Game on: Brazil’s race to energise World Cup and Olympics

Ivan Castano

Brazil is set to add 30 GW of power capacity to make sure the lights stay on for the world’s two biggest sporting events. But there is debate over exactly what energy mix will be producing this power.
Some 77 per cent of Brazil’s energy matrix is made up of hydroelectricity, with the current 84 GW of capacity set to rise to 94 GW by 2014

Latin America’s largest economy plans to install as much as 30 GW of additional electricity generation capacity by 2015, boosting output to 145 GW in readiness for Brazil to play host to the 2014 World Cup, and in 2016 the Olympic Games.

“We are all set to go,” enthuses Ricardo Baitelo, Greenpeace’s renewable energy campaign co-ordinator in Sao Paulo. “There is a positive power supply scenario at the moment. Three years ago there were some worries that we would not be ready for the events, but we are now ahead of schedule.”

But that does not mean the country is immune from energy challenges. According to Baitelo, Brazil could be saving a lot more energy than it currently does. Moreover, while the government’s new energy expansion scheme envisages a renewables blitz, Brazil’s abundant biomass resources could be more efficiently utilised to avoid chopping down trees in the Amazon jungle, where plans are afoot to build the Bel Monte hydroelectric ‘monster’ dam.

Overall, however, Brazil is raising its generation capacity at breakneck speed as electricity demand soars on the back of a booming economy, expected to be worth $4.23 trillion this year. The country, which has 200 million inhabitants, has achieved stellar economic growth in recent years, fuelled mainly by China and the US’ insatiable demand for its energy commodities – notably sugar cane ethanol. GDP has been climbing at around 5″7 per cent annually, spawning the region’s fastest-growing middle class consumer segment and generating exciting business opportunities for international investors and entrepreneurs.

Brazil’s explosive economic growth is expected to cool slightly before the 2014 FIFA World Cup. However, that year, the South American nation’s economy will eclipse that of other BRIC darling India to become the world’s sixth largest, according to the Economist Intelligence Unit. And by 2020, Brazil could also outflank Germany, becoming the world’s fifth biggest economy.

As it powers ahead, Brazil’s energy demand should rise around 7 per cent a year to 706.5 TWh in 2017, according to government-owned energy research firm EPE. By 2015, just a year before the Olympics, Brazil hopes to add 30 GW of electricity generation capacity, according to people with detailed knowledge of the state’s 2010″2020 power expansion plan.

Brazil will boost hydropower generation capacity to 94 GW from the current 84 GW in three years, they say. By that time, fuel oil-generation output will nearly triple to 6.4 GW from 2.4 GW, while diesel imports, which have been used to meet high-peak demand cycles in recent times, will fall by 300 MW.

In the renewables arena, wind energy will grow exponentially to 7 GW from 1 GW by 2014, and natural gas generation capacity should jump to 11.6 GW from 9.2 GW. Coal-based generation will also nearly double, while nuclear power capacity will stay at around 2GW. Biomass production will soar 62 per cent to 7.3 GW, the insiders say.

By 2020, the renewables build up shifts up to a much higher gear with wind capacity rocketing to 11.5 GW and biomass to 9.1 GW, turning Brazil into a global production powerhouse for those green technologies. Solar power’s future role, however, remains shrouded in mystery, as the state has yet to draft a clear strategy for how it plans to develop the sector which should benefit from Brazil’s sunny climate.

Analysts say Brazil should have 175 GW of installed power capacity by 2020, up from 115 GW currently, barring a worsening global economic scenario. Of course, all of these projects will cost a lot of money, around $100 billion, observers estimate, with the bulk of the funding shared between Brazil’s development bank BNDES, domestic and international private lenders and the producers themselves.

Unsurprisingly, a significant chunk of this expenditure will go to Rio de Janeiro, where the government is currently pouring in billions to expand the city’s electricity generation and distribution capacity. Under Brazil’s second growth acceleration development plan, Rio is to receive at least $465 billion ($263 billion) to update and expand its energy infrastructure, EPE sources say.

And through the Light for All programme, Brazil’s carnival beach town should also get R$30.6 billion to improve water supply and bring electricity to 495 000 new homes.

Finally, another R$57 billionn will be spent to bankroll the ‘Cidade Melhor’ (Improved City) scheme that will give Rio a facelift by improving and building new infrastructure, as well as cleaning up and restoring landmark buildings, tourist sites and roads.

