December 10, 2013
LatAm lacks in energy integration
Working together is the only way to solve high costs and shortages
Energy integration efforts in Latin America have been made in fits and starts, even though many clearly understand that the only way to solve the region’s energy shortages and high costs is by working together.
Experts agreed that the main difficulties in achieving energy integration lie in the differences between national energy supply systems. In the region there are countries with centralised state management and others with mixed public-private systems.
Other factors that affect integration are differences in fuel prices, uncertain availability of natural gas supplies, and socio-environmental conflicts over major energy projects such as mega-dams.
To move forward towards integration, they say, commercial and technical regulations must be adopted for a viable international market for electricity, to operate interconnected systems, harmonise national regulations, and coordinate planning for connected systems, in order to develop a regional market.
Common criteria for reliability standards, rationing priorities, and distribution of congestion pricing revenues also have to be defined.
The first in-depth study on these questions in Latin America was carried out in 1964, when the Commission for Regional Electricity Integration (CIER) was founded. It is currently made up of 10 countries, including the founders— Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay— as well as Colombia, Ecuador, Peru, Venezuela, and seven companies.
CIER has carried out more than 20 studies that have outlined the concrete possibilities for unifying the region’s power grids.
But Latin America is far from achieving energy integration, Oscar Ferreño, CIER international coordinator for generation, said.
Among the factors standing in the way of integration are a lack of political will and the privatization of a number of major power production and distribution companies and oil companies since the 1990s.
Ferreño pointed out that there is one interconnected area, among the founding members of the Mercosur (Southern Common Market) trade bloc — Argentina, Brazil, Paraguay and Uruguay (Venezuela recently became the fifth full member).
But he warned that “there is a natural barrier that is difficult to overcome: the Andes mountains.”
At any rate, several bilateral or multilateral initiatives for interconnection have been studied, and some of them could be implemented, he added.
Electric power interconnection
One example is the electric power interconnection between Uruguay and Brazil, which involves a 420-km power line with a capacity of 500 MW and a high-voltage direct current converter station, that is to come onstream in mid-2014.
The Brazilian government is also discussing with Argentina and Paraguay the construction of a 321-km power line with a capacity of 2,000 MW to interconnect two binational hydroelectric dams: Yacyretá, shared by Argentina and Paraguay, and Itaipú, between Brazil and Paraguay.
The problem is that the Itaipú contract prohibits the sale of energy to a third country.
In the Andean region, meanwhile, two projects are still only on paper. One arose from a 2007 United Nations Development Programme (UNDP) study on the complementarities of energy resources in Bolivia, Chile, Colombia, Ecuador and Peru.
The other is the Andean Electric Interconnection, which would involve the five Andean countries and has the backing of the Inter-American Development Bank.
But the idea of establishing a regional energy network focuses on tapping the oil reserves of Argentina and Venezuela, the gas reserves of Peru and Bolivia, the hydroelectric systems of Chile and Brazil, and the region’s solar and wind power potential.
Ferreño said “energy integration is fundamental,” principally because of the variation in non-conventional renewable energies, like solar and wind power, which have a vast potential in Latin America.
“Wind can blow in the south at one point and not in the north, or it could be cloudy, so integration facilitates the homogenization of the production of the different natural energies, which is essential,” he said.
The director of the TNS Latam consultancy, Fernando Meiter, agreed that “regional energy integration is still far off.
“It is impossible if there is no framework so that if one country has a surplus, it can be given to a neighbour. That’s basically the problem,” he said.
“Argentina has several gas pipelines to Chile and one to Uruguay, which are currently not in use. In the short term, I don’t think integration will be achieved,” Meiter said.
Argentina exported natural gas regularly to Chile until 2006, when it began to sell only small quantities because it had to cover its own domestic needs first.
Chile, even without resolving the question of the diversification of its energy mix, could turn to Bolivia, another large gas supplier. But there is constant diplomatic tension between the two countries over Bolivia’s long-standing demand for an outlet to the Pacific Ocean, which it lost to Chile in the 1879-1883 War of the Pacific.
Bolivia currently exports significant volumes of natural gas to Argentina.
According to the Latin American Energy Organisation (OLADE), regional energy consumption amounted to 1,073 terawatt hours in 2010 at high prices, both for residential and industrial uses.
Official figures indicate that in 2011, Chile was the country with the sixth highest prices for the industrial sector in the Organization of Economic Cooperation and Development (OECD), at 154 dollars per megawatt hour.
Meiter noted that one of the benefits of energy integration is the ability to negotiate prices as a bloc.
“For example, if Argentina, Chile, Brazil and Uruguay could jointly purchase natural gas from any of the Arab producers, if they went together to negotiate volumes, the prices would come down,” he said.
In his view, the Andes are not an obstacle for integration, “because the infrastructure is already there. That means it’s a question of political will,” he said.