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    How much more can our energy system withstand?

    January 17, 2022 - CE Noticias Financieras


      On Thursday, January 13, electricity consumption reached an all-time high of 27,495 MW. The demand surpassed the previous maximum of Tuesday 11, when due to a failure in the high voltage cables, more than 700 thousand users suffered power cuts.

      The value reached by consumption is below the forecasts of CAMMESA -the electricity market administrator-, which expected a record demand of 28,479 MW. The difference responds to the fact that the Government took note of the situation and decided to restrict supply to the industry to avoid damage to the existing infrastructure. This is not entirely unjustified. In the heat wave of December 2013 and January 2014 there were more than 200,000 users without power simultaneously when the maximum demand was 23,793 MW and the outages lasted for more than 20 days.

      For some time now, the energy system has not had a functioning scheme that guarantees a safe and reliable supply. The recurrent crises are caused by a lack of investment. The magnitude of the problem is evident if, as we analyzed in a 2020 document, at least USD 5 billion per year of investments are needed. With frozen tariffs or with increases that are lower than costs, the difference is financed by the State. But not infrequently, tariffs and taxes -because make no mistake, it is always the citizens who pay-, are insufficient in the face of a State that is overwhelmed in its fiscal situation or in the availability of foreign currency.

      There are several examples. The lack of gas since 2008 and the need to reconvert generation plants for the consumption of liquid fuels; the import of liquefied natural gas when it reached maximum prices at international level, having to resort to cuts to the industry because the supply was not enough; the lack of a reserve margin and the need to import energy surpluses from Brazil or Uruguay, when they have them, to meet the demand.

      The reaction of the State shows a common pattern: priority is only given to fiscal demands after the system is put to the test and fails. But the availability of funds is used to avoid the worst. The signs that the problems are not solved are still there: we continue to import natural gas -in recent years increasingly so-, reserve margins are again at minimums and the distribution infrastructure is insufficient to weather heat waves.

      In a forthcoming policy paper, we analyze how investment cycles are determined by the latest crisis and are met to the extent that fiscal resources are available. When the energy system ceases to be "news" public funds become scarce and then it can be foreseen where the next crisis will appear. This scheme, which we call "muddling through", is clearly inefficient.

      Investments are made when public funds are available, but as the fiscal deficit increases, investments are delayed and constrained. Companies and other users who would be willing to pay for a secure supply have no market to do so or channel their efforts to be included in the next subsidy. When the payment chain depends on the State transferring funds, the whole system is uncertain as to whether the funds will arrive, which is not always the case.

      International experience shows that there is an efficient alternative to manage transitions in highly regulated markets. The State can decide who to subsidize and how much to subsidize, as it does in the case of the social garrafas, which is the largest consumption of the most vulnerable sectors. The rest of the demand should be responsible for obtaining its own supply.

      If in the past the idea of establishing this dual path was faced with the scarcity of energy resources and only reacted to an unpayable import bill, the current situation of resources -abundant gas from Vaca Muerta and competitive renewable energies- merits moving forward with a different solution. Without changes that avoid making the energy system dependent on fiscal slack, the objectives of increasing supply in a sustained manner, and with it exports, advancing in the energy transition or reducing the current current subsidies -which today exceed USD 10 billion per year and have a regressive allocation- are an impossible task to achieve. More importantly, in a short time we will be back to discussing the next crisis in the media.


      Power cuts increase in the AMBA in view of the consumption peak due to the oppressive heat: more than 70 thousand users are affected.


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