Before running, learn to walk: Reducing electricity losses as a first step to ensure energy security
Latin America and the Caribbean is the region that loses the most electricity in its transmission and distribution systems. Only in 2012, the region lost 240 terawatt hours (TWh), which is equivalent to 17% of the total electricity generated. This situation, which has gotten worse in recent decades, is analyzed in the recent report Power Lost.
Energy losses are inevitable in any electrical system. However, 20 of 26 countries in Latin America and the Caribbean show losses higher than 10% of the total electricity generated. In economic terms, these losses result in an annual cost of between US$11 and US$17 billion for the electricity industry. This cost is equivalent to 0.3% of GDP in the region, comparable to the amount allocated to social programs such as Oportunidades (now Prospera) in Mexico or Bolsa Familia in Brazil.
Such losses seriously jeopardize the financial viability of utilities, thereby reducing, and in some cases eliminating, their investment capacity, restricting their expansion of electricity coverage, and diminishing the quality of service and efficiency of electrical systems. Clearly, this scenario presents a generalized regional obstacle to the development of non-conventional renewable industry based on legitimate market demand.
Where is this energy lost?
Energy is lost primarily in two stages in the chain of the electric system: during the transport of electricity and through final consumption that is unmetered and unbilled. In the first case, the difference between the power that entered into the system and was delivered to the end consumer is directly related to transmission system inefficiencies. The second case, which we know explains 80% of the losses in Latin America, largely relates to theft and/or fraud by the final consumer and inefficiency in the companies’ commercial policies.
Now, you ask: What is the relationship between electrical losses and environmental sustainability? The relationship is close, though often ignored in discussions of public policy:
The additional electricity to be inserted into the system to offset losses in transportation means higher greenhouse gas emissions for electricity generation. This effect will increase when non-renewable sources are used for electricity generation.
The use of unbilled electricity encourages excessive consumption among end consumers, discouraging the formation of energy conservation habits and thus boosting the total electricity demand.
What if we look towards the future?
With the growth of electricity demand in the region, estimated at 3% annually, the simplest solution is to ignore the losses and increase generation capacity. While this increase is inevitable, we invite you to reflect on such priorities. If the current situation does not improve, the annual net loss of electricity in the region could reach 182 TWh in 2030, twice the energy generated by the largest hydroelectric Latin America–Itaipu–, causing extremely high environmental and financial costs.
Measures to reduce electricity losses are an essential component to meet growing electricity demand. It is necessary to resist the temptation to resort to building new electricity infrastructure when loss reduction is a lower cost option and one that can usually be implemented more rapidly. Institutions such as the IDB support this approach through sustainable development strategies.
Solving the problem of losses will require strengthening institutional utilities to improve their performance. Regulatory aspects, such as pricing, as well as adequate institutional and policy support– in particular the strengthening of the independence in the governance of the sector–are essential to encourage companies to reduce loss levels. Among others, this has been the case of successful experiences in Chile, Colombia, Costa Rica and Peru, discussed in our publication.