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Venezuela Power: Blackouts underscore national electricity crisis

Venezuela, which suffered massive blackouts in March of this year, continues to be affected by recurrent and significant power outages. Blackouts occur several times a week in the capital Caracas and practically daily in other parts of the country, including in the oil-rich state of Zulia. There is a high probability that this year's outages— which have left the country without electricity and disrupted the entire economy, including the oil sector—will continue over the coming months.

Venezuela's blackouts stem from failures across the power sector. As a result, there are no quick solutions to the underlying causes, and power rationing and blackouts are unlikely to be eliminated anytime soon.

At the Guri hydropower plant, which in the past two years has supplied an average of 80% of the country's power, 12 of the 20 turbines are out of commission. In addition, key transformers linking Guri and other hydro plants to demand centers are out of order. Meanwhile, the country's thermal fleet is only 17% operational. Some 4 GW of thermal capacity added during 2009-13, under the Hugo Chávez government, is today out of commission.

IHS Markit estimates that there is now a 2 GW shortfall between Venezuela's theoretically unconstrained power demand and the country's available supply.

Figure 1: Available capacity versus peak demand

Repair efforts are unlikely to eliminate power rationing and blackouts anytime soon. To improve security of supply, much of the power network requires spare parts and the involvement of experienced technical personnel. Corpoelec, the state power company, lacks such resources. Many skilled technicians have left the company and the system is now in the hands of the military. The thermal fleet is unavailable owing to both equipment and fuel shortages.

Although unlikely, several realistic scenarios could imply a nationwide, months-long blackout. A single power line connects Venezuela's eastern hydropower cluster to the rest of the country, and two of its three substations are regularly failing. If the last one fails as well, Venezuela could lose 80% of its available generation capacity. Already repeated efforts by unskilled workers to restore power have had the effect of harming generators, transmission lines, transformers, distribution feeders, and other important grid infrastructure, rendering the system even weaker. This threat was present during the March 2019 blackouts, when aftershocks of unstable grid frequency continued for more than a week.

Systemic blackouts affect oil production, state revenues, and the Nicolás Maduro government's rule. The lack of power supply is paralyzing the oil industry, the country's main source of income (it accounts for 95% of the country's exports). Since April, the state-run oil company PDVSA has started to carry out several projects aimed at making oil production fields independent of the national electricity grid, with mitigated success. IHS Markit estimates that industrial power supply fell 41% in the past five years.

Realistically, the system cannot recover fully without investments and skilled labor from foreign entities—something that appears unlikely under the current economic and political environment.

Learn more about our Latin America power analysis.

Posted 31 October 2019 by Etienne Gabel, Senior Director, Gas, Power and Energy Futures, IHS Markit

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