Why the price of power from the Itaipu hydro plant is unlikely to fall

The price of power from the giant Itaipu hydroelectric plant, operated by Brazil and Paraguay, is unlikely to fall, Alexei Vivan, the CEO of industry association ABCE, told BNamericas.

Located on the border of the two countries, Itaipu is the second largest hydro plant in the world, after China’s Three Gorges, boasting installed capacity of 14GW.  

The plant was originally designed as a non-profit project, with revenues due to be used for paying for construction and operating expenses. Under the original plan, the rate would fall once construction debt was paid off, which happened in 2023.

But Paraguay, which resells part of its Itaipu energy share to Brazil, since it does not need all of it, has been pushing for an increase in the plant’s electricity rate. 

Last April, the Brazilian government announced that Itaipu's board had approved a price of US$16.71/kW, in a consensus decision between Brazilian and Paraguayan board members.

But shortly afterwards, Santiago Peña was elected president of Paraguay and said publicly that he favored increasing the price of energy sold to Brazil.

During his last meeting with Peña on January 15 in Brasília, President Luiz Inácio Lula da Silva admitted that there is disagreement over the rate.

“Now it's up to Brazil to go to Asunción so that we can continue negotiations to find a definitive solution. I'm interested in this being done as soon as possible and that we can work towards presenting a definitive solution for new relations between Paraguay and Brazil in the management of our important Itaipu plant,” Lula said after the meeting.

Vivan, who is also a partner at Schmidt Valois Advogados law firm, said a rate increase would have a significant impact on Brazil's power prices, given that all distribution concessionaires pay for a quota of energy from the plant, which is passed on to consumers.

"My fear is that a compromise will be reached with Paraguay that provides for a lower annual increase than what has been happening. But the right thing would be to lower the rate," he said.

Brazil’s energy minister Alexandre Silveira has consistently favored lowering power rates for consumers and correcting the disparity between the prices charged in the country’s free and regulated markets.

During a meeting with electric power representatives on Monday, Silveira said he was firmly against increasing Itaipu's rate, according to Vivan, who took part in the meeting.

Although Vivan views such statements as positive, there are concerns about a new provisional measure (MP) that is being prepared by the government to seek supply security with lower rates.

"The last time we had an MP without discussion, it was MP 579 [in 2012], which was a total disaster. And we're still reaping the bad effects today," Vivan said.