Brazil's New Energy Model Pushing Bottom Up Solutions and Facing Top Down Project Permitting and Charging Delays

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Although the interested state and private stakeholders in Brazil's energy future do not always seem to be in sync on issues vital to the development of the industry's infrastructure and client delivery challenges, there is no doubt that they have been exerting themselves on a number of key topics in the past month.

At the end of July, it was announced that BNDES (the state development bank) would participate in a $400 million fund to back the government's Proinfa alternative power program and transmission lines. The bank intends to finance up to 70% of the $22.73 billion estimated investment of 2.73 billion needed for the 113 projects under the Proinfa program through 2006. Developers must finance the 30% balance.

Nelson Siffert, head of the bank's electricity department also said that BNDE would put at least $1.87 billion into the country's power sector in 2004, which would mean releasing another $546 million by the end of the year. The bank also stated its intention to lend up to $1.7 billion for generation and transmission projects and $340 million to distributors to compensate for foreign exchange withheld in rates adjustments the previous year.

In the fourth quarter of 2004, the bank is expected to complete the 2005-2007 plan for the power sector and other sectors. Priorities will be determined and specific projects will be identified for possible finance. These include major hydroelectric dams of Rio Madeira and Belo Monte in the Amazon region. This planning would take place under Brazil's new power sector model which, Siffert said, reduces risks for investments in the sector.

In mid-August, Eduardo Spalding, Vice President of Brazil's representative energy users' association (Abrace), said that despite the positive aspects of the new electrical sector model, the changes made had been a great shock, causing delays and financial costs. "Aluminum producers are involved in fourteen new hydroelectric projects, progress on most of which is at a standstill. The standstill is due to environmental concerns or sectorial charge. These problems need to be solved before big consumers start investing in further new projects for their own energy generation," he told Reuters.

Under the new energy model, consumers continue to use energy produced at their own generating plants if they pay a fee. Otherwise they must offer the energy that they generate on the open market.

The fourteen projects in question represent 3,000 MW and an investment of $1.8 billion. The companies involved include CVRD, Alcan Brazil, Alcoa Brazil, Companhia Brasileira de Alumino, and BHP Billiton. Some projects will continue while still awaiting permits.

Also in mid-August, Dilma Rouseff, the Minister of Mines and Energy, said that progress has been halted on 21 hydroelectric projects, due either to lack of environmental permits or investment and financing difficulties. The projects would generate a total of 5,039 MW and represent an investment of $3 to $4 billion.

There is a window of opportunity, or escape hatch, for these problems to be resolved, since Brazil’s current electrical energy surplus is expected to last until 2008.

Eduardo Spalding said that the recent period of economic stagnation, abundant rainfall to fill the hydroelectric plant reservoirs, and a nationwide energy saving consciousness generated during 2001 to 2002 energy rationing period were the factors responsible for the surplus.

In the second half of August, Brazil's power regulator, Aneel, said that it would discount up to 50% on the rate charged for the use of distribution and transmission lines (TUSD and TUST) for power from wind, solar, small scale hydro, biomass, and cogeneration plants. Small-scale power producers have already been given discounts.

These moves could reduce final billings for power from the smaller producers by 10% to 15%. The increase in their competitiveness could see business double for them in the next twelve months, Paulo Toledo, director of power trader Ecom Energia, told BNamericas.

He added that the price reduction would further encourage SME (small and medium enterprises) consumers in the 500 to 3,000 kWh per month range to buy power directly from these producers, instead of from established distributors. Customers could come from pharmaceutical companies, auto parts makers, and large shopping malls, he said.

Small hydropower generators with a stable supply will benefit most and could see up to 1,900 MW of power capacity added outside the existing Proinfa renewables program according to the APMPE (association of small and medium power producers). APMPOE is now pushing for discounts to cover a further 8% of the energy bill on the grounds of socially-oriented energy programs, and the unbundling of charges built into transmission and distribution costs.

With this bottom-up application to smaller user needs and the government's acknowledgement of permit and charge problems at the heavy industrial user end, Brazil's new model electricity sector model could be really switched on by 2008.