Cablegate: Brazil's Supply of Electricity Sufficient for Now, But

Published: Fri 24 Jun 2005 12:15 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
REFS: (A) Brasilia 0775, (B) Sao Paulo 0721, (C) Brasilia 1239
1. (U) Summary: Brazil's electricity generation and
network continues to be strong and has been able to weather
recent troubles stemming from both politics and nature. Despite
a continuing drought in southern Brazil, the turmoil in Bolivia
that threatens natural gas supplies to Brazil, and a storm that
knocked out two of the Itaipu hydroelectric plant's (a major
supplier) transmission lines, no concern has been expressed about
a potential black-out because of Brazil's abundant electricity
generation capacity and flexible national transmission grid.
While the sector has been able to overcome these immediate
challenges, significant new investment is necessary in the next
few years for Brazil to avoid a power shortage. End Summary.
Lurking Dangers
2. (U) After facing a serious electricity shortage and rationing
in 2001 and 2002, due to an extensive drought and lack of
transmission capacity to move energy from surplus to deficit
areas, the GOB has made a concerted effort to improve the
national electricity generation and distribution network. In
terms of electricity generation capacity, the GOB encouraged
Petrobras to enter into several thermoelectric generation plant
contracts as a guarantor, thereby establishing a thermal power
insurance policy that would secure supply and help avoid another
shortage. The thermoelectric plants had the added advantage that
they could be constructed and enter into operation relatively
quickly. Brazil's electric power system has been able to ride
out three major incidents recently, showcasing its current
strength. First, southern Brazil is in the midst of its worst
drought in 40 years and there is widespread concern regarding the
impact on agricultural output (Ref A), local populations, and
hydroelectric generation. Second, the political upheavals in
Bolivia have called into question the reliability of the natural
gas supply to Brazil. Third, a recent storm at the Itaipu
generation plant knocked out two of its transmission lines.
Nevertheless, Brazil is not currently in danger of a repeat of
the 2001-2002 crisis.
Drought Pressure on Reservoir Levels
3. (U) The drought has depleted southern Brazil's reservoir
levels, which were just over 50% in May (but had risen to 70% by
mid-June). In response, the National Electric System Operator
(ONS) decided to increase production of electric energy at the
Itaipu plant by 10% to reduce demand on the hydroelectric supply
and thus conserve the southern region's reservoir levels. But
the low reservoir levels in the south are also offset but the
high levels in the other three regions, which are currently 94%
in the Northeast, 84% in the Southeast, and 97% in the North
(although the North remains the least interconnected of all the
4. (SBU) Rafael Machado, an engineer in the Brazilian National
Electric Energy Regulatory Agency (ANEEL), told EconOff that the
Brazilian system of hydroelectric generation relies on a system
of balances, in which, because of climatic variations, it is
assumed that there will be periods of time in which the rainfall
is lower in some regions and higher in others. He said that
right now, as a whole, there is plenty of water in reserve to
generate the necessary power, while there wasn't in 2001. In
addition, Machado explained, the infrastructure for transmission
of energy from one part of the country has expanded sufficiently
now to accommodate shortfalls in one region with the surplus in
another, which also wasn't the case in 2001-2002. The
flat landscape in the south generally does not allow for large
reservoirs, according to Machado, resulting in relatively smaller
reserves even during times of good rain. Although there are
serious water shortages for the human population and for
agriculture and animal husbandry, Machado pointed out that the
south does not have a problem with electricity supply. Machado
said that in southern Brazil the first line of defense against
shortages is the thermoelectric plants (which initially went
full capacity operation), but any additional shortfalls would be
met through energy transfers from other regions.
The Thermoelectrics and Natural Gas Supplies
5. (U) Because the thermoelectric plants generate a relatively
low proportion of the electricity consumed in Brazil, the
potential shortage of gas from Bolivia and the current shortage
from Argentina has not negatively impacted electricity
generation. Given the current electric energy glut in Brazil in
general, however, the thermoelectric plants have shifted to
playing more of a contingency role in the overall power
generation mix, which is dominated by hydroelectric power.
Thermal generation represents 18% of Brazil's overall generation
capacity, but much of that capacity is typically under-utilized.
This was fortunate, since Argentina has not sent Brazil all of
the natural gas that it contracted for due to shortfalls in
meeting Argentina's own demand. As a result, two thermoelectric
plants in southern Brazil that run on Argentine natural gas were
reportedly shut down temporarily. The excess in hydroelectric
generation capacity also made it easier to plan for a potential
cutoff in Bolivian natural gas supplies in view of the political
crisis in that country. Although the first step in Brazil's
contingency plan was to shut down its natural-gas powered
thermoelectric plants, such an action would not have stressed
power supplies. The possible rationing raised enormous concerns
for the city of Sao Paulo because of the large quantities of
bottled and natural gas consumed by both industries and
households there (Ref B); however, the consensus is that if
rationing does come to pass, it will not impact electricity
Storm at Itaipu
6. (U) A powerful storm on June 14 knocked out two of the
transmission lines at the Itaipu hydroelectric generation plant,
shutting down four of its twelve turbines and reducing its
operation to 60% of capacity. The ONS responded to the emergency
by restarting turbines at other hydroelectric plants that were
undergoing maintenance, activating natural gas thermoelectric
plants (through an agreement with Petrobras), asking the Angra I
and Angra II nuclear plants to increase their output, and
importing electricity from Argentina. The Director-General of
the ONS was reported in the press as saying that the solution was
indicative of how "robust the interconnectivity of the system"
is. (Completed in 1983, Itaipu is the largest hydroelectric
plant in the world and a joint venture between Brazil and
Paraguay; it has the capacity for generating up to 12,600 MW --
twice the capacity of the Grand Coulee in the United States.)
Comment: Is All This Sustainable?
7. (SBU) Brazil's combination of a relatively flexible energy
grid and its current hydroelectric power generation capacity
surplus allowed the country to weather recent challenges. To
meet Brazil's future energy demands, however, the electric energy
sector will require significant investments soon as the current
excess supply won't last forever. Time is short, as the GOB
needs to get new hydroelectric power plants under construction
now to meet supply shortfalls expected in 2009. This is
especially urgent in light of new findings reported by the
Brazilian Natural Gas and Petroleum Institute (IBP). The IBP
asserts that, because of the delay in the construction of new
hydroelectric plants, the thermoelectric plants will likely be
operating at full capacity in 2008 just to meet projected demand.
IBP says that would mean an increase in natural gas consumption
to close to 100 million cubic meters per day, even though the
forecast supply of natural gas for 2008 is only 70 million cubic
meters per day. In other words, even if the large natural gas
supply in Brazil's Santos Basin comes on-line early and the
proposed natural gas ring connecting Chile-Argentina-Uruguay-
Brazil materializes, Brazil will need a secure natural gas supply
to meet its future electricity demands, especially if the water
reservoir levels decrease.
8. (SBU) The Ministry of Mines and Energy (MME) is preparing its
first auction for new power generation plants under the GOB's new
energy model. The transition to the new model and a bungled
electricity supply auction (Ref C), however, has hurt many
existing private power companies in the sector and damaged the
MME's credibility with investors. The situation is not yet dire
as the MME could resort to filling the predicted supply gaps with
additional thermoelectric and biomass plants, which can be built
more quickly than hydroelectric plants, although Brazil would
still be faced with questions about the adequacy of its gas
supplies. Whatever the source of the energy, the upcoming bids
for new generation capacity should help answer the fundamental
question of whether the GOB will be able to attract significant
new private investment in the energy sector.
9. (U) This cable was coordinated with Consulates General Sao
Paulo and Rio de Janeiro.
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