January 1, 2010

Brazil: Latin America’s Beacon

Sonal Patel

The Aftermath

The legacy of the 2001 power crisis persists, according to a 2007 World Bank study. On the supply side, it has caused distributors to become wary of energy efficiency efforts, which could further reduce revenues. On the demand side, the crisis provided incentives for all groups to engage in conservation and efficiency. Those incentives include high electricity prices, which continue to pay for the financial hangover from the crisis.

Another important change that occurred following the crisis involved reforms introduced to the sector by the new administration of President Luiz Inácio Lula da Silva ("Lula"). It opted for a model that was designed to attract long-term private investment to the sector and relied on competition — as opposed to the prior administration’s fully regulated model. A defining element of the new model was the introduction of energy auctions for distribution companies to acquire energy for their captive customers. Under this system, auctions of capacity from new generation projects will be held three to five years in advance of delivery dates to ensure that the nation’s future expansion needs are met and plants are only built once they have won bids and are guaranteed long-term power purchase agreements.

A New Dilemma

Since the power crisis, owing to an increase in average monthly incomes and low unemployment, electricity consumption has been on the rise, growing at 5.6% in 2007 and 3.5% in the first six months of 2008. Yet, experts suggest that the nation may be poised to suffer another energy debacle, saying that another generating gap is imminent due to the nation’s inability to expand its electricity supply as planned. As was highlighted by the Nov. 10 blackout, foremost among these concerns is Brazil’s reliance on hydropower. As significant is the country’s vulnerability to drought, like the one in late 2007 and early 2008, which bumped the risk of rationing to 22% — four times higher than normal.


2. Brazil’s generation profile (2008). Renewable hydro resources provide the vast majority of Brazil’s power, but those resources are also vulnerable to drought. Courtesy: EPE

Another concern is that the nation’s population is expected to expand from 192 million people to 204 million by 2013, with GDP per capita and electricity consumption forecast to increase significantly — as much as 40% and 10% respectively. Added to this, estimates from Business Monitor International say that the country will by 2013 account for 41% of Latin America’s regional power generation, which in itself will see a 17.6% increase from 2008.

Finally, the Brazilian Ministry of Mines and Energy (MME) recently announced it would expand its electrification program, Luz Para Todos (Light for All), to reach a million more families by the end of 2010. The program, which began in 2003, has to date provided electricity to 2.4 million homes.

A Long-Term Plan for Power Expansion

In 2006, the MME’s Energy Research Office, Empresa de Pesquisa Energética (EPE) — created in 2004 to study the country’s energy industry and support the government’s policies — released a blueprint for the expansion of the power sector through 2030. In it, the government essentially proposes huge increases in supply, arguing that its scenarios forecast a tripling of current consumption by 2030. The projection assumes that Brazil’s population will increase 53 million by 2030 (more than the entire population of Spain), that the economy will have an annual growth rate of 4.1%, and energy demand will grow at an annual average rate of 3.5%.

The agency predicted that only 10% of this new demand would be met through energy efficiency measures and another 10% through off-grid generation. To meet the rest of projected demand by 2030, the plan calls for doubling nuclear power capacity by adding five 1,000-MW power plants; adding about 88 GW of new hydroelectric capacity; increasing production of power from small hydroelectric plants tenfold, to 7,800 MW; increasing waste-to-energy project capacity from nil in 2005 to 1,300 MW; and a comparable expansion in natural gas generation. It also calls for a major expansion in biodiesel and bagasse power generation and steady growth in wind energy, from 29 MW in 2005 to about 4,700 MW in 2030.

The country’s more recent — and more detailed — 10-year energy expansion plan (2008 – 2017) expects that consumption will grow between 45% and 50%, taking into account government ambitions for the Luz Para Todo program as well as reduced demand following the global economic slowdown. The plan projects that 181 billion reais (about US$103 billion), or 23.6% of the 767 billion total earmarked to secure the country’s future energy supplies, will be needed to expand the electricity sector, including power generation and transmission. The government is expected to supply 70% of this investment through its Program for Growth Acceleration.