1 19 th World Energy Congress – 2004 Round Table 1 – Non Fossil Fuels: Will They Deliver? Jerson Kelman President, Brazilian Water Agency - ANA

2 Area: 8,5 million km 2 Hydrological variability Federative Republic: - 26 States + 01 Federal District - 5,561 Municipalities 13 River major basins BRAZIL

3 BRAZILIAN POWER SYSTEM Thermal power plant Hydro 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

4 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

5 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)

6 SOUTH-SE System Energy Wholesale Market Prices (US$ / MWh) Problem: spot prices are usually too low; when they increase sharply, it is too late for new investments

7 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 % reduction on overall electricity consumption, for nine months FIRST POWER SECTOR REFORM (1996)

8 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

9 Which are the alternatives to increase electricity production? Estimated cost of new electric energy (US$/MWh ) Hydro34 Thermal (gas fired)40 Sugarcane biomass40 Wind*70 * Brazilian Government provides subsidies

10 Potential (millions Gwh/year) Used 70% 1.0 North America 72% 0.8 Europe 33% 1.6 6% % 3.6 South America Africa Asia The use of hydro power potential

11

12 Amazon Region

13

14 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.

15 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.

16 SUGAR CANE IN BRAZIL 5 millions of hectares Sugar cane: 360 millions tons/year Ethanol: 14 million m 3 /year Cars run with 75% gas and 25% ethanol Flex fuel

17 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 CO 2 : 46 million tons/year