Renewable Energy curtailment is an issue that cannot be ignored in Latin America and the Caribbean

Countries like Chile and Brazil are already showing significant figures, reflecting that the accelerated growth of renewable energies has not been matched by proportional transmission expansion or adequate regulatory adjustments

The Challenge of Renewable Energy Curtailment

By Arturo D. Alarcón - Martha Carvalho

Indeed, everyone has seen the image of a hydroelectric power plant releasing millions of cubic meters of water through its spillway.  But why does this happen?  Usually, it’s due to an excess flow not anticipated in operational planning or electrical system constraints.

The term “curtailment” has recently been used to describe what happens in solar and wind power plants when they must limit their energy generation due to a lack of transmission capacity or operational restrictions.  The metaphor suggests that we are ‘wasting’ sun and wind by restricting generation and being unable to harness all the energy, letting it continue its course in nature without being utilized.

How Much Energy Is Not Being Used?

Curtailment of energy in wind and solar power plants is not a new issue.  This process occurs in several countries where the growth of these energy sources has not been matched by a proportional increase in transmission capacity and/or when demand does not keep up with electricity generation.

For example, in the United Kingdom, limitations on energy generation began about 15 years ago.  Currently, nearly 20% of the wind energy generated in the north is not utilized due to transmission restrictions to the south, where the main demand centers are concentrated.  The California Interconnected System (CAISO) has experienced increased energy generation constraints since 2019, mainly from solar sources.  In 2022 alone, 2.4 TWh of solar and wind power generation was curtailed, representing a 63% increase compared to 2021 due to transmission system limitations.

This issue is gaining relevance in Latin America and the Caribbean, particularly in countries that have implemented successful policies to promote solar and wind development but have not developed the transmission system at the same pace.  In Chile, curtailment represented 9.72% of net renewable generation in 2023; in the first quarter of 2024, it had already reached 18.7%.  In Brazil, generation curtailment reached about 10% for wind energy and 17% for solar energy in December 2024, with an upward trend.

Who Bears the Cost of Unused Energy?

Generation curtailment costs the system because the energy not generated by renewable plants—by definition, zero marginal cost energy—must be supplied to the system by other sources (usually thermal or reservoir hydropower, which has a cost above zero) to meet demand needs.

Beyond the additional generation cost, the question arises: Who should bear the cost of the unutilized energy?  This depends on regulatory arrangements.  It could be the power plant owner or the system losing revenue directly.  In some countries, the market compensates plants for the energy that could not be generated if the curtailment was due to system limitations, a cost ultimately passed on to users.

For instance, generator compensation is granted in Brazil only when curtailment occurs due to transmission system unavailability exceeding a certain number of hours defined annually.  The Brazilian market does not compensate generators if generation is limited for system reliability needs or because generation exceeds demand.  Financial compensation for Latin America’s wind and solar energy curtailment is still under development.  Except for Brazil, where a defined regulation already exists, other countries in the region have not yet established precise mechanisms for this compensation.

This issue needs detailed analysis, as regulatory decisions related to curtailment compensation can influence the viability of renewable energy investments, impacting financial flows and developers’ risk perception.

How to Solve Curtailment, and to What Extent?

Energy generation constraints can be technically mitigated through various strategies that involve infrastructure expansion and regulatory adjustments to achieve a better balance between supply and demand. Key strategies include:

• Increasing transmission capacity from generation to demand centers.  Although this would be the “ideal” technical solution, it may not be immediate due to the time required for permits and construction.  Capacity can also be increased by changing conductors (reconductoring) or using technologies that allow increased flows in existing networks (Grid Enhancing Technologies), which generally take less time to implement than a new line.
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• Energy storage also offers a solution during periods of high generation, making energy available during peak demand hours.  Hybrid projects (generation and storage as a single investment) or stand-alone storage projects operating in a market can be viable.  For the latter, regulations must allow for arbitrage or provide incentives for flexibility.
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• Demand-side management encourages demand to use the energy that would otherwise be curtailed, for example, in energy-intensive industries, data centers, and thermal storage that can respond to price signals.  It is crucial to implement demand response mechanisms not only for large consumers but also for low-voltage users.  This requires developing adequate market designs and investing in smart meters that facilitate real-time consumption integration and optimization.
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• Trading surplus energy in neighboring markets: When generation exceeds demand, energy trading with neighboring countries could accommodate surpluses, reducing curtailment.  For example, in CAISO, the real-time market allows participants outside the system to buy and sell energy to balance supply and demand.  In 2022, these transactions avoided over 10% of curtailment.  Implementing this solution requires regulatory arrangements and interconnection infrastructure.

