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BNDES - Brazilian Development Bank

BNDES - Brazilian Development Bank. Imperfections in the Energy Market: The Brazilian Crisis and the Measures Adopted for Overcoming It. 18 th World Energy Congress Buenos Aires, October 24, 2001 Francisco Gros President of BNDES. INDEX.

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BNDES - Brazilian Development Bank

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  1. BNDES - Brazilian Development Bank Imperfections in the Energy Market: The Brazilian Crisis and the Measures Adopted for Overcoming It 18th World Energy Congress Buenos Aires, October 24, 2001 Francisco Gros President of BNDES

  2. INDEX • Brazilian Electricity Sector Basic Characteristics • Electricity Sector Model • 2001 Crisis • Plan of Action

  3. Brazilian Electricity Sector Basic Characteristics

  4. Electricity sector basic characteristics in Brazil Sources • Hydroelectric: 93.2 % • Conventional thermoelectric: 4.2 % • Nuclear: 1.6 % • Imported: 1 %

  5. Electricity sector basic characteristics in Brazil • Present total generating capacity of 74,000 MW, for an estimated demand of: • Before the crisisToday 44,000 MW (average)  33,000 MW (average)  56,000 MW (peak) 43,000 MW (peak)

  6. Private Market for Distribution Public sector participation on distribution 98 % 37 % 1995 2001 State with privatized distribution systems

  7. Generation: New Private Market Present installed capacity Cachoeira Dourada Gerasul Cesp Paranapanema & Cesp Tietê Public sector 78 % Private Sector 22 %

  8. Brazilian Electricity Sector Model

  9. ELECTRICITY SECTOR MODEL (1995) Basic Principles • Market-based investments and privatization • Competition (generation and trade) and regulation (transmission and distribution) • Independent regulatory body to ensure adequate balance between needs of utilities and consumers and high quality of services • Diversification of the energy matrix

  10. ELECTRICITY SECTOR MODEL Risks • Transition • Regulation • Coordination

  11. ELECTRICITY SECTOR MODEL Risks • Transition • Long and not synchronized • Privatization not preceded by the implementation of regulatory rules • Partial implementation of the privatization process (on the generation side)

  12. ELECTRICITY SECTOR MODEL Risks • Regulation • Uncertainties associated with the regulatory framework, e.g. environmental licenses • Non-enforcement of clauses of pass-through costs • Indefinition concerning methodology applicable to the Ordinary Revision of the concession contracts • Difficulties on the operation of the wholesale market of energy

  13. ELECTRICITY SECTOR MODEL Risks • Coordination • Need to articulate the reform of the three main segments of the energy sector: natural gas, electricity and oil

  14. 2001 Crisis

  15. 2001 Crisis • Immediate cause:extremely unfavorable rainfall patterns in 2000/1 • San Francisco River Basin: worst year since 1930 • Grande River Basin: 4th worst year since 1930 • Other causes: • Independent commission created to investigate the crisis’ origins concluded that there were significant delays in implementing new and on-going projects (41% of the storage capacity of Northeast, Southeast and Midwest regions)

  16. Reservoirs levels Southeast/Midwest and Northeast - 1997-2001 (% capacity) 100 90 80 70 60 1997 1998 50 1999 2000 2001 40 30 20 12,8 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

  17. 2001 Crisis • Other causes (cont.): • Insufficient private investments in generation due to the lack of correct signaling • Complexity of the transition from the state-model to the competitive-model • Lack of policy for maintaining safety back up capacity of generating thermal plants

  18. Projects Installed Energy (MW) Private Public  Cost US$ mm US$/ MW US$ mm US$/ MW Serra da Mesa 1.293 779 603 1.690 1.307 –54% Itá 1.450 620 428 1.399 965 –56% Machadinho 1.140 514 451 1.461 1.282 –65% Total 1.913 4.550 –58% Generation projects: Private sector x Public budget Source: BNDES and Plano Decenal de Expansão/ELETROBRAS

  19. Plan of Action for Overcoming the Crisis

  20. PLAN OF ACTION 1)20% reduction in consumption, as required by the National System Operator 2) Emergency program for immediate increase in energy supplies 3) Structural program for more durable increase in energy supplies • Revitalization of the model for the electricity sector • Conservation and Rationalization

  21. 1) Reduction of the Consumption • 20% reduction in consumption, in reference to May-July 2000 average, as required by the National System Operator • Results: • Extraordinary enrollment of the population • Reservoirs accumulation above expectations (close to 8% above the estimated levels in the Southeast) • Dealing of consumption rights reduced the economic impacts of rationing

  22. 2) Emergency SuppliesAims • Obtain additional energy supplies, mostly of foreign • origin, on a temporary basis • Set up a public energy trader to: • buy electricity from independent producers • lease or buy generating equipment • purchase the consumption rights of larger • consumers

  23. 2) Emergency SuppliesCharacteristics • New energy sources: operating in 4 to 12 months • Mobile thermoelectric plants: ships, containers, trucks and other equipment • Fuel: oil and diesel • Cogeneration and biomass (gas) • 2 to 3 year contracts : “ bridge” to return to normalcy

  24. 3) Program for Increasing Energy Supplies Supply Increase TYPE ( Projects ) 2001 2002 2003 Total HYDROELECTRIC ( 22 ) 1,016 3,513 3,163 7,692 THERMOELECTRIC ( 32 ) 1,630 3,768 5,409 10,807 IMPORTS ( 6 ) 1,048 900 800 2,748 SMALL PLANTS 47 400 400 847 COGENERATION 160 300 500 960 WIND / SOLAR 50 500 500 1,050 TOTAL (MW) 3,951 9,381 10,772 24,104 TRANSMISSION LINES - Km 505 1,191 4,530 6,226 3,525 MVA 3,525 MVA SUBSTATION

  25. 3) Program for Increasing Energy Supplies Investment Forecast (2001 - 2003) Estimated Value (2001 - 2003) Type of Project (US$ million) Private State Total HYDROELECTRIC 2,736 1,243 3,978 THERMOELECTRIC 4,558 2,755 7,314 IMPORTED ENERGY 488 - 488 TRANSMISSION NETWORK 851 432 1,284 OTHER SOURCES (*) 2,116 178 2,294 10,749 4,608 15,358 TOTAL Obs: The above figures include work carried out and still to be performed under the Electicity Emergency Strategic Program (*) Cogeneration, wind, solar and small hydro plants

  26. FOCUS 4) Committee for the Revitalization of the Electricity Sector Model (under BNDES coordination) • Economic cues to stimulate private investment • Government management: eliminate overlaps and gray zones among public agencies • Action to correct market failures • Clear and transparent rules of the game • Elimination of regulatory uncertainties • Solution to pending issues (pre and post-crisis)

  27. FOCUS 5) Conservation and Rationalization • Objectives • Efficient allocation of energy resources / environmental preservation • Establishment of maximum levels of specific consumption and minimum levels of energy efficiency for machines and equipment

  28. FOCUS 5) Conservation and Rationalization • Specific Program for the support of small and medium enterprises • Information • Capacitation • Consultant services • Credit • Management and assessment

  29. BNDES – Brazilian Development Bank Presentation prepared by the Office of the President of BNDES www.bndes.gov.br

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