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    Ecuador is on the verge of new blackouts every year because it has an inefficient, loss-making and politicized electricity sector.

    September 28, 2023 - CE Noticias Financieras


      In the last six years, only two small hydropower projects have been completed. The tariff is not enough for the investments needed to cover the demand.

      "For me, the situation is of high risk of blackouts at this moment". Fernando Salinas, university professor and former president of the College of Electrical and Electronic Engineers of Pichincha (Cieepi), defines the situation of the Ecuadorian electricity sector, which is under pressure due to the fall to historic lows of the flows that feed the hydroelectric power plants (90% of the electricity generation in the country) and the increase in electricity consumption that has reached a peak of 17%.

      This current reality is not only the result of the low water level (dry season in the Amazon basin) having arrived earlier, but also has to do with an inefficient, deficient and politicized electricity system.

      Insufficient investment

      "The electricity sector is capital intensive. Large amounts of resources and time are needed for new investments. However, it has not even been possible to comply with the provisions of the National Electrification Plan," said Salinas.

      In the last six years, only two small hydroelectric plants have been built for a total of 100 additional megawatts of electricity generation. In that period, electricity generation should have increased more than 20 times.

      As LA HORA has published, since 2020 the generation surplus produced by the hydroelectric plants built during the Correa administration began to vanish, while electricity consumption continues to rise.

      Despite being a strategic sector, and having several laws and regulations, there are no real incentives or clear rules for private investment.

      There are projects in the feasibility phase and in final design, such as the Santiago, Cardenillo and Chontal hydroelectric plants.

      According to Edgar Lopez, electrical engineer, the next government should promote these projects, together with the four already concessioned renewable and non-conventional generation projects (Villonaco II and III for 110 megawatts, El Aromo Photovoltaic 200 megawatts, Conolophus for the internal demand of the Galapagos).

      The results will be seen in two to six years, but decisions must be made now.

      Inefficient structure

      One of the sector's major problems is that the boards of directors and administrative councils do not include technical staff.

      In addition, according to López, the central government, mayors' offices and prefectures are using the public companies for their political convenience.

      This politicization hinders processes such as the creation of trusts to manage the resources of the distribution companies. In these companies, the representatives of the local governments are the ones who have blocked projects such as the 500 megawatts block and others from moving forward.

      In addition, putting hydrocarbons, mining and electricity in the same ministry has made everything bureaucratic.

      Poor management

      The rate of technical and non-technical losses, due to poor management of public companies in the sector, has increased from 11% in 2018 to 14% in 2022. According to international standards, it should have a maximum of 7%.

      By having double the percentage of losses, Salinas stressed that a financial gap of $210 million per year is generated.

      Public management has been unable to reduce losses due to energy theft by individuals and companies. This financial gap complicates investment.

      Tariffs and subsidies

      Tariffs should cover all costs of both operation, maintenance and administration; plus what is necessary for the expansion of generation, transmission and distribution capacity.

      "That would be the ideal world, but the current tariff in Ecuador does not cover all costs, especially those related to the expansion of the service to respond to the constant increase in electricity demand," Salinas asserted.

      A 2016 study already established that at that time a tariff of at least 15 cents per kilowatt/hour was needed. However, currently in the country an average of 10 cents per kilowatt/hour is charged.

      At the same time, there are high subsidies that go to the residential segment, to vulnerable people based on income or age, and to industries as an incentive to increase production and employment.

      Approximately half of the residential sector, i.e. 5.6 million people, have subsidized rates.

      This entire subsidy structure means at least $180 million each year.

      Flawed works

      In the last month and a half, the aftermath of problems in three hydroelectric plants built during the Correa administration have been revealed. These infrastructures, which at the time cost $3,620 million, are Sopladora, Coca Codo Sinclair and Toachi Pilatón.

      The problems range from cracks and design flaws to the poor quality of nuts and washers used in the construction. In the case of Toachi Pilatón, the Russian company InterRao has just won a $50 million arbitration against the Ecuadorian State.

      All of this takes capacity away from Ecuador's electricity generation and increases operating costs. (JS)

      What to do in the face of the current risk of blackouts?

      The first thing to do is to contract thermal generation through a barge with fuel oil combustion engines (300 additional megawatts).

      Secondly, a crisis committee should be structured to bring together all the entities of the electricity sector, public companies and the private sector.

      It is key to establish scenarios and action routes in case of rationing and blackouts, and to promote saving and efficient consumption measures in companies and households.

      In recent years, the maintenance and repowering of the thermoelectric park was neglected. This was a mistake.

      "It is not a matter of demonizing thermal generation, but of finding the right mix of sources to minimize risks. Ecuador should outline an energy transition route for 40 years", concluded Fernando Salinas, university professor and former president of the Association of Electrical and Electronic Engineers of Pichincha (Cieepi).


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