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Minerva 3 Nov 09

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Brazil has a large power system heavily dependent on hydroelectricity. Starting in the late 1990s, the power sector underwent major reforms introducing competition, privatization, and cost-recovery tariffs. Over 15 years, investments and private capital increased while quality of service improved, showing the reforms have been successful overall despite some challenges. However, licensing new hydro plants has become difficult due to lengthy evaluation processes and lack of coordination between environmental and energy goals. Better integration of power planning and demand side management could help make the most of Brazil's hydro resources to ensure a sustainable and reliable energy future.

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Brazil's energy capacity and future needsFall 2009 Minerva ProgramLuiz MaurerThe World BankWashington November 13, 2009V3.0
This presentation will address the following topicsPower system in BrazilThe reform process roller coaster? Investments, competition, quality of serviceSustainability issuesHydro licensingDemand responseFinal remarks
Brazil has a large power system, heavily dependent on hydroelectricity110 GW400 TWh85% HydroEstimated potential of 260 GWExtensive network, four areas
Starting in late 90s, power sector has seen major institutional and regulatory reformsCompetition in generation and retail, with all concessions granted competitivelyEnergy auctions mandatory to captive marketsMost D assets privatizedMost new G and T assets built by private sectorCost-recovery tariffs, via a structured review processAttraction of private capital, the investor by default domestic and foreign
Over almost 15 years roller-coaster or bumpy road?Certainly the latterSuccess of the reform due, inter alia, to a mechanism of adjustments, sometimes by trial and errorWith some hiccupsFCH Lei das Concessoes and new (now old) model in 1998Second term of FHC reforms stalledApagao in 2001 but it never happenedLulas plan announcing radical changes and scaring investorsFollowed by pragmatism and continuous improvements not by ideology
What makes us feel confident?Has Brazil been able to increase investments?And attract private capital?Has the quality of service improved?Has competition contributed to reduce costs?Is the model sustainable?Are lights still on?What are the areas for improvement?
Investments in generation and transmission increased in response to the first wave of reforms
Quality of service exhibited remarkable improvement
Brazil - able to attract largest share of private resources among developing countries
For several years Brazil got the largest share of the pie
A perceived a good investment climate
BOO in Transmission a success
Energy Auctions a robust procurement mechanism
Resulting in competitive prices
Sustainability checklistAbility to live with its own meansIf tariffs are not cost reflective sooner or later problems will emerge, system will fall apart, or public debt escalateHow to provide services to those with low ability to pay?Subsidies for access and lifeline rates necessary, but others should be closely examined e.g. subsidies that foster wasteful consumption Sooner or later will hamper affordability and qualityPoor will be the first to suffer consequencesSubsidies in countries with low access regressive taxationSustainability also encompasses consumption of natural resources and deterioration of the environment
Wake up call it has not been easy to tap into the cheap hydro potentialClear manifestation - getting licenses for new hydro plants has become a nightmareLong delays averaging one year, but may be much longerUncertainty and subjective Constraining hydro generation options for expansionGap has been bridged by expensive, polluting thermal generation e.g. profile in the first energy auctions
A recent World Bank study has revealed multiple layers of complexityInventory studies not up-to-dateConfusing institutional roles between players, states, Federal government agenciesCumbersome, lengthy evaluation process by IBAMA - oftentimes biased by extremismExcessive power from Public Prosecutors OfficeLack of policy trade-offs between environmental concerns and need for energyDifficult to address in the absence of an efficient allocation process, grounded on economics Projects examined individually not strategically
And recommended an integrated approach to enhance power sector planning
Identifying clear opportunities to a more effective planning process
The absolute cost of compliance is not a major hurdle but uncertainty may scare investors in generationTotal Costs (US$ 130/kW)Mitigation Costs (US$18/kW)
A particular challenge is to develop hydro resources in the Amazon regionThere is a baggage on poor developments in the regionProjects implemented without due concern for environmental aspects e.g. Balbina Hydro (serving the city of Manaus)Old project design only to maximize generation (e.g. Kararao, in the Xingu River)Starting in the 80s enhanced concerns, democratic process and sector capacity (Eletrobras) to deal with environmental and social issuesThere are good and bad projects a change in mindset has enabled the country to find (and improve) good ones6 GW on Madeira River recently granted, very friendlyProject in the Xingu river completely revisited, much more friendlyTrade-offs between output and impact mastered by the private sector in the Uruguay river (Ita & Machadinho)
What about the demand side? an oftentimes neglected part of the equationWe refer specifically to the use of energy efficiency and demand side management to make the system more Affordable cheaper to bridge the supply demand gapReliable helping the ONS build virtual reserves and deal with contingenciesThis is an area where Brazil could do more ongoing discussions by Aneel under the umbrella of smart grid, smart metering
Demand side should be seen as a seamless part of the effort to bridge the supply demand gap
The 2001 Power Rationing a rich experience
The 2001 Power Rationing is a best practice on the use of demand response
Final remarks Brazil is blessed with hydro resourcesCheap, competitive, can be exploited in an environmentally friendly wayOne of the few countries where the power sector is not one to blame for CO2 emissionsReforms in the power sector have been successfulAchieved major goalsContinuous improvementsHas worked toward a healthy, contract sanctity environmentCapital, quality of service, competitivenessWhat Brazil has achieved so far seems to be sustainable Areas for improvementContinuous examination of the pillars of sustainability, including commercial disciplineCost reflective tariffs, as much as possibleBetter alignment between environmental, social and energy policy goals, to unveil the hydro potentialCount (and use) the demand side of the equation to make energy more reliable and affordable
And the Black Out shall we change this presentation? No

