chile is considered to have one of South America’s most robust and open economies, with hydro historically its largest single electricity source. From late 1997 to 1999, a severe drought crippled the country’s electricity sector and caused rolling blackouts in Santiago. As a result, the Chilean government began diversifying its energy mix in order to become less reliant on hydro power.
With electricity demand forecasted to grow by 6% annually, power companies have been developing several new projects. Endesa of Spain is developing the 570MW Ralco hydro power project on the Bio Bio river, 499km south of Santiago, and recently announced 90% progress on its works. In July 2003, the power company Colbun announced that it planned to invest US$1B in order to double the company’s generation capacity by 2010. As part of this plan, Colbun intends to increase its hydro power capacity by 200-300MW in the Santiago region.
Colombia has difficult economic conditions. The economy grew by just 1.5% in 2002, a slight increase over 2001. The protracted conflict with rebel groups has taken its toll on the Colombian energy infrastructure.
In 2001, its electric capacity was 12.7GW, with 70% of generation from hydro power. The country’s power sector, however, endured some difficult years in the 1990s, as a severe drought left hydro power plants unable to meet electricity demand. As a result, the government began to encourage the construction of coal and natural gas-fired power plants over the medium to long-term. Hydro’s share of generation is expected to decline.
Colombia has electricity interconnections with Venezuela and Ecuador. In January 2003, a new 211km interconnection line between Ecuador and Colombia began operation. This interconnection follows electricity power agreements which the five Andean Community (CAN) members agreed on in December 2002. Bolivia, Colombia, Ecuador, Peru and Venezuela agreed to integrate their power markets to create a regional power market.
High and dry
In recent years, Ecuador’s economy has stabilised following its decision to tie its currency to the US dollar. In 2000, Ecuador had an installed electric capacity of 3.5GW. About 75% of Ecuador’s electricity in 2000 was hydro power. Roughly 50-65% of the country’s electricity comes from one plant, Paute, making the country vulnerable to disruptions there, particularly during the dry season (October-November).
Meanwhile, Ecuador’s power demand is growing at an average of 4-5% annually, but generation capacity, and transmission and distribution infrastructure are having difficulty keeping pace. In addition, there has been insufficient capital for maintenance, and as a result, the power grid is in very poor condition, with transmission losses as high as 35%.
In an effort to avert dry-season power shortages, Ecuador has awarded a contract to build a backup reservoir and small hydro power plant south of Paute. The facility, known as Mazar, will cost US$500M and have a power capacity of 186MW.
Privately-financed projects are underway to augment the transmission infrastructure in order to, amongst other things, link hydro power stations in the north and south into the central power grid. These projects should improve existing interconnections with Colombia and make interconnection projects with Peru possible.
In preparation for privatisation, power subsidies are theoretically due to come to an end, which will increase the consumer electricity price. Currently, Ecuadorians pay less than 30% of the cost of producing electricity. Fears of civil unrest have stalled this process, with president Noboa announcing that any rate increases would be postponed until after his term in office.
In March 2002, Ecuador’s Congress passed a resolution rejecting privatisation of the country’s power sector. In mid-March, president Noboa had withdrawn 10 (out of a total 17) power companies from the auction. Opponents of privatisation continue to demand that the entire plan be scrapped.
Paraguay is co-owner of two large hydro power plants, Itaipu and Yacyreta. These provide 25% of Brazil’s and 40% of Argentina’s electricity demand respectively. Itaipu supplies Paraguay with 95% of its relatively small electricity demand. The rest of Paraguay’s demand is met by Yacyreta. As a result, Paraguay is a significant exporter of electricity. In 2000, Paraguay exported 49.5GWh, approximately 90% of its national electricity generation.
Paraguay plans to add two more 700MW units to Itaipu’s existing 18 units. The first should enter service by the end of 2003, and the second is due to enter service in 2004.
Paraguay?s other major power plant, the Yacyreta hydro power plant, has 20 turbines and an installed capacity of 3200MW. Paraguay and Argentina share the electricity generated at Yacyreta evenly, with most of Paraguay?s electricity being exported to Argentina. Paraguay and Argentina are planning to build another hydropower plant on the Paraná, the 3000MW Corpus Cristi dam, to be built 124 miles upstream from Yacyreta.
Peru’s privatisation programme has slowed after a decade of
liberalisation. In 2002, the administration managed to raise only half of the expected US$700M in the face of popular opposition. In June 2002, after the administration agreed to sell two power plants, Egasa and Egesur, to Belgium’s Tractebel, a six-day protest broke out, and the
government was forced to suspend the sale.
In January 2003, the government also had to postpone the privatisation of the Yuncan hydro power plant, because the regional government did not approve the sale.
Peru has 6.1GW of installed electric capacity, about half of which is hydro power. Because of the susceptibility of hydro power to
rainfall levels, Peru is attempting to reduce its dependence on hydro power and replace it with natural gas-fired plants.
In December 2000, Peru?s ministry of mines and energy lifted restrictions on new hydro power projects, resulting in a number of project approvals:
Poeches I and II (27MW each)
Quitarasca I (112MW)
San Gabon I (100MW initially, with possible expansion to 460MW)
Peru has also been in the process of integrating its power grid with those of Colombia and Ecuador. The three countries signed two preliminary agreements in September 2001 and April 2002.
Uruguay’s power capacity is about 2.2GW, most of which comes from hydro power. Uruguay has four power-producing dams: Gabriel Terra dam (148MW), Baygorria dam (108MW), Constitucion dam (333MW), and Salto Grande dam, shared with Argentina (total capacity 1890MW, of which Uruguay’s share is 945MW).
Electricity had to be imported in 1999 and 2000 due to
a drought that reduced hydro power supply. Despite the
country’s current economic difficulties, Uruguay’s electricity
consumption is expected to grow over the next decade. The use
of natural gas in electricity production will rise sharply over the next ten years.
Venezuela has about 21GW of generating capacity. It has one of the highest electrification rates in Latin America, at over 90%. Venezuela also has the highest per capita use of electricity in Latin America. Hydro power produces 68% of Venezuela’s electricity, with most of the rest produced by oil, and a little by natural gas. Venezuela is home to the world’s second largest operational hydro power dam, the 10,000MW Raul Leoni dam on the Caroní river.
Venezuela’s grid is joined with Colombia. In August 2001, an
electricity interconnection between Venezuela and Brazil was
inaugurated at Santa Elena de Uairen in Venezuela. The transmission line links Santa Elena de Uairen to Boa Vista in Brazil.
After a decade of under investment in Venezuela’s electricity sector, the country is now facing a potential electricity crisis. The immediate reasons for the power shortfall include reduced hydro power capacity and electricity theft. Low rainfall levels have decreased hydro power capacity. Low water levels resulted in six significant power failures in 2002, and the frequency of outages increased in 2003. Rampant
electricity theft is also straining the infrastructure, with at least 25% of Venezuela’s production being lost to illegal hookups.