The Energy Crisis Creates New Opportunities For Investments In Thermoelectric Generation In Brazil

New Rules Purport To Overcome The Obstacles For Brazilian Thermoelectric Power Plants

I. Structural Changes In The Brazilian Energy Sector

The restructuring of the Brazilian energy sector has created new opportunities for investors, among which those related to thermoelectric power plants operated by natural gas.

The opening of the sector to foreign private investments occurred in 1995, when an amendment to the Federal Constitution eliminated the restrictions to foreign capital, enabling private companies incorporated under Brazilian law, headquartered and with administration in the country to carry out activities of exploitation of hydraulic energy resources, research and exploitation of oil or gas, refining of oil and imports and exports of products and basic by-products resulting from such activities.

It was the end of a state-owned economic model. The new model for the electric energy sector based on competition has required since then substantial redefinition of the economic activities involved in the sector, and the review of the legal system, as well as the entering of new agents for the sector.

The implementation of a model based on free competition implied (i) the separation between the activities of generation, transmission and distribution of energy for purposes of the grant and the applicable legal system; (ii) the flexibilization of offer and demand of energy, through the creation of Independent Producers of Energy1 and of the Trading Agents, as well as the category of Free Consumers2; and (iii) the free contracting of electric energy among the agents of the sector, under bilateral agreements freely negotiated and under short-term agreements, for which special pricing, accounting and liquidation mechanisms have been defined through the creation of a Wholesale Market of Electric Energy3.

The National Agency of Electric Energy (Agência Nacional de Energia Elétrica - ANEEL)4 was then created with the purpose of regulating and fiscalizing the generation, transmission, distribution and commercialization of electric energy. ANEEL was also in charge of implementing the electric energy reform. The activities of coordination and control of the generation and transmission of electric energy in the interconnected systems were attributed to the National Operator of the Electric System - 'ONS'5.

In 1997, the National Agency of Petroleum (Agência Nacional do Petróleo - ANP) was created by law 94786, as the regulatory agency of the oil and gas sector. Such law has also defined the activities related to the industry of oil and gas (search, exploitation, transportation, imports, exports and distribution, among others), as well as the objectives of the National Policy for Energy.

II. The Role Of The Thermoelectric Power Plants In The Brazilian Energy Generation

The Brazilian energy generation is characterized by being predominantly hydroelectric. It depends, therefore, heavily on the hydrologic system. The hydroelectric plants are distant from urban centers and considered to cause heavy environmental impact and to require financing of high sums.

On the other hand, the Brazilian thermoelectric plants still have a small participation in the generation park. Such Thermoelectric Power Plants may use several different fuels. They sometimes use industrial by-products as fuel, such as cane trash and asphalt residues. Coal and schist, scarce in the country, are used only in some thermoelectric plants of the South Region, where the reserves are greater. The Brazilian natural gas production is not sufficient to allow a great expansion of the energy sector. However, the natural gas in neighboring countries is abundant. Imports of natural gas to be used as fuel by thermoelectric power plants shall increase the participation of thermoelectric power plants in the Brazilian generation park.

The grant for generation of electric energy shall be given for thermoelectric power plants: (i) for public services, by concession; (ii) for independent production of energy, by concession or authorization; (iii) for self-production, by authorization; (iv) with power lower than 5,000 MW, no grant is required. Law 9074/95 has further provided for rules of commercialization of energy: the independent producer may sell energy to (i) free consumers and (ii) concessionaires of public services of energy, among others7. The self-producer (which generates energy for its own use) may also sell its energy surplus, with a special authorization from ANEEL.

The thermoelectric plants shall permit the diversification of the Brazilian energy park. There are, however, obstacles in fuel supply, especially with respect to the natural gas.

The obstacles for thermoelectric...