Brazilian Energy Sector: the governmental agenda 2015 to be faced

Transcription

1 Page1 Brazilian Energy Sector: the governmental agenda 2015 to be faced 08/08/2014 By Renato Queiroz From time to time, developing countries have considered new priorities in their public policy agendas. When Brazil brought back its democratic system in 1985, we have followed the debate on priority subjects for the country, such as: methods to control inflation, to improve income distribution, and to reduce violence in the cities to name a few. In this direction, governments had been developing public policies, in order to solve such demands. Currently, among the priorities in the table of the next Brazilian president, in 2015, the infrastructure sector certainly in the top of this list. This word is meaningful, because it includes items, such as public transport, basic sanitation, housing shortage, supply of energy. By analyzing the item energy, we still have new branches, from supply and transport of energy to its use by the industry, business, dwelling, transport. For the next years, therefore, the energy sector will be on the top of priorities with respect to the modernization of the infrastructure sector in the country. Certainly, the current crisis of the Brazilian electric sector and the problems faced by ELETROBRAS and PETROBRAS concern all those involved with the sector. Thus, energy specialists will be evaluating more and more the energy planning. The energy policies, at their macro objectives, attempt to assure the operation of the energy market, by taking into account the strategic role played by the energy resources, to guarantee the energy security in the country. It is important to understand that such policies must include several economic and social interests of the society. Throughout its political history, Brazil had as cultural trace the preparation of economic and/or energy plans to solve great hindrances in the economy, energy system, etc. A good example is the Plan of Goals in the 1950s that drew a significant change in the production structure for the country. The energy, transport, and heavy industry sectors received more than 90% resources from the Plan. Other examples can be mentioned as well. In the case of electric sector, the Report CANAMBRA[ i], 1966, was the forerunner of the 10-year plans for the expansion of supply of electric energy developed by Grupo ELETROBRAS. These plans were significant tools to find out new generation and transmission plants to supply the society s increasing demand of energy. ELETROBRAS also prepared the first long-term plans for expanding electricity, with domestic coverage, exceeding the decennial period.

2 Page2 Then, we have to mention the Plan 1987/2010 and Plan 1993/2015. These studies had established a methodology that are references until now for the 10-year energy plans developed by Energy Research Company - EPE, in another context of trading electric energy. Nowadays, energy plans have an indicative function for the investors in the energy industry. They are tools considered strategic by the government, because they show which technologies should make up the Brazilian energy matrix. An important consideration: the Brazilian State s energy planning has been supported mainly by ELETROBRAS and its subsidiaries and PETROBRAS for the accomplishment of the energy policies. These companies have had a strong presence in the development of the Brazilian energy sector. Historically, any signal of instability in the energy market leading to lack of trust by investors, such companies were called to balance the market. The history also taught us that these companies acted, due to economic interests at that moment, such as to contain inflation or seek investments to cover government s balances, there was no stability expected in the energy market. The current moment is of expectations in relation to the energy sector, from 5 to 10 years, because there are several demands of players acting mainly in the electric and oil and gas industries. Concerns are lesser in the long-term. Brazil has many opportunities and has more time for new strategies and changes of route. Actions in energy policy from 2015 onwards bring expectations to correct some routes to the investors. By the way, which are the main issues that the Brazilian energy sector has to face in the short and medium-term? Initially, it is important to mention that many technologies involved in the energy segments of peripheral economies depend on the circumstances that occur in the technological markets of the developed world. Nations, such as Brazil, with no technological base, have employed the technology transfer, in addition to importing manufactures or encouraging the settlement of plants in the country. In the Brazilian case, the long strategy of import substitution did not bring expertise to the country to advance technologically. Thus, it is important to observe international studies on the global energy markets, for they show the possible ways for the domestic energy industry by technological dependence. Moreover, these studies have been employed for the development of business-oriented strategies of important players in the global energy industry. Periodically published studies are outlining a future panorama of the energy sector by international agencies, such as those by the International Energy Agency (IEA) that disclose an annual report (The World Energy Outlook-Weo), by subsidizing its member countries to prepare energy policies. Also, private companies prepare reports, mainly oil and gas companies. When they are consolidated as integrated companies, with global performance, they have interest in developing energy panoramas and prospect the future of the energy

