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South America views hydro boom

South America views hydro boom

Although gas fired plants will become much more widespread, South American countries are determined to maximize the use of hydropower to meet increasing demand. PEi looks at what developments are afoot.

While gas has emerged as the power fuel of the future, water remains the dominant source of power in South America. In every country, with the exception of Argentina, hydropower represents more than 50 per cent of the share of total electricity output. Hydropower`s predominant position will soon face severe competition from gas-fired thermal plant as a result of cheaper construction and operating costs and distance from consumer markets. But in the meantime, most states seem determined to continue harnessing their abundant water resources to meet expected growth in demand.

This is above all the case for the continent`s economic powerhouse, Brazil, which has the largest hydropower resources in South America, and which is the scene of greatest activity in new plant construction. With an installed capacity in excess of 54 000 MW, Brazil`s hydropower sector accounts for 95 per cent of the country`s total power output, generating over 300 000 GWh/yr. Impressive as this may be, less than a quarter of its technically feasible potential has so far been developed.

Current developments suggest that Brazil has not overlooked this fact. About 10 800 MW of new hydro capacity is currently under construction, including the 1450 MW Ita, the 1814 MW Porto Primavera, the 1240 MW Salto Caxias and the 1293 MW Serra da Mesa. In addition, plans are afoot to develop another 15 000 MW.

Hydro development also continues apace the length and breadth of the Andes in Colombia, Chile and Venezuela.

Venezuela

With an installed hydro capacity of some 13 000 MW, Venezuela has the second largest hydro capacity in the region, generating 65 000 GWh/yr – 75 per cent of the country`s production. There is 4800 MW of new hydro capacity currently under construction at the 2160 MW Caruachi, 2160 MW Tocoma and 480 MW La Vueltosa plants, but it is likely that the country will soon turn its attention to developing new thermal plant, fired by indigenously produced oil and gas.

Despite one of the worst droughts this century, which has caused power shortages, the country continues to focus its attention on the development of new hydro capacity. In March this year, state power utility Endesa announced the award of a $58 million turnkey contract to Alstom for the construction of the 570 MW Ralco hydroelectric plant on the Bio-Bio River. Alstom, which built the 500 MW Pehuenche hydro plant for Endesa, said the project is scheduled to come on-line in 2002. A further 2000 MW of capacity is planned for construction over the next ten years.

Chile

As the drought lengthens, criticism of Chile`s heavy reliance on hydroelectricity has increased, with Endesa coming under particularly heavy attack. According to Maria Isabel Gonzalez, the former head of the government`s National Energy Commission, the generator`s insistence on bringing forward its Ralco plant to 2002, instead of the government`s recommended date of 2005, has stopped new investment in thermal capacity by absorbing the projected increase in power demand. As a result, she claimed, the $300 million GasAndes pipeline from Argentina is under-used. It is capable of supplying seven combined cycle plants, but only three have been built and no more are presently planned.

Major central Chilean cities, including the capital Santiago, have suffered power cuts in recent times while demand has continued to rise near its normal seven per cent annual rate, apparently pushed up by the installation of pumps to capture underground water for agricultural use. By mid-March, only 35 per cent of the country`s electricity output was derived from hydropower, down from 80 per cent. Most reservoirs, including the Laja Lake which normally generates 20 per cent of central Chile`s electricity, are at or near their minimum levels and much of the remaining water is reserved for agricultural irrigation.

Peru

Further north, Peru has seen a resurgence of interest in hydropower development. This followed a period during the 1980s when an economic crisis, coupled with energy policy and legislation, led to priority being given to oil- and gas-fired plant. However, new energy legislation, which came into force in late 1992 permitting private investors to generate and sell power into the national grid, helped to accelerate a new programme of medium-scale hydro development.

A prime example has been the 40 MW Yanango and 142 MW Chimay plants, which are being developed by Perene, a local hydro project development company, in association with the country`s main privately-owned generating company, the Spanish-controlled Edegel.

According to Juan Solidoro, vice-president of Lima-based S y Z Consultores, which was responsible for the initial studies for Yanango and Chimay, hydro projects have become considerably more attractive in the past few years. First, he says, investors now use the engineering, procurement and construction system (EPC), while technical advances have made hydro plants quicker to build. In addition, the prices of hydro turbines have fallen dramatically in line with the drop in demand worldwide. “In the 1980s, you used to be talking of $2500/kW to build a hydro project in Peru, now you can do it for $1000/kW,” he said. “Hydropower is economic again.”

Argentina

More economic they may be, but Argentina is investing in gas-fired plant to meet its demand growth. Current hydro capacity of 10 GW accounts for over half of the country`s total generation capacity, but only produces 20 per cent of total output. Unlike most of the other countries in the region, its hydro potential will not be exploited to the same extent.

Although only 25 per cent of its technically feasible potential of 130 000 GWh/yr has so far been developed, the country`s extensive gas/oil production combined with the cost of natural gas mean that economically feasible hydro potential is very low. Falling operating costs for gas turbine and combined cycle power plants have placed them in a very competitive position. However, the potential for gas exports to Uruguay, Brazil and Chile, along with the expected increase in peak power demand, could improve hydro`s prospects longer-term.

Regional cooperation

There has been an unprecedented amount of regional cooperation between Latin American countries in recent years, both in cross-border trade and in joint development projects, a concept almost unthinkable only a decade ago.

Paraguay has developed two massive hydro plants, on the Parana River – the 3100 MW Yacyreta scheme and the 12 600 MW Itaipu plant – which are jointly owned and operated by Argentina and Brazil, respectively.

