TREND: Is drought really to blame for Brazil's power crisis?

Wednesday, July 23, 2014

There was a common theme to two major energy stories in Brazil this week that was as ominous as it was unmistakable.

On Monday, Rio de Janeiro-based utility Eneva admitted to concerns about the availability of natural gas for its Parnaíba thermoelectric complex in Maranhão state. 

A day later, Brazilian power regulator Aneel announced plans for a second multibillion-dollar bailout in less than four months to the country's drought-stricken distributors.

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While neither news item came as a surprise, they were perhaps the clearest evidence yet that Brazil's dependence on finite resources for its energy needs is at breaking point. 

Despite rising investments in renewable sources like wind and solar power, more than 64% of Brazil's installed power capacity comes from hydroelectric plants, according to Aneel. 

This figure is set to rise in the coming years with the development of mega dam projects such as Belo MonteJirauSanto Antônio and São Luiz do Tapajós.

That means that in times of low rainfall, as has been the case this year, the country's distributors are increasingly reliant on thermoelectric ouput to meet demand.

Brazil's backup thermopower plants use either fuel oil or natural gas as their primary fuel input. The wholesale price of electricity generated from these sources is up to eight times that of hydropower, according to Erildo Pontes, a director of Fortaleza-based utility Coelce.

This scenario has left the country's distributors facing financial ruin. Rio de Janeiro-based consultancy Centro Brasileiro de Infraestrutura (CBIE) this week estimated the sector's accumulated debt at US$25bn.

It is no coincidence that fresh concerns about gas supply come as hydroelectric output is plummeting to new lows

Rising thermoelectric demand has left generators scrambling for natural gas, the scarcity of which on the local market means prices are up to four times higher than in the US.

Gas shortages have been blamed for delays in the startup of Eneva's Parnaíba II plant, originally due online in March and now delayed until at least Q4.

So what does this mean for consumers? Worrying times, according to Everton de Carvalho, president of Brazil's integration and sustainable development association (Abides).

In an interview with BNamericas last month, Carvalho warned that the Brazilian government would need to implement electricity rationing by the end of the year.

The only savior, he said, would be heavy rainfall by August. That rain is yet to come. 

CBIE director Adriano Pires believes the current uncertainty reflects a poor investment climate and unease about government interference.

He said the controversial MP579 bill, ratified by President Dilma Rousseff in January 2013, forced utilities to abide by strict rules that slashed their revenue and stifled growth.

"We are getting old," Pires told news portal Jornal da Energia. "Brazil needs to modernize and decentralize its decision making, giving more power to states and local governments."

Pires' view reflects a common belief in Brazil that power and politics are linked in more ways than one. 

And, some would say, any long-term move by the government to decentralize power might be just what Brazil's utilities need to guarantee it.