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Romeu Rufino, president, ANEEL Brazil

17.12.2013 / Energyboardroom

Romeu Rufino, president of ANEEL, Brazil sheds light on the country’s main challenges in the energy sector, the future of hydropower, and why Brazil is the world’s sixth largest economic power.

ANEEL entered the energy sector in 1996 with the aim of providing favorable conditions for the electric energy market to flourish and to balance the benefits between agents and the society. What have been the main milestones since ANEEL’s beginnings?

ANEEL was one of the first regulating agencies in the energy sector. ANEEL was founded on ideas of autonomy and independence, meaning whilst been under the supervision of the Ministry of Mining and Energy we still can take policy positions at our discretion.

In 1996, the energy industry reformed radically, with a shift from public state-owned companies towards the private sector. The distribution sector was most changed as a result of these reforms, with most of the state run companies being privatized. This unprecedented change created many new challenges for ANEEL, particularly with regard to regulating these newly independent companies.

The biggest challenge at ANEEL historically, was to harmonize the energy sector, which fell under a new power model scheme. We witnessed the rise of many new players due to the privatization drive, particularly companies arriving from overseas. These new agents had difficulties adapting to local regulations, culture and Brazil’s business environment. We assisted attempting to ensure Brazil’s regulatory system supported international investment without compromising local business’ interests. Indeed we have been trying to support Brazilian companies building momentum in a growing energy market.

Hydropower in Brazil only represents one third of its total potential capacity. However, many signs are showing that hydro expansion is limited. How do you perceive the potential of hydro already representing 70 percent of the total electricity generation in Brazil?

The potential for hydropower is still great considering what more could be achieved. It is my belief that missing opportunities available in the hydro sector, opportunities with great potential, would be a mistake. Hydro is a clean energy and is among the cheapest energy in the world. It must be embraced.

What is certain is since we have been constructing hydro power plants with large reservoirs many individuals have become more sensitive to environmental concerns. This has created uncertainty as to whether maintaining reservoirs in the future is a prudent policy. I am concerned that reservoirs are the real solution to our energy conundrum as run-of-the-river hydroelectricity plants are becoming more common because of environmental and social concerns. This is an issue because they are much less efficient than plants with reservoirs. If we abandon reservoirs and only develop run-of-the-river hydroelectricity plants we will not satisfy our growing demand for energy.

The biggest reservoirs in Brazil are located in the southeast and northeast regions. They allow the regulation of water levels during seasonal variations in precipitation. These two regions have well developed hydro resources. Many rivers located around the Amazon however are still untapped. What remains uncertain is whether environmental concerns will permit new hydro schemes in these areas.

Our biggest ongoing project is Belo Monte, which promises to be a very large source of power for the country and will deliver nearly 12 GW in total. To give this a little more context, Belo Monte could produce 10 percent of Brazil’s electricity from just one plant. There are other projects of significance too, such as Jirau, Santo Antonio and Teles Pires. These all underline the importance of hydropower to Brazil.

We are living a critical moment as many energies can develop from the current situation completely redefining our power model. What lies ahead precisely is uncertain, but I am confident that hydro will continue to grow alongside other renewable energies such as wind, solar and biomass.

While hydro sees a bright future ahead, what is the perspective for other renewable sources of energy in Brazil?

Brazil is the best place on earth to invest in renewable and green energies. Our mission is to achieve this goal. I mentioned our unique hydro resource yet we still have great potential to utilize other renewable technologies. In the past, PROINFA, an incentive program to develop renewable energies in Brazil, was created as a result of the government’s fundamental desire to grow these energies. This program was a success enabling wind, solar and biomass to become much more competitive in energy auctions.

Recent studies from Energy Research Company (EPE) show that wind power in Brazil has the potential to generate nearly 350 GW. This figure represents nearly three times the total current level of power generation in Brazil. In the past, wind auctions were very promising. It is only a matter of time before real success for the wind industry is realized.

Solar energy is still at an early stage of development yet has incredible potential. Our country, particularly in the north has fantastic solar potential throughout the year. Investing in solar plants in these areas is no doubt a very secure investment. We only need to provide the appropriate regulation to develop the solar market in Brazil.

Biomass is also strong in Brazil already. We are grand producers of sugar cane and ethanol. Certainly, biomass represents a source of power close to our cultural roots. It will grow together with thermal plants needing alternative sources to power their turbines.

Overall, renewable energies will grow in the future as complementary sources. My belief is that soon we will manage auctions by source and by region. This initiative will assist these energies to flourish rapidly. Managing auctions in this manner is fundamental to the sustainability of our energy matrix.

To encourage the development of these energies, Brazil must rely on a solid transmission and nationally interconnected system to transmit energy efficiently throughout the country. What do you believe are the major challenges for the transmission of energy?

Our main hydro generating plants are not sited close to centers of electricity demand. Our main hydro potential is located in the North and the areas consuming energy are concentrated in the southeast. This creates challenges with regard to long distance electricity transmission.