Yacyreta was recently completed with the commissioning of the 20th and final 155 MW unit, while two new 700 MW units are currently being added to Itaipu, the world`s largest hydroelectric project.

Itaipu currently has a potential of 12.6 GW, though it is expected to reach 14 GW in 2001 when the last two generators are completed. The plant produced record power of 98.2 TWh in 1997. It supplies nearly 90 per cent of Paraguay`s power requirements and 25 per cent of Brazil`s demand.

Another bi-national scheme between Argentina and Paraguay, located between the Yacyreta and Itaipu schemes on the Parana river, is currently under discussion though its future hangs in the balance. The Corpus project would have a capacity of between 3000-6000 MW.

After a decade of painful free-market reforms, which were just starting to bear fruit, South America soon became the next victim of the crisis which had already toppled Asia and stalled growth in Eastern Europe and the FSU, as flighty foreign investors ran scared.

However, although regional growth forecasts may have been downgraded in the light of last year`s economic downturn, South America has shown it has no intention of relenting in its efforts to ensure that the continent has a modern power sector to match its economic aspirations for the new millennium.

Investment

In the past a lack of adequate investment by successive governments left much of South America`s generation potential untapped and its transmission networks inefficient and unreliable. Over recent years, however, the majority of Latin American countries have embarked on privatization programmes aimed at injecting much needed finance, technical and management expertise and competition into previously state-dominated power sectors.

Four of the regional economies already have a fully privatized power sector – Argentina, Chile, Peru and Bolivia. Colombia has a partially privatized power industry while Brazil is on its way to privatization. Ecuador, Paraguay, Uruguay and Venezuela are likely to follow in the next four years.

As a result, an increasing number of the continent`s hydro plants have been or will be transferred into private ownership, nowhere more so than in Brazil, which continues to be the main attraction. Despite growing concern about the future of the privatization programme, following a 50 per cent decline in the value of the Real, since the financial crisis last year, the country`s four largest generating companies, Furnas, Chesf, Eletronorte and the Sàƒ£o Paulo state`s generating company CESP, are to be offered for sale at auction this year.

Between them the companies are responsible for almost two thirds of the country`s installed capacity of about 63 000 MW.

Pressure to press ahead with the sell-off is mounting given Brazil`s commitment to the IMF to reduce its public sector debt, but the government is concerned that buyers may be reluctant to pay the minimum price set for some of the assets. This is, however, unlikely to affect the sale of the generating companies in general, most of whose assets have been built in the past 25 years, though it might affect some of the remaining distributors.

First up for sale will be the generating assets of Brazil`s largest generating company, state-owned utility Companhia Energetica de Sàƒ£o Paulo (CESP), which are expected to be sold in the second-half of this year. Sàƒ£o Paulo State, the controlling shareholder in CESP, has divided the utility into three generating companies, one of which will retain the name CESP, and one transmission company.

The new CESP will keep more than half of the utility`s 10 500 MW in hydropower assets, while the remaining hydro plants will be divided between Compania de Geracao de Energia Electrica Paranapanema (Geradora Parana- panema) and Companhia de Geracao de Energia Eletrica Tiete (Geradora Tiete). The new CESP will retain hydro plants totalling 5600 MW, including Ilha Spolteira, Jupia and Sergio Motte on the Parana river, Tres Irmaos on Tiete river, Paraibuna on the Paraibuna river and Jaguari on the Jaguari river.

Geradora Paranapanema will own plants totalling 2300 MW, including the Canoas 1 and 2 schemes, Jurumirirn, Chavantes, Salto Grande, Capivara, Taquarucu and Rosana, all on the Paranapanema river. Gerador Tiete will own plants totalling 2600 MW, including the Barra Bonita, Bariri, Ibitinga, Promissao and Nova Avanhanava stations on the Tiete river, as well as the Agua Vermelha scheme on the Grande river and the Caconde, Euclides da Cunha and Limoeiro plants on the Pardo river.

The sale of CESP will be followed later this year by those of three other generating utilities – Furnas, Chesf and Eletronorte – though it is possible that the government may delay selling the latter two until 2000. The three generators – all owned by the state power sector holding company Eletrobras – are to be split into nine separate companies before privatization.

The first to go will be Furnas, which is scheduled for sale in the second half of 1999. Furnas, which has an installed capacity close to 10 000 MW, is first to be split into two generating and one transmission company. Furnas` assets are located in the southern states of Minas Gerais, Rio de Janeiro and Goias. A minimum price of about $4 billion is expected to be set for the two generators, while the transmission arm will be taken over by Eletrobras.

Chesf, whose 10 000 MW of capacity is located in Minas Gerais, Bahia and some other states in the northeast, is to be split into three generating and one transmission company. The latter will be taken over by Eletrobras, while a minimum price of $3 billion is expected for the generators. The Eletronorte company, whose principal asset is the 4245 MW Tucurui power station is to be split into a generating and a transmission company, and about $1bn is expected for the generating side.

The other major hydro asset up for sale this year is likely to be in Peru, where state-owned power company Electroperu seems set to sell its 1200 MW Mantaro hydroelectric complex for $1-1.3 billion. The complex, which generates 35 per cent of the country`s power, is located in the central north interconnected system and consists of the Santiago de Mayolo and Restitucion plants.

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Figure 1. The Ventanilla gas fired power plant in Peru. Gas is an emerging fuel in some South American countries

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Figure 2. Brazil has the largest hydropower resources in South America

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Figure 3. Most reservoirs in Chile, which normally generate 20 per cent of central Chile`s electricity, are at or near their minimum levels

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