Luis Fernando Leone Vianna, President, APINE, Brazil
Luis Fernando Leone Vianna, President of APINE, gives some insight into the main priorities for restructuring the energy sector: achieving a stronger free market, as this would improve our system and reduce energy tariffs making energy costs for its consumers much lower.
APINE is celebrating 18 years of presence in Brazil, influencing the electricity market locally and internationally. How has APINE participated through the elaboration of the different power models?
In 1995, our association was created only a few months after a new law was passed to reorganize the energy market. This marked the beginning of the free market and a solid foundation for independent producers, which we represent.
The second main event in the power sector happened in 2004 with the development of the hybrid power model, setting the premises for a new auction bidding system and ensuring lower risks and long term contracts for investors. That same year, I was appointed as president of the association and Dilma Rousseff, head of the Ministry of Mining and Energy, gathered all the associations to elaborate this new hybrid model. At that time, and for some years our communication with the government was excellent, especially when Ms. Dilma Rousseff was managing this ministry. Today, the situation is different. The government is taking many decisions and implementing new regulations without our participation and we are taking some cases in court to show our discontentment with this unilateral attitude.
Currently, energy investors are really worried, as the last transmission auction bid confirms this tendency. Our association values the interests of independent producers but we also wish to have all stakeholders satisfied, participating and investing in the sector. Otherwise, the energy industry will not be able to meet the energy demand and our country will not reach the objectives in generation, distribution and transmission projects it has set for the next 10 to 30 years.
Recently a new resolution has been put in place, CNPE Resolution Three, obligating generating companies to cover 50 percent of the thermal electric plants costs, with the remaining 50 percent split between consumers, generators and commercializors. With these unforeseen costs, how are the generating companies planning to remain competitive?
In 2008, the government decided to re-launch thermal power plants to increase the sector’s reliability for energy, especially in emergency situations when the hydro power plant reservoirs are low. The problem is that this alternative is costly since these plants operate for a limited time. To cover for these additional costs the government decided to transfer part of the costs to the final consumers since they are the ones consuming this energy. This scenario worked well until last year, but when the government announced the reduction of the electricity price by 20 percent which was based on the reduction of electrical and sectorial taxes, and the end of generation and transmission concessions, the whole system collapsed. Theoretically, generation and transmission concessions can reduce their costs since their assets are depreciated over time. However, generators or traders were not planning to bear part of the costs that consumers were paying to compensate the costs of thermal power plants. Figuratively, this represents a dog biting its own tail.
Our association and other associations like ABRACEEL are currently in court to protest against these illegal measures and we demand a more sustainable and economic approach for our associates and the energy sector.
What are the main priorities at hand to restructure the energy sector?
Reducing energy tariffs is fundamental because our citizens are paying a much higher price than other countries. However this price reduction must be done carefully and with the consent of all the associations, chambers and support bodies. This price reduction must be done through federal and state taxes, which represents the best option.
Moreover we need to define what Brazil’s ideal energy matrix should be. Of course EPE, Brazil’s energy research company, is performing a series of very accurate studies about the potential of every source and is making forecasts and plans to assess our best options. Nonetheless, the issue at hand is that Brazil needs to add 1000 MW every year to our national grid, but defining which sources will help us achieve this goal in an efficient and affordable way is a challenge.
Finally we need to develop our free market as it only represents 25 percent of the contracting market. In Europe, many countries have achieved 100 percent free market, and this gives consumers the ability to choose the energy provider they want and develops much more competitiveness and price reduction in the long term. I would like to send a strong message to the industry to work together in achieving a stronger free market, as this is our best option to improve our system and reduce energy tariffs.
Given the current troubling affairs, what can we expect from Brazil’s energy industry in the next five years?
Important energy auctions will take place in the next five year including A-3 and A-5 auctions, which define long term contracts—between 15 to 25 years depending on the energy source—to start respectively in the next three years or five years after the auction bid takes place. Through this process, new power plants will be included in our energy system using gas, coal, wind, and nuclear or other sources to fuel them. Naturally, prices will increase since more power plants will be added to the system, yet we hope that a strong participation in the auctions will bring forward competitive prices for auction winners.
I fear that in the next five years current problems we are having with large hydro power plants such as Belo Monte will only worsen. A strong national agreement will be needed to consolidate this project and others so as to ensure a very large energy capacity as well as maintain the jobs and development projects taking place with the establishment of these plants. The industry keeps portraying environmental issues, but I believe the real problem is social or even ideological.
We need to find a balance between the needs of our environment, which is precious and unique, and the needs of our energy matrix. Our decisions today will have a strong impact on the future of our country, so we must make sure we carefully assess the best options and always plan with a long-term perspective.