3 Page3 technologies at global level. Shell, Exxon Mobil, and British Petroleum-BP, as an example. Still in this context, there are institutions that develop global energy researches, such as the U.S. Department of Energy (DOE) that is responsible for managing the energy policy of the United States. DOE annually discloses a panorama of the global energy (The Annual Energy Outlook - AEO), in addition to finance scientific researches in the energy field. ExxonMobil, for example, in its last study The Outlook for Energy: A View to 2040, outlined the global energy panorama for the next years and informed that the world will have more 2 billion people, that is, 9 billion people in the world. The forecast for increasingly energy demand, according to Exxon, between 2010 and 2040, will be 35% greater, and half of this increase will come from India and China. The energy demand in dwelling and business establishments will increase by 25%. This study shows that the perspective is the electricity supplying 40% of global demand in these segments. We have to mention that Brazil is part of a list of countries that in 2040 will have an energy demand close to the China s level. A good reference is the annual report of the International Energy Agency, the World Energy Outlook - WEO, including in 2013 a chapter on Brazil, for AIE annually picks a country to be studied. By selecting some items from this chapter, the Brazilian energy demand should duplicate by 2035, and the transport sector should exceed 75%. Pre-salt will place the country among the biggest oil producers in the world and its production will be tripled; production in 2035 is estimated in 6 million barrels per day, and the country will be the sixth global producer. Also according to the study, the country would depend mostly on PETROBRAS investments to achieve this production. Regarding the electricity sector, the IEA expects hydroelectricity will remain the flagship of electricity generation, but with a declining participation in the energy matrix. As the potential to be explored is in the Amazon region, the total exploitation of this potential for hydroelectric generation hardly will occur. The wind, natural gas and biomass will have increasing participation in supplying. In the transport sector, ethanol will have an expressive participation, according to WEO The 10-Year Plan for Expansion of Energy (PDE) is the Brazilian medium-term planning tool - the last one is the PDE -2022, approved in January In summary, the study states: i) A high consumption by 4.1% per year from 2013 to 2022 driven by trade with almost 6% per year. ii) The new installed capacity for energy generation will reach about 63 GW, and the hydroelectric generation will have the biggest participation; from 2018 to 2022, this generation will add about 20 GW. New studies for remodeling the drawing of the São Luiz

4 Page4 do Tapajós hydroelectric plant, in Pará, however, will increase by 30% its installed power, changing from 6,133 MW (according to the PDE) to 8,040 MW. Thus, the perspective of the governmental planning for the UHE installed capacity in 10 years is 22 GW. iii) Regarding other renewable resources, about 20% of the total capacity foreseen is the wind, biomass, and PCH sources and about 2.5% of thermal plants, mainly the natural gas ones. More coal to be contracted in auctions is an alternative. We have to mention that the great change occurring in the electric matrix is certainly the increase in the participation of the wind energy. PDE 2022 foresees practically four times the MWs, at the minimum, generated by the winds. The forecast is 17 GW of wind generation by 2022 in the country. iv) The natural gas and biomass thermal generation should reach about 14 GW, each one, and the small hydroelectric plants about 7 GW. The expected participation of the solar energy, according to the governmental planning, will be in auctions, to encourage the development of this industry. The Auction of Reserve Energy, in October 2014, will include, among others sources, the photovoltaic solar energy, with 20-year agreement, to supply by October v) The 10-year period does not include new nuclear power plant, in addition to ANGRA III, whose startup is expected by vi) Other actions are also considered in the plan, to supply energy as efficiency energy (conservation reaching 48 TWh), auto-production (115 TWh), and microgeneration (1.9 TWh) by vii) The increase in the light vehicle fleet will occur by importing gasoline over that period, by taking into account a reduction in production of ethanol, mainly up to 2016, when new producing units will have conditions to increase the supply. viii) The capacity of biomass from sugarcane, to generate electricity, will increase if competitiveness for this source is solved. ix) The country should produce more than 5 million barrels of oil per day by 2022 and it will export oil and oil byproducts as liquid. x) In the case of supply of natural gas, there will be an increase in its participation due to internal production, importation in the current levels of the Bolivian gas, and importation of LNG. By considering the great trends over the same periods, IEA reports and PDE 2022 are consistent, as we expect.

5 Page5 After 6 months of analyses and debates on PDE 2022 by the energy community, however, there are two items to be considered: 1) which are the challenges and difficulties that facilitate these energy forecasts? 2) in addition to referential scenario, is there another one developed by the planning to face possible obstacles that can hinder the accomplishment of the great goals foreseen? According to those that agree with the governmental planning scenario, these forecasts will be carried through, because such projects will be concluded within deadlines. In case of obstacles that can hinder any important goal, government will act to put it on track. Some experts estimate that the turbulent environment experienced by the electricity sector, in addition to the concerning current circumstances of PETROBRAS, is due to several factors, and not related to structural situations. They have considered that the landmarks and action planned to energy sector will be achieved. The critical experts have observed considerable concerning issues for the result foreseen by the energy planning: Firstly, in relation to the hydroelectric expansion, there are uncertainties if all the set of plants planned in the medium-term will start up as expected. As example, S. Luiz do Tapajós with about 8 GW, considered as strategic one to expand the supply of hydroelectricity. In addition to the usual environmental and social conflicts, this work will face miner, who are working on river bank, and agribusinessmen and their corresponding demands. There is information that more than 100 miner s law suits are at Court. The Nature Conservancy TNC is a NGO developing a study called Projeto da Amazônia focused on the Tapajós basin. The TNC s concern is that about 45% of the basin is occupied by conservation units, indigenous lands. It also warns that certain areas critical for the conservation of biodiversity had not been considered. Another example is Belo Monte, the hydroelectric power plant in Pará. There is a current debate involving the Prosecution Office of Pará, Brazilian Electricity Regulatory Agency (ANEEL), Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA), and Consortium Norte Energia, a group composed of diverse companies involved in the construction of the hydroelectric power plant, regarding the fines charged by ANEEL to the Consortium due to environmental licenses delaying the schedule. Even after the auction for constructing the power plants in the region, many law suits may delay the progress of the works, thus affecting deadlines and approved budgets at the time of the Auction. Indeed, experts from both environmental area and engineering applied to hydroelectric projects understand that there is an increasing scenario of conflicts due to government planning the construction of new UHEs in the northern region. So, there are many uncertainties on the expansion of supply of electric energy from hydroelectric power plants.

