Electricity update – opportunity cost

Use of diesel fuel in Venezuelan power plants jumped in March to a record 66,000 barrels a day, up 33% year over year, increasing the opportunity costs of lost diesel sales.

Daily diesel use in power plants (from CNG) multiplied by spot diesel price in U.S. in first week of month (from U.S. EIA), minus $5/barrel shipping cost.

The fuel was used to keep the country’s lights on as hydro dam managers cut power generation 5% to save water after a drought. Conservation programs imposed by the government had little effect, as year-over-year electricity use fell only 1.5% year over year. Electricity use rose to 316 gigawatt-hours a day in March from 303 in January and 309 in February.

The opportunity cost — the money not earned by a dealer that dips into his stash — of diesel consumption rose by about $1 million a day to $7.5 million a day in March, the highest since soaring diesel prices in 2008 meant Venezuela was temporarily sacrificing as much as $9.3 million a day by burning diesel in power plants.

Use of fuel oil fell slightly from February to 54,000 barrels a day, still 11 percent higher than a year earlier. The opportunity cost of fuel oil is lower, as it is a less valuable substance.

If Venezuela reaches the 100,000 barrels a day forecast by the energy ministry in a document that Reuters got a few months ago, and spot diesel prices remain around the $2.89 a gallon seen at the beginning of March, Venezuela will be sacrificing $11 million a day by burning diesel in power plants rather than exporting the fuel.

This can be seen as a lot of money: $10 million a day could build a lot of nice schools, or import a lot of water-heater timers and water-conserving shower-heads. Or it can be seen as less than 1% of GDP, an insiginificant sum compared to the instability that would result from widespread blackouts.

5 thoughts on “Electricity update – opportunity cost

  1. HalfEmpty

    Isn’t this good news in some way? I mean you gotta have thermal plants with generators on line to increase the diesel use. AmIright? Bueller?

  2. sapitosetty Post author

    Yes, absolutely. Thermal generation rose 13%, which is good news from an energy reliability point of view. Just a bummer that efficiency investments remain lower than new generation investments.

  3. ow

    Pissing away tens of billions of dollars by giving away 700k barrels of essentially free oil every day is absurd. Actually, in a country as poor as Venezuela is it is criminal.

    And the government does zero, literally zero, to explain the concept of opportunity cost to people. So I guess this isn’t going to change until things go “pop” and they are forced to change it.

    On the good side, it sounds like they may be about to ramp up investments in wind power. Given their close relationship with China they should at least be able to do that.

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