China takes leading role in Brazil’s power sector

The Belo Monte project has been opposed by indigenous groups for 30 years (image: Belo_Monte-206/ Flickr).

China takes leading role in Brazil’s power sector

In the space of just 24 hours, Chinese companies became major players in Brazil’s electricity sector recently.

The constructor of the world’s largest dam, China Three Gorges Corporation (CTG), was awarded concessions for two re-auctioned hydroelectric power plants last month while the controversial Belo Monte project, for which China’s State Grid will distribute output, has been granted an environmental license. State Grid is set to build the 2,000-kilometre transmission line that will connect Brazil’s north to the power-hungry industrial southeast.

Belo Monte getting green light is a boost for the cash-strapped Brazilian government, which says the project will bring much-needed foreign investment. But indigenous communities are now seriously concerned about the impact of the creation of a 516-sqkm reservoir and Belo Monte’s associated distribution projects on the local ecology and their ancestral territories.

On winning the auction for the Jupiá and Ilha Solteira plants, CTG instantly became one of top three electricity generators in the country. Jupiá has a generation capacity of 1,551 MW and Ilha Solteira 3,444 MW. Both are located on the border between the states of São Paulo and Mato Grosso do Sul. CTG will repay a bonus grant which could be financed by a combination of Brazil’s national development bank (BNDES) and commercial banks worth 13.8 billion reais (US$ 3.5 billion), almost 80% of the 17 billion reais (US$ 4.3 billion) it is expected to earn through electricity sales from the plants.

The auction was hailed as “success” by José Jurhosa, director of the National Electric Power Agency (ANEEL) and minister of mining and energy, Eduardo Braga, who will no doubt welcome the fact that funds will go into national coffers to ease the ongoing process of fiscal adjustment. The 30-year concession will see the power generated by the plants sent to distributors by means of quotas, with tariff-based remuneration.

Brazil is a priority market for CTG, due to its extensive capacity for hydroelectric power generation and the potential for building and operating large-scale plants, according to a company announcement made shortly after the auction.

“These purchases are a clear and tangible demonstration of our intention to invest and grow in Brazil, which is a priority market in our international expansion plan,” said Li Yinsheng, CEO of CTG Brasil. João Meirelles, vice president of new business management of CTG Brasil, added that the partnership is one for the long-term.

CTG has carried out a flurry of commercial activities in Brazil recently. Just a day after the Jupiá and Ilha Solteira auction, concessionaire Triunfo announced CTG’s purchase of its Salto and Garibaldi hydroelectric plants, which have a combined installed capacity of 300 MW. Together with its interest in the Brazilian subsidiary of Energias do Portugal (EDP), whose portfolio includes both hydroelectric and wind power plants, CTG now controls a massive 6,600 MW of capacity in Brazil. Only Brazil’s state companies Eletrobras and Petrobras have more.

CTG is also now the second biggest private power generation company in the country, behind only Tractebel Energia, a subsidiary of Engie (formerly GDF Suez), which has 6,900 MW. Brazil is hoping to open up the energy market which is cluttered by roughly one hundred court injunctions, resulting from energy shortages caused by recent droughts. Most hydroelectric plants in Brazil have been generating below average output and are required to compensate for the shortage through agreements based on spot prices – which have risen as a result of the diminished rainfall.

The Brazilian congress’ approval of a measure establishing rules for the recovery of losses and which protects against extreme weather conditions was a decisive factor in the auction, according to Braga.

Belo Monte impacts

Opposed by indigenous Amazonian communities ever since it was first proposed 30 years ago, the Belo Monte power plant is expected to fill its reservoir in late January 2016 while the plant’s first turbine will start up by March next year, according to Marilene Ramos, president of the Brazilian Environmental Institute (IBAMA)

The reservoir is just one of many anticipated impacts, admitted Tomaz Toledo, IBAMA’s director of environmental licensing.

Indigenous groups lamented the issuing of the Belo Monte operating license and protested against a constitutional amendment made in October that transfers the authority to determine the demarcation of indigenous lands from the presidency to congress. Opponents of the amendment say the it makes land demarcation in favour of industrial lobbyists more likely.

“This has made us more worried. The construction of the plant is already drying the river out. It’s a sad day for us,” said an indigenous Tabata Kuikuro leader from the Alto Xingu. The consortium responsible for the construction, led by Norte Energia, began filling the reservoir as soon as the environmental license was granted.

State Grid will build two giant transmission lines. The first, 2,100 kilometres long carrying an unprecedented 800 kV in direct current, will require around 7 billion reais (US$ 1.7 billion) in investment. The line, which will run from the Belo Monte plant in the northern state of Pará all the way to São Paulo, is scheduled to transmit power in early 2018. A second line, which leads to Rio de Janeiro, will be 2,550 kilometres long and will require a further 7 billion reais.

Installing such extensive lines through environmentally sensitive areas is a huge challenge, as is raising additional funds from BNDES. Brazil’s economy is stagnating, while inflation remains around 10%.

Ramom Haddad, State Grid’s vice president of operations and maintenance also took the opportunity to rubbish reports that the company bringing in 11,000 Chinese workers to build the transmission lines in Brazil were “nothing but a myth”.

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