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
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.
- 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.
- 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.
- 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.
