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19th World Energy Congress – 2004

Round Table 1 – Non Fossil Fuels:

Will They Deliver?Jerson Kelman

President, Brazilian Water Agency - ANA

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Area: 8,5 million km2

Hydrological variability

Federative Republic: - 26 States + 01 Federal District - 5,561 Municipalities

13 River major basins

BRAZIL

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BRAZILIAN POWER SYSTEM

Thermal power plantHydro power plant

Hydroelectric share:

90% of 85,000 MW

96 Hydropower plants > 30 MW

57 Regulating reservoirs

Hydropower plants and regulating

reservoirs in the same river basin

are owned by different companies

Country is interconnected by 80,000

km of high-voltage lines

Centralized energy dispatch

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FIRST POWER SECTOR REFORM (1996)

Rationale:– Public sector had no $ to invest

– Promote economical efficiency

Guidelines:– Private investment and competition in energy

generation and retailing

– Transmission and distribution would remain regulated, with provisions for open access

– Short-term energy prices would provide the signals for new investment

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Reforms based on the same principles had worked in countries based on thermal production.

Would it work in a country like Brazil, based on hydro?

FIRST POWER SECTOR REFORM (1996)

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SOUTH-SE SystemEnergy Wholesale Market Prices (US$ / MWh)

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Problem: spot prices are usually too low; when they increase sharply, it is too late for new investments

Problem: spot prices are usually too low; when they increase sharply, it is too late for new investments

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The reform process failed to provide the required incentive for the construction of additional generation capacity

(Partly) because of this market failure, the country faced a severe rationing in 2001-2002

20% reduction on overall electricity consumption, for nine months

FIRST POWER SECTOR REFORM (1996)

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SECOND POWER SECTOR REFORM (2004)

• Under the new regulation, distribution companies contract new capacity five years in advance, through a public auction scheme:

– 20-year contracts are offered

– Selection is based on smallest tariff

• The awarded contract gives security to investors and serves as a guarantee for the project finance

• In the coming months, electricity produced by existing hydro power plants (~55,000 MW) will be auctioned

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Which are the alternatives to increase electricity production?

Estimated cost of new electric energy (US$/MWh)

Hydro 34

Thermal (gas fired) 40

Sugarcane biomass 40

Wind* 70

* Brazilian Government provides subsidies

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Potential (millions Gwh/year)

Used

70%

1.0

North America

72%

0.8

Europe

33%

1.6

6%

1.0

21%

3.6

South America

Africa

Asia

The use of hydro power potential

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Amazon Region

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ENVIRONMENTAL MANAGEMENT

Concern: The social and environmental impacts caused by large hydroelectric projects implemented in the 70s and 80s. What’s new?

Methodology to screen out, at the river basin scale, the sites for construction of hydroelectric power plants which would not be social or environmentally feasible.

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ENVIRONMENTAL MANAGEMENT

• Brazil needs to ensure a sustainable growth of energy supply.

• Hydroelectricity cannot be spared.

• The strategy is to select a set of sites that would cause minimum environmental and social impacts.

• However, we are not seeking for a set that would cause no impact.

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SUGAR CANE IN BRAZIL

• 5 millions of hectares

• Sugar cane: 360 millions tons/year

• Ethanol: 14 million m3/year

• Cars run with 75% gas and 25% ethanol

• Flex fuel

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SUGAR CANE IN BRAZIL

• Power produced by sugar cane biomass: 2,100 MW (2/3 self consumption)

• Share of electricity surplus can be increased through the use of better technology

• Total reduction of CO2: 46 million tons/year