From a planning perspective, it is possible to identify an optimal level of curtailment, considering the total system cost.  In some cases, it may be more efficient from a global optimal perspective to allow a certain degree of generation curtailment rather than excessively oversizing the transmission infrastructure, which would result in a higher system cost.  Determining this level requires detailed studies and adjustments in market design that do not jeopardize renewable energy investments, as previously mentioned.

This Is Just the Beginning

Energy curtailment is an issue that cannot be ignored in Latin America and the Caribbean.  Countries like Chile and Brazil are already showing significant figures, reflecting that the accelerated growth of renewable energies has not been matched by proportional transmission expansion or adequate regulatory adjustments.  Countries adopting wind and solar development strategies will face similar challenges in the coming years.

Addressing this challenge will require building more transmission infrastructure and exploring solutions like storage, flexibility in supply and demand, and Grid-Enhancing Technologies.  Each of these strategies requires improved long-term planning to anticipate the expansion of transmission and/or storage and regulatory and market model adjustments to provide the right incentives.

The final challenge will be balancing the cost of expanding the grid and the acceptable level of curtailment for the system.  This will force us to reflect on how we plan our networks and regulate markets, ensuring that investments are viable and that we can fully harness the region’s enormous renewable potential.

Source / Comment

Washington Still Has Problems With Democracy in Latin America

By Mark Weisbrot - CEPR:

Imagine if Barack Obama, upon taking office in January 2009, had decided to deliver on his campaign promise to “end business as usual in Washington so we can bring about real change.”

Imagine if he had rejected the architects of the pro-Wall Street policies that led to the economic collapse - such as Larry Summers, Tim Geithner, and the stable of former Goldman Sachs employees running the Treasury Department - and instead appointed Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz to key positions, including the Federal Reserve chairmanship.

Instead of Hillary Clinton, who lost the Democratic presidential primary because of her unrelenting support for the Iraq war, imagine if he had chosen Sen. Russ Feingold (D., Wis.) for secretary of state, or someone else interested in fulfilling the popular desire to get out of Afghanistan.

Imagine a real health-care reform bill instead of the health-insurance reform we got - one that didn't give the powerful pharmaceutical and insurance lobbies a veto.

It goes without saying that Obama would be vilified by the major media outlets. The seething hostility of Glenn Beck and Rush Limbaugh would be matched by more mainstream news organizations, which would accuse the president of polarizing the nation and engaging in dangerous demagoguery.

With most of the establishment media and institutions against him, Obama would face a constant battle for political survival - although he might well triumph through direct, populist appeals to the majority of voters. This is what a number of left-of-center Latin American leaders have done:

In Ecuador, President Rafael Correa was reelected by a large margin in 2009, despite strong opposition from the country’s media.

In Bolivia, Evo Morales has brought stability and record growth to a country with a tradition of governments that didn’t last more than a year. And he has done so in spite of the most hostile media in the hemisphere, as well as unrelenting, sometimes violent opposition from Bolivia’s traditional elite.

And Venezuelan President Hugo Chavez has survived a military coup attempt and other efforts to topple his government, winning three presidential elections, each one by a larger margin.

All these presidents took on entrenched oligarchies and fought hard to deliver on their promises.

Morales, the first indigenous president in a country with an indigenous majority, re-nationalized fossil-fuel industries, created jobs through public investment, and won approval of a more democratic constitution. Correa doubled spending on health care and canceled $3.2 billion in foreign debt that he declared illegitimate. Under Chavez, who took control of his country’s oil industry, poverty was cut in half, and extreme poverty dropped by more than 70 percent.

These presidents faced another obstacle to delivering on their promises that Obama would not: the opposition of the most powerful country in the world. The same was true of former Argentine President Nestor Kirchner, who had to battle the Washington-dominated International Monetary Fund to implement his economic policies, which made Argentina the fastest-growing economy in the hemisphere for six years.

Chavez, of course, has been the most demonized in the U.S. media. That is not because of what he has said or done, but because he is sitting on 100 billion barrels of oil. Washington has a particular problem with oil-producing states that don't follow orders - whether they are dictatorships (Iraq), theocracies (Iran), or democracies (Venezuela).

All of these leaders had hoped Obama would pursue a different, more enlightened Latin American policy, but that hasn’t happened. It seems that Washington, which was comfortable with the dictators and oligarchs who ran the show in the region for decades, still has problems with democracy in its former “back yard.”

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He has written numerous research papers on economic policy, especially on Latin America and international economic policy. He is co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000) and president of Just Foreign Policy. He is also co-writer of Oliver Stone’s current documentary, “South of the Border,” now playing in theaters. He can be reached at weisbrot@cepr.net.

Source: Center for Economic and Policy Research (CEPR)

July 19th 2010

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