Currently, some 77 per cent of Brazil’s energy matrix is made up of hydroelectricity, with natural gas thermal power plants following close behind. The country’s vast waterways – Brazil is home to the Amazon River – and heavy summer rains have made the development of hydro cheap and ideal for the state to develop. However, its fledgling hydro expansion plans are stirring up controversy, with environmentalists and indigenous populations complaining that the projects will negatively impact the environment and their habitat. This is because the bulk of the planned hydro capacity is set to come from the $15 billion, 11 GW Belo Monte dam project, which will is expected to mostly serve the Sao Paulo and Rio markets, located hundreds of miles away from the site and requiring the installation of a huge network of forest-cutting transmission lines.

Bright lights, big city, booming energy demand: under Brazil’s second growth acceleration development plan, Rio de Janeiro is to receive at least $263 billion to update and expand its energy infrastructure

As well as Belo Monte, Brazil wants to install two other hydro facilities of 3 GW each, to be placed alongside the Madeira River in Rondonia state.

“The large water reserves and landfill space required for these projects will displace the indigenous population and have a negative environmental impact on the northeast area of the Amazon Jungle,” says Jonathan Kendall, founding partner of Rio Energy Consulting-TSS Brazil.

As part of its ‘Stop the Belo Monte Monster Dam’ campaign, conservation group Amazon Watch is lobbying the government to scrap the project, which it claims will require unearthing more land than was removed to build the Panama Canal while chopping away 400 km of forests. The initiative will also force 80 per cent of the Xingu River to be diverted from its original course, causing a permanent draught on its ‘big bend’ that could force 20 000 indigenous people to leave the area, the group claims.

Kendall, whose firm is helping the government come up with new energy saving solutions, says Brazil should exploit its vast waterways to develop small hydropower projects that could match, and therefore avoid, Belo Monte’s construction.

“This is a uniquely Brazilian phenomenon,” Kendall says of the country’s vast river network, adding that building small scale power turbines on them would be a “much less” environmentally and socially damaging way to expand Brazil’s hydropower capacity.

Naturally, Baitelo agrees, adding that Belo Monte will not only “destroy a lot of trees and kill many fish” but will also have a 40 per cent electricity yield compared to 80 per cent for Itaipu, billed as the world’s largest hydroelectric plant. The dam sits at the Parana River but feeds from a much larger reservoir.

More precisely, Baitelo claims Brazil could generate as much as 25 GW of power by developing the small hydro plants Kendall suggests. The facilities could be distributed in southeast and central Brazil where there is a large network of small rivers and could meet the power needs of small cities with populations of 30 000. The projects would be small, ranging from 1 MW to 30 MW, but would certainly help avoid the need for Belo Monte, which the government claims will serve the Amazon and northern Brazilian region but will more likely power Rio and Sao Paulo as “we have a lot more demand here”, Baitelo says.

Baitelo also slams the state for exaggerating the country’s future energy needs and economic growth rates, claiming that electricity demand is growing at a lower 4 per cent rate.

“The government’s demand predictions are much higher than they truly are,” he charges. “They say we need to add 3″5 GW a year of capacity to meet the 7 per cent requirement, but this is not the case.” According to Baitelo, “the only time demand grew 7 per cent was in 2009, while during the whole past decade demand only rose 3 to 4 per cent a year”.According to industry observers, Brazil could “comfortably reduce” its energy requirements by 10 GW if it steps up its energy saving policies. “If we could use our energy more efficiently, Belo Monte would not be needed and we could do a lot for the environment,” Baitelo notes.

Brazil’s energy regulator Aneel, as well as other main government energy agencies, refused to comment for this article or would not return messages. Echoing other observers, Baitelo claims the state could be doing more to bolster energy savings, adding that this could be done in three ways.

First, it should invest more to encourage Brazilians to install solar heating panels, as 30 per cent of households’ energy consumption comes from using electric heaters for showering and other purposes. This could be done by offering subsidies to citizens willing to make the switch, which Baitelo says is expensive — up to $3000 per household — but worth it in the long run.

Already, Brazil has mandated public housing buildings, hotels, gyms and other large residential commercial real estate to use solar heating panels, so the switch is taking place, albeit slowly. Encouraging the use of efficient lighting should also be pursued, as businesses and residences still use inefficient incandescent light bulbs. Baitelo says the government has banned the local production and import, mostly from China, of the bulbs and is fostering the use of more eco-friendly fluorescent alternatives. However, there is still a long way to go for the initiative to make a positive impact, he adds. Lastly, the state should expand its energy-efficient appliance certification programme to encourage consumers to chuck their older fridges or stoves.

Baitelo claims the state has already saved 11 GW through its 25-year-old energy efficiency program, at a cost of just $50 million, demonstrating that big energy savings are in fact achievable. “This shows the cost-effectiveness of energy efficiency measures in comparison to building new plants,” he adds. “Belo Monte will also have an 11 GW capacity, but will cost more than $15 billion dollars to build,” he adds.

