Brazil’s electricity renaissance Fabian Acker reports on how Ii beralisation and privatisation are revitalising the once moribund Brazilian electricity supply industry

razil has the potential to becoine a powerful economic force and one of the world’s great energy producers. It is B the fifth largest country in the world,

with a land area of 8.5 million km’, and the sixth most populous with 165 million inhabitants. Installed generating capacity is 69 704MW and aiiniial per capita consumption 1891 kWh. But there are only 45 million consumers, representing just 2 7 % of the population, so the potcntial for growth is quite substantial. Industry accounts for 42% of consumption. residential 28%, commercial 15%, with the balance distributed among miscellaneous users. Hydro is currently the dominant supply source (93 5%), followed by^ petroleum (3.1%), coal (2.3%) and nuclear

The country’s heavy dependence on hydropower is symbolised by Itaipii, the biggest hydropower station in the world, which is joiiitly- owned with Paraguay. It has an installed capacity of 12 600 MW and contracts have just been signed for another two 700 MW units to be installed. Itaipii provides more than 18% of Brazil’s installed capacity, and it will retain its leading position as the world’s largest hydro station until the Three Gorges system in China is commissioned. But sensitivity of hydro generation to drought and rising public demand for water have given thermal generation a higher priority, and it is planned to increase the thermal constituent of the supply to 20%, or 20 000 MW, by 2008.

Although the nuclear component of the electrical supply system is small, Brazil has suhstanlial uranium deposits, and this sector is

( 1 .1 %).

being vigorously expanded. Two plants, Angra- 1 and Angra-2, are operational, the latter corning on line 23 years after construction began and at a cost of $10 billion. Angra 3 is expected to come on line in 2006, 20 years later than planned. With the commissioning of Angra 3 , nuclear power will supply 4% of Brazil’s electricity demand.

The road to liberalisation Despite Brad’s huge potential, for inuch of the 1990s progress on large capital schemes was effectively frozen, following the I 989 decision by the World Bank to suspend finance for many Investment projects. The whole economy began to stagnatc, in the

electrical and invcstnient in the electrical sector effectively ground to a halt. sector

Economic problems came to a head in the late effectively

ground to 1980s and early 1990s. After rapid zrowth in the - - preceding decades, GDP fell to 1 . 5 % and monthly inflation rose rapidly from 3% in the 1970s to 50% by 1994. In response to these difficulties, a new constitution was established in 1988, incorporating legal and administrative frameworks for a general liberalisation of the economy. As a rcsult, all sectors, not least electricity, have slowly been revitalised. Radical new laws were passed, ending the disdnction between domestic and foreign companies arid dissolving many state monopolies and deregulating the electrical industry.

a halt

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Responsibility for the liberalisation of the Brazilian electricity supply industry was assigned to a new organisation-ANEEL, the Brazilian electricity regulation agency. ANEEL is entrusted with providing free access to the transmission and distribution networks. Since July 2000, consumers of 3 MW and above have been allowed to choose their supplier. ANEEL

must make all information about process, procedures and amount of electricity to be commercialised freely available. It puts projects out to auction and awards contracts. The agency is charged with ensuring that all contractual commitments are honoured and monitors progress. This involvement covers not only technical elements, such as commissioning

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dates, but also environmental obligations, and resettlement where necessary.

To date, 20% of the country’s generating capacity and more than 70% of distribution has moved into private hands. Eletrobras. the federal utility company, still owns 32% of the country’s installed capacity, and 45000km of high- voltage lines; however, these assets will eventually be offered to the private sector. In effect, a wholesale energy market has been established, allowing market conditions to set the prices of generation and consumption. This process culminated in the creation in April 2000 of the Brazilian wholesale electric energy inarket administrator (ASMAE) -an Internet-based electricity trading system.

Safeguards have been created to ensure that an inefficient state monopoly is not simply replaced by monopolistic private suppliers. No one company may own more than 20% of all the assets in the electrical industry as a whole, nor can it control more than 2 5 % in the southern and central regions where most of the load is concentrated.

In response to this new environment, in which competition is positively encouraged and prices are able to respond to market conditions, foreign investment has risen sharply and many once-abandoned projects have be restarted (see panel). The effects are still percolating through the industry, and will continue to do so as the freer market adjusts to these new conditions, weathering a 40% devaluation of the currency in 1999. The strength of Brazil’s economic recovery is indicated by the number of foreign companies investing in the country; which now include ABB (Switzerland), EdF (France), Duke Energy, El Paso Energy, Alliant Energy (USA), Endesa (Spain), EDP (Portugal) and Tractebel (Belgium). For Europe and North America, Brazil has now become the primary target for investment among the emerging economies.

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Fabian Ackw is a freelance journalist, Editor of The Science Reporter and Consultant Editor on Hydropower &Dams. He can be contacted at fabian.acker@easynet.co.uk.

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