The new transmission systems for Belo Monte are highly efficient ultra-tension transmission lines, which have proven efficient when used to distribute energy from the Jirau and Santo Antonio hydropower plants. Immense pylons now reach across the country connecting these dams to Manaus, crossing the Amazon and providing electricity to the most remote access.

The main challenge is not technology based but environmentally. There are numerous policy restrictions on building such towers in environmentally sensitive areas. These increase the cost of transmitting energy and delay the construction of these towers. The challenge lies on the planning side as transmission companies must assess relevant issues to ensure that electricity is transmitted efficiently.

ANEEL has many things on its agenda to consolidate the energy sector. Nonetheless, one of ANEEL’s most important roles is to establish electricity tariffs. How is this process organized?

ANEEL’s role in determining electricity tariffs is highly transparent. A large part of the establishment of a tariff focuses on the concession contract; defining the time of concession granted for the company winning the auction, as well as the tariffs applied across this period.

For instance, the last tariff established for distribution companies took one year, where we consulted society, agents and stakeholders to assess which regulation improvements should be applied to the tariffs. This regulation provides the basis for the tariffs. When dealing with specific companies, tariff readjustments are made when the company needs to compensate the consumers or to avoid price variations over time.

In the end, at ANEEL we are the guardians of regulations developed by governmental entities to consolidate and provide fair rules for the energy sector. Regulatory stability is our priority. To accomplish these targets we must enforce tariffs.

Brazil is known for having one of the highest electricity tariffs in the world. For Brazil to become attractive, energy tariffs must drastically change. How will Brazil be capable of reducing these tariffs?

It is clear that our energy tariffs are overly high, particularly given the tax burden on the consumer. In this sense, final electricity tariffs represent one third of the price corresponding to state and federal taxes—ICMS taxes on the circulation of merchandises and services; COFINS Contribution of financing social security, PIS Program for social integration. Another one third of the cost of energy corresponds to the actual cost of generating electricity, and the last third corresponds to the distribution cost of transmission between the point of generation and the consumer.

Brazil has 63 distributing companies organized over radically differing geographical areas. For instance Brasilia is one concession area and in this sense is extremely privileged—its market is highly concentrated, with high per-capita consumption and a with a small transmission area, which reduces operation costs. Therefore electricity tariffs in Brasilia are below other areas that do not have the same advantages. In comparison, if we were to take Celpa, in the Para region, which has diffuse settlement patterns, there is a need for very large transmission lines. This, and the low per-capita consumption there, increases tariffs substantially.

In real numbers, the best concession area has half the cost of the worst concession area. In some states ICMS reaches up to 42 percent of the total electricity price. We must work towards reducing these taxes as much as possible as in the end it is our citizens who suffer the consequences.

With Brazil’s overall per-capita consumption rising, the market will grow as well, diluting the cost of such infrastructure and reducing the price of energy. It is important to work towards the reduction of our energy tariffs and Brazil has the necessary conditions to accomplish this goal.

Providing low energy tariffs is a must yet currently unrealistic, since the reutilization of thermal power plants to back up the lack of energy generated by the hydro sector is transferring very high costs to generate energy. What alternatives should be taken into account to avoid such drastic measures?

If we are to rely on thermal generation we must avoid using fossil fuels as much as possible, especially diesel which is unreasonably expensive. The only real path for thermal generation is based on low cost sources to support it. Gas is a good source, although problematic due to carbon emissions, and should be embraced. Nonetheless, gas still remains very affordable, especially due to large resources in the South of Brazil.

Another reliable alternative would be nuclear power. This source should not be prioritized as other sources have particular advantages but nuclear should not be neglected either. Nuclear energy is highly efficient and secure. It has already been used in many countries in Europe and globally, and could play a small role for Brazil in the future. The past disastrous experiences at Fukushima were caused by a natural phenomenon: a tsunami. However these natural phenomena do not exist in Brazil and therefore should not compromise the safety of nuclear operation on Brazilian soil.

We must find the right sources to fuel our thermal power plants and avoid tariffs detrimental to our energy sector, which cost our citizens. Thermal power plants are useful as they are extremely reliable and satisfy our country’s thirst for energy. I am certain that with the combination of renewable sources and other low cost sources, costs will fall, and new technologies will improve efficiency rates. This will stabilize our electricity tariffs.

With many decisions to be taken about the future of Brazil’s energy matrix, what will ANEEL be focusing on for the next five years?

Brazil still lacks good electricity energy services, and it must be our priority to improve this situation. Other countries have invested in underground electrical lines, bringing safety, reliability and reducing the system’s environmental burden. We must work to accomplish similar results and show the rest of the world that Brazil is not the 6th largest economic power in the world by mistake.

Besides this goal, ANEEL will remain a strong regulating agency, implementing the government directives, ensuring that new regulations are followed and providing a fair energy market for all energy stakeholders and our citizens across Brazil. We shall remain the guardians of Brazil’s energy policy and we shall collaborate with other government and non-government entities to focus on improving the energy sector. This is our key aim.


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