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Minerva 3 Nov 09

  • 1. Brazil's energy capacity and future needsFall 2009 Minerva ProgramLuiz MaurerThe World BankWashington November 13, 2009V3.0
  • 2. This presentation will address the following topicsPower system in BrazilThe reform process roller coaster? Investments, competition, quality of serviceSustainability issuesHydro licensingDemand responseFinal remarks
  • 3. Brazil has a large power system, heavily dependent on hydroelectricity110 GW400 TWh85% HydroEstimated potential of 260 GWExtensive network, four areas
  • 4. Starting in late 90s, power sector has seen major institutional and regulatory reformsCompetition in generation and retail, with all concessions granted competitivelyEnergy auctions mandatory to captive marketsMost D assets privatizedMost new G and T assets built by private sectorCost-recovery tariffs, via a structured review processAttraction of private capital, the investor by default domestic and foreign
  • 5. Over almost 15 years roller-coaster or bumpy road?Certainly the latterSuccess of the reform due, inter alia, to a mechanism of adjustments, sometimes by trial and errorWith some hiccupsFCH Lei das Concessoes and new (now old) model in 1998Second term of FHC reforms stalledApagao in 2001 but it never happenedLulas plan announcing radical changes and scaring investorsFollowed by pragmatism and continuous improvements not by ideology
  • 6. What makes us feel confident?Has Brazil been able to increase investments?And attract private capital?Has the quality of service improved?Has competition contributed to reduce costs?Is the model sustainable?Are lights still on?What are the areas for improvement?
  • 7. Investments in generation and transmission increased in response to the first wave of reforms
  • 8. Quality of service exhibited remarkable improvement
  • 9. Brazil - able to attract largest share of private resources among developing countries
  • 10. For several years Brazil got the largest share of the pie
  • 11. A perceived a good investment climate
  • 13. Energy Auctions a robust procurement mechanism
  • 15. Sustainability checklistAbility to live with its own meansIf tariffs are not cost reflective sooner or later problems will emerge, system will fall apart, or public debt escalateHow to provide services to those with low ability to pay?Subsidies for access and lifeline rates necessary, but others should be closely examined e.g. subsidies that foster wasteful consumption Sooner or later will hamper affordability and qualityPoor will be the first to suffer consequencesSubsidies in countries with low access regressive taxationSustainability also encompasses consumption of natural resources and deterioration of the environment
  • 16. Wake up call it has not been easy to tap into the cheap hydro potentialClear manifestation - getting licenses for new hydro plants has become a nightmareLong delays averaging one year, but may be much longerUncertainty and subjective Constraining hydro generation options for expansionGap has been bridged by expensive, polluting thermal generation e.g. profile in the first energy auctions
  • 17. A recent World Bank study has revealed multiple layers of complexityInventory studies not up-to-dateConfusing institutional roles between players, states, Federal government agenciesCumbersome, lengthy evaluation process by IBAMA - oftentimes biased by extremismExcessive power from Public Prosecutors OfficeLack of policy trade-offs between environmental concerns and need for energyDifficult to address in the absence of an efficient allocation process, grounded on economics Projects examined individually not strategically
  • 18. And recommended an integrated approach to enhance power sector planning
  • 19. Identifying clear opportunities to a more effective planning process
  • 20. The absolute cost of compliance is not a major hurdle but uncertainty may scare investors in generationTotal Costs (US$ 130/kW)Mitigation Costs (US$18/kW)
  • 21. A particular challenge is to develop hydro resources in the Amazon regionThere is a baggage on poor developments in the regionProjects implemented without due concern for environmental aspects e.g. Balbina Hydro (serving the city of Manaus)Old project design only to maximize generation (e.g. Kararao, in the Xingu River)Starting in the 80s enhanced concerns, democratic process and sector capacity (Eletrobras) to deal with environmental and social issuesThere are good and bad projects a change in mindset has enabled the country to find (and improve) good ones6 GW on Madeira River recently granted, very friendlyProject in the Xingu river completely revisited, much more friendlyTrade-offs between output and impact mastered by the private sector in the Uruguay river (Ita & Machadinho)
  • 22. What about the demand side? an oftentimes neglected part of the equationWe refer specifically to the use of energy efficiency and demand side management to make the system more Affordable cheaper to bridge the supply demand gapReliable helping the ONS build virtual reserves and deal with contingenciesThis is an area where Brazil could do more ongoing discussions by Aneel under the umbrella of smart grid, smart metering
  • 23. Demand side should be seen as a seamless part of the effort to bridge the supply demand gap
  • 24. The 2001 Power Rationing a rich experience
  • 25. The 2001 Power Rationing is a best practice on the use of demand response
  • 26. Final remarks Brazil is blessed with hydro resourcesCheap, competitive, can be exploited in an environmentally friendly wayOne of the few countries where the power sector is not one to blame for CO2 emissionsReforms in the power sector have been successfulAchieved major goalsContinuous improvementsHas worked toward a healthy, contract sanctity environmentCapital, quality of service, competitivenessWhat Brazil has achieved so far seems to be sustainable Areas for improvementContinuous examination of the pillars of sustainability, including commercial disciplineCost reflective tariffs, as much as possibleBetter alignment between environmental, social and energy policy goals, to unveil the hydro potentialCount (and use) the demand side of the equation to make energy more reliable and affordable
  • 27. And the Black Out shall we change this presentation? No