6 Page6 Secondly, another item to be analyzed is the forecast for the oil production. PDE 2022 states that the country should produce about 5 million barrels per day to achieve the planned schedule. It is highly expensive to explore deposits in the Pre-salt, in the Brazilian coast, because of the levels of depth and distances from the coast. The expected increase in the oil production will require new investments and high level of importations, thus reflecting in the performance of the balance of payments, which can lead to the Real depreciation. The result of this equation in cascade can increase the PETROBRAS debt, which can delay the goals of oil production in the 10-year period. In the current scenario, experts indicate that the oil companies face difficulties in keeping the profitability in relation to the high costs of extraction. Last but not least, the current crisis in the electric sector caused the National System Operator to dispatch the thermal power plants at full load, leading to a debate on the natural gas as alternative. The Ministry of Mines and Energy - MME already signaled that thermal energy should operate at the base of the system. Gas power plants are more adequate for such function, mainly for environmental reasons if compared with other sources. Accordingly, analyses on natural gas policies in Brazil are effervescing. There is an agreement that Brazil has potential of gas production, to reach the self-sufficiency to supply consumers. There is no investments attractiveness in the natural gas exploration, however, and this affects the businesses related to the gas power plants. The temporary shortage of gas is already a serious obstacle to lift off these projects. The infrastructure is an obstacle. The auctions for thermal power plants at prices of imported gas (up to US$ 18 per million BTU) do not fully boost such businesses. After all, the price of gas is an incentive for investors in thermal power plants. These issues should be strongly faced in the future. Back to the critical situation of the Brazilian electric sector, there is a red light in the strategic planning of many investors and some issues are debated. There are evaluations on the way to operate the electrical system in relation to the entrance of thermal power plants when the reservoirs need to be preserved. To operate with high hydric generation in a system without reservoirs, to obtain low costs, must be reevaluated. Certainly, more reserved water reduces the future cost while the current cost is higher. As our system is not basically thermal, a balance in these decisions is necessary. There is a warning on the necessity of planning to debate a new arrangement of the current model of trading. The electric sector is going through instability. This real fact cannot be denied. To corroborate it, observe the financial situation of the electric energy distributing and generating companies. The sum of these debts can reach R$ 75 - R$ 80 billion, by considering, in addition to the debts of the distributor companies, the high costs of the generating companies that are unable to generate to fulfill their agreements, due to the low level of the reservoirs.

7 Page7 In short, all these evaluations are part of the dynamics of an industry like the energy one. There are interests, conflicts, and expectation to leverage businesses. This will be in the first pages of the governmental agenda from A hypothesis to soften the uncertainties of the agents would be the MME to submit to the National Energy Policy Council - CNPE a strategic scenario (alternative), in addition to the reference one, with the other costs, level of emissions, etc. Some representatives of the Ministries would debate in this Council all the implications arising from determined decisions. Investors should trust that government has solutions and strategies previously studied for dealing with possible difficulties in relation to the forecasts of the energy planning. Thus, agents are expecting the decisions on energy policies, including the technical forecasts for the next 10-Year Plan for Expansion of Energy PDE References: EMPRESA DE PESQUISA ENERGÉTICA/ MINISTÉRIO DAS MINAS E ENERGIA, Plano Decenal de Expansão de Energia- PDE 2022 EXXONMOBIL, The Outlook for Energy: A View to 2040 INTERNATIONAL ENERGY AGENCY, World Energy Outlook Paris: OECD/IEA, 2013 [i] the Canambra Report was a detailed study on the hydraulic potential and electric energy market conducted by the consortium composed of Montreal Engineering and Crippen Engineering, both Canadian consulting companies, and Gibbs and Hill Inc., an American consulting company. Such companies had been selected by the World Bank together with Brazilian authorities. Canambra designates the three involved countries: Canada, United States, and Brazil.