Brazil is one of the most captivating countries in the world; from the golden beaches of Rio to its lush Amazonian forest in the west. Yet, things are not quite right in paradise.
Despite it being a paid-up member of the exclusive BRIC nations club, and the largest economy in the Latin American region (and the sixth in the world), there is growing concern over the sustainability of Brazil’s economic growth. In a recent forecast from its central bank, the economy is only expected to grow 2.2 per cent this year, with a timid 0.4 percentage point rise next year. Standard and Poor’s goes further. In a report released last month by the rating agency, it foresees three years of weak growth, based on modest exports, declining private-sector investment, and the possibility of lower household spending. Clearly this Latin American nation is facing challenging times.
A particular area of concern is the reported drying up of the much-needed and significant investment to overhaul Brazil’s major infrastructure, which clearly has implications for its power sector and its future development.
According to EPE, the government-run energy research company, electricity demand is expected to be more than 50 per cent higher in 2021 than it was back in 2011. Thus the Brazilian power market has huge potential for investors and industry players alike.
The government also has a development plan in place. Earlier this year, the government confirmed that a jaw-dropping 110 GW would have to be added to Brazil’s installed capacity over the next 15 years to meet demand. To put that in context, it represents twice the current installed capacity and eight times the potential of the 14 GW Itaipu hydroelectric dam, jointly operated with Paraguay.
According to 2012 figures from the government, hydropower was responsible for 86 per cent of overall power production. And Marcio Zimmermann, the federal mining and energy secretary, has made it clear that “hydroelectricity is the flagship producer”, but also emphasized that “greater investments were needed in alternative sources”, such as wind, thermoelectric, nuclear and solar to create a “reliable generation mix”.
Yet, there is a current disconnect between what is ‘wished for’ and what is actually happening on the ground. As an example, the government once again pushed back the date of its A3 energy auctions by a month – from 25 October to 18 November. The concern this postponement raises is that developers will face an even tighter schedule to get successful projects up and running.
The pressing nature of the situation was also perfectly illustrated in April, when the government was forced to deny there was a threat of power shortages during next year’s World Cup because of a lack of sufficient infrastructure to guarantee a reliable supply. And that is without considering the Olympics in 2016.
Hydropower will undoubtedly continue to be the mainstay of Brazil’s power mix, as it is in many other countries in the region. One of the flagship projects underway is the 11.3 GW Belo Monte dam, located in the Amazonian region of Para. Norte Energia, the power company heading up the project consortium, recently confirmed that a third of civil works were now complete and that it expects the facility to come fully on line in 2019.
However, the installation of another large hydroelectric facility alone will not help to plug the widening gap between supply and demand. In recent years, Brazil has suffered quite severe droughts, which have led to water levels plummeting in its reservoirs and a corresponding fall in the outputs of the hydroelectric dams. To counteract the supply deficit old, inefficient and in many cases dirty oil-fired thermal plants are fired up, which are also expensive to run. So clearly Brazil needs to diversify its generation mix and to do this with some haste. Renewable energies (excluding large hydro) are important, but again you run into the intermittency issue, so modern, efficient gas-fired plants are essential, as is new nuclear build.
I don’t want to say it’s all doom and gloom for the Brazilian power sector because it’s not, but we are in challenging times. And you know what that means? It means there will plenty to discuss and debate at the upcoming POWER-GEN Brasil, which launches in Sao Paulo later this month.
Electricity demand in Brazil is expected to be more than 50 per cent higher in 2021 than it was in 2011. Thus despite challenges, of which there are many, the power market here has huge potential
Dr. Heather Johnstone
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