Loretti Portofe de Mello, a sustainability consultant at energy consultancy Andrade & Canellas, agrees Brazil could be saving more energy, especially as 48 per cent of power production stems from renewable sources, giving it “more flexibility to implement energy efficiency policies than other countries”.

According to de Mello, Brazil hopes to cut 10 per cent of electricity demand by 2030 via a recently updated energy efficiency plan. Under the scheme, it will seek to lower households’ and businesses’ energy waste through marketing campaigns and reward schemes. It will also invest to develop new power-saving technologies and introduce university degrees and other training programmes in power efficiency.

The government’s current power expansion plan shows it has become much more serious about promoting renewable power and building a more energy efficient society, something that was long overdue, observers point out. “They needed to show they will balance the energy matrix,” Kendall says. “It is too heavily weighted on hydro so it’s a good thing they are finally working towards this goal.”

Nevertheless, Kendall says the government will need a new and more skilled electricity management and planning apparatus (which has been critised for red tape and inefficiency) to successfully change the energy matrix.

Government criticism aside, the renewables power sector is certainly happy with the state’s new and exciting plans to develop the industry. According to the EPE’s 2010″2020 power expansion plan, wind capacity will soar to 11.5 GW by 2020, biomass to 9.1 GW and hydro to 115 GW. Nuclear power could also get 3.4 GW if the Angra 3 project, which would become Brazil’s third largest nuclear facility, comes on stream. That possibility has become a subject of debate as some industry insiders wonder whether the government will finish the facility after the Fukushima disaster. Others, however, say the state has been planning the complex for 25 years and is keen to complete it.

But everyone concurs wind will not be the subject of any such debates. The government is set to launch the so-called Minus-3 auction plan in the middle of 2012 when a slew of wind projects will be put on the block for construction within a three-year time frame. In mid-2012, there will also be another Minus-5 auction that will sell off wind projects within a five-year time line. Already, some 100 projects are scheduled for construction, proof that wind will definitely be a huge industry in Brazil in coming years. This fact is known by large international developers such as Gamesa, Iberdrola, Vestas and Alstom, which are licking their lips in anticipation of the tender contracts, especially as these are likely to be more profitable. This is because the government will introduce equipment-import and other tax breaks, as well as cheap financing rates through BNDES. A feed-in-tariff is not planned, however.

Brazil’s current power generation mix is dominated by hydroelectric power, but other renewables are expected to play an increasing role Source: Empresa de Pesquisa Energ√©tica (EPE)

“The production price will go down to 200 reais or even 100 reais from around 300 reais now,” says an industry observer who did not want to named, adding that BNDS will also offer “very attractive financing conditions” to ensure the projects get done.

Kendall agrees wind will save the day. “The state has realized that at an average cost of R$100, compared with R$103 for thermal production and R$102 for biomass, that wind will diminish its long-term energy costs.”

Observers say the wind expansion is so aggressive the wind farms could very well overtake natural gas as Brazil’s second power generation resource in five years. “Right now the majority of the thermal power plants are mainly running on natural gas with 5 per cent of generation, though there is a small percentage of oil and diesel, accounting for 4 per cent and coal for 1.8 per cent,” Baitelo details. “But the government doesn’t want to build more fuel powered plants after 2015 as oil and biodiesel are more expensive to import and more polluting.”

Natural gas is also likely to fall out of favour after 2015 as new wind, hydro and biomass facilities come on stream, says Portofe de Mello. However, she agrees that the government may be more flexible with natural gas as Brazil has abundant offshore resources, so it may not want to reduce natural gas production that much.

Kendall added natural gas will get a near to medium-term boost as the government works to replace expensive fuel and biodiesel imports with it, boosting investment to develop its natural gas reserves (as well as liquefied natural gas import facilities) in the next couple of years. Echoing other observers, Baitelo says there is still some flexibility about how the future energy matrix will look like. This is because the EPE updates the energy expansion plan every year, so some of the current development plans may be changed, he notes.

However, most analysts expect hydropower and renewables to gradually become the country’s leading power generation resources in the next decade. Because of its large sugar cane, wood and other plant and animal waste resources, industry observers are unsurprised that biomass will become Brazil’s second-largest renewable power source by 2020. However, they are puzzled by the lack of an official expansion scheme for solar.

“The 2020 plan has nothing at all for PV solar development,” adds the Rio executive. “Even though the government wants to promote solar panel heating, they have no large-scale plan for solar energy generation. This means that in ten years, the future matrix will probably be led by wind, biomass and hydro with very little solar and fossil fuels in the mix.”

Kendall, however, expects the use of heat-related technologies such as “passive solar and heat-engine capabilities” to grow strongly in coming years. High-tech batteries will also likely be developed to meet high-peak cycles.”

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