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Carlos Cavalcanti, Head of Infrastructure Department, FIESP, Brazil

Carlos Cavalcanti, Head of Infrastructure Department at FIESP, discusses why Brazil’s energy costs for the consumer are among the highest in the world, what can and must be done to remedy this, and where he sees the company in the next five years. 

As a member of the Energy Policy Committee of the Government of the State of Sao Paulo, and as the Head Director of the infrastructure department of FIESP, how do you ensure that both industry and private customers receive fair energy prices?

The major share of energy consumption in Brazil comes from industry. These industries, and in this case energy companies, are responsible for the current context with regard to energy tariffs, and unfortunately, they have not taken into account the consumers’ point of view. In 2009, FIESP launched a discussion at the 2013 FIESP energy summit in Sao Paulo focused on renewable concession contracts for hydropower plants and their expiration in 2015. Companies wanted to renew their concessions and maintain high-energy prices, but our studies showed that the price of energy on these assets could drop from USD 42 to USD eight. This severe reduction mainly results from the fact that 75 percent of the cost of a hydropower plant expended during construction and payment for this should not be spread over too long a period of time. Thirty-five years after construction (sometimes this has occurred up to 70 years on) shareholders would receive large profits but consumers would still be paying unfairly high sums on their energy bills.

This, combined with taxes and the cost of infrastructure, makes Brazil’s energy cost amongst the highest in the world. Due to this, we must assess which source of energy is the most competitive at the moment to minimize costs, exploit its potential and benefit society as best as possible. Currently, the most competitive source of energy is large hydropower plants.

Beside the advantages of cost from hydropower power plants, what other benefits do you see from this source in comparison to other renewable sources? 

A study from the European Commission and IPCC Intergovernmental Panel on Climate Change proved that hydropower emits the lowest levels of carbon dioxide of any source of power. As 66 percent of the world’s CO2 emissions are connected to energy production, hydropower becomes even more of a priority. On average, a hydropower plant emits only 4 kg of CO2 per KWh to a coal power plant’s whole tone, a figure 250 times greater.

When environmental organizations such as Greenpeace fight against the development of these hydropower plants, one wonders what really motivates their actions. Of course, there are social impacts to these projects but generating a cost effective, reliable and eco-friendly solution should be enforced above all. In Brazil, there are laws that state that the government can expropriate any citizen from their home if they consider that their property is required for a new infrastructure project (metro, bus station). With such laws enforced for all citizens, these requirements also apply to the neighboring communities of hydropower plants. Of course, relocation is not always easy but for these poor communities, hydro projects bring security, health, education, wealth and overall higher living standards. Such initiatives should be embraced, as no human being deserves to live in deplorable conditions, as is too common in rural Brazil.

My wish is that Brazil becomes the second country in the world to rely on intermittent sources like wind and solar. These energies are of great complementary value, though need to be used intelligently as they are not base load energies. Plus, solar energy, at USD 400 MWh is 10 times more expensive than the price of hydro.

Brazil needs to rely on fair energy prices, sustainability and security. These represent the three pillars that should guide our decisions for shaping our energy matrix today and in the future. If we follow these three pillars, Brazil will have a bright future ahead.

Since the recent affairs on reservoirs, new directives on run-of-the-river hydro dams have been enforced. What is your perspective on using fewer reservoirs in a country that seeks energy sustainability?

The government is encouraging the development of run-of-the river hydro dams simply because of pressure they have been receiving from NGO’s. Our goal at FIESP is to make everyone realize that this solution is not viable for the country. In fact, a run-of-the river dam behaves similarly to a wind power plant. When the water levels are too low, the plant is incapable of generating electricity, exactly like a wind plant without wind. Today we have only exploited one third of our hydro resources, but similarly to other countries, one day these resources will end and when this happens, we will have to use more expensive sources. It is our duty to think about security and this security will be achieved only if we maintain large reservoirs as the basis of our energy model.

Other sources that will enable us to achieve security are gas, oil, nuclear and coal. For many reasons these sources are less attractive than hydro, but do represent a more reliable option than wind or solar power.

For the development of renewable sources and in order to achieve fair auction bidding conditions, the energy industry is demanding to have auctions by source and region. How do you think this would benefit a city like Sao Paulo, producing 70 percent of Brazil’s ethanol?

Producers of biomass and ethanol in Sao Paulo and in other states are highly in favor of auctions by source and region. However, I am completely against such an action. If tomorrow a biomass auction takes place, the price will be decided between them, biomass producers, and the society will have to pay the consequences. The problem with this scheme is that only focusing on one source auction does not foster sufficient competition and therefore will not provide the best prices as current auctions do. Wind energy prices today are competitive because wind has been competing against other sources. If this had not been the case, wind prices would be double today.

My wish is that South America, as a whole, becomes a provider of the most competitive energies to fuel its constituent countries from cost effective, reliable and eco-friendly sources. The debate is not about where energy is produced, but which energies are providing the more sustainable and cost-effective conditions. By having an efficient South American interconnected system that transmits the best energy at all times, our citizens, economies and industries would stand tall.

With reductions in energy tariffs, higher competition among the energy industry is to be expected. What have been the repercussions of these tariffs for Sao Paulo’s energy sector?

The average operation and maintenance cost for producing a MWh is around USD three; however, companies where charging USD 40. This price difference is outrageous and consumers should not have to pay such a price compounded by the burden of taxes. We must take serious actions to show our citizens that lower energy tariffs are possible. With the level of infrastructure present in Sao Paulo, cheaper energy tariffs should be the norm. However, companies like Comgas are still charging extremely high prices to provide natural gas to the city.

Sao Paulo represents 80 percent of Brazil’s industrial GDP. Therefore, the competitive landscape for energy companies is shaped here, even though most of the companies located here are active nationwide. In a way, Sao Paulo should be the first place to obtain real price reductions. By fostering energy efficiency initiatives with smart grid solutions, and investing in efficient energy transmission, prices must decrease. Fiesp will ensure this happens.

What are FIESP’s priorities and ambitions for the next five years?

In the next five years and for as long as possible we must maintain the same proportion of hydropower in Brazil’s energy matrix as today and increase this share if possible. By focusing on this source, reducing taxes and supporting the reduction of energy tariffs, Brazil will become an attractive place to invest and citizens will finally be paying fair prices. This vision is attainable yet we must relentlessly pursue these priorities: fair energy prices, sustainability and security.

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