Lights out: The implications of Ecuador running on low power mode

The electric power crisis Ecuador is suffering is severely impacting the economy and could have political implications.

Industry chambers estimate that regular blackouts, which began on September 23, have had an impact of at least US$2bn through mid-October, but the cost is rising daily.

The crisis is the worst in Ecuador's history and forced the government to supply power for just 10 hours a day, mostly at nighttime.

With current generation availability of only 2,700-3,200MW, Ecuador is unable to satisfy around 30% of demand.

Normally, the country’s hydroelectric plants have capacity of 5,200MW but are currently able to produce only 1,500-2,000MW because of the worst drought in 61 years.

Available thermal capacity of around 1,200MW, including 100MW recently contracted from a barge owned by Karpowership, is insufficient to cover the shortfall.

Last month, the World Bank estimated Ecuador's 2024 economic growth at 0.3%, but now a contraction is expected.

Local economists foresee a complicated fourth quarter because of the blackouts, which will impact annual growth due to falling consumption and employment.

Consumption could drop by around 5% this year, which adds to other uncertainties, potentially leading GDP to shrink 1%, former finance minister Fausto Ortiz told BNamericas.

Late budget payments represent another major concern, as they could reach over US$5.5bn, including those from last year, Ortiz said. These could affect suppliers, municipalities, social security payments and others.

“The end-of-year bills will pile up,” said Ortiz.

If President Daniel Noboa cannot resolve the crisis soon, his chances of winning reelection in February could fade.

In a recent TV interview, Noboa said the government is trying to boost thermal generation, which could solve the crisis by December. He added, however, that there is no certainty.

“When the population is in a negative mood, it punishes the authorities, not only the executive branch but also local governments and the political class in general. If the president manages to reduce the cuts in December, that will provide a degree of confidence, but if he does not do so, it will hurt him greatly in electoral terms because he has created expectations,” Santiago Nieto, director of political consultancy Informe Confidencial, told BNamericas. 

"How much the energy crisis affects him electorally depends on the solution that is found."

In November, the addition of 141MW to offset the deficit is expected, thanks to the purchase of generators that will be installed in the towns of Esmeraldas, El Salitral and Quevedo. The contracts have been signed, but suppliers are having problems transporting the equipment.

In December, the addition of 50MW is expected plus 69MW in abandoned projects in which the government invested US$350mn.

The crisis was aggravated by decisions to shorten the power cuts.

“The decisions to reduce power outages were political and not technical. Their effect has been absolutely counterproductive and has led to a more critical situation. If these types of decisions continue to be taken, the crisis will worsen even further,” Hugo Arcos, a professor at Escuela Politécnica Nacional, told BNamericas.

“If the technical recommendations are followed, we can at least maintain the operational status of the hydroelectric system. If the flows improve, we will see an operational improvement. Only when new thermal generation enters the country and the machines are generating, not planned or projected, can we think about reducing the magnitude of the power cuts,” said Arcos, who also works as a consultant.

In that scenario, power would still have to be cut for 8-10 hours each day, according to Arcos.

Although the area where the country's main hydroelectric plant is located, the 1,500MW Coca Codo Sinclair complex, has seen precipitation in the last few days, climate change makes it impossible to predict accurately if the rains will continue.

Moreover, most hydroelectric plants and the biggest generation capacity are in the country's east, which is affected by the dry season between October and March.

"If the drought continues until March, it seems difficult to implement the actions necessary to cover the deficit, although that can be mitigated, depending on the number of thermal power plants that are installed and whether Colombia agrees to sell us energy," consultant Ricardo Buitrón told BNamericas. 

Noboa is in talks with officials from the Gustavo Petro administration to obtain around 400MW from Ecuador’s neighbor, although negotiations are difficult because Colombia is also facing a major drought.

A fiscal deficit of around US$4.5bn will compound the problems next year, especially if weather conditions do not improve.