In partnership with Chinese company Power China (Sepco I), Brazil’s Ouro Negro Energia will build a new coal-powered thermoelectric plant in the south of the country in a move that makes little economic sense and diverges from global efforts to divest from fossil fuels, critics say.
The plant, which is set to be complete by the end of next year, will consist of two 300 megawatt turbines and will require investments of around US$1 billion. The project already has a license to operate on environmental grounds and can now negotiate energy contracts. However, political and economic uncertainty in Brazil has thrown up questions about the country’s attractiveness to investors and its future energy policy.
"There is not the slightest possibility that Ouro Negro will back out of the thermoelectric plant," company president Silvio Marques Dias Neto told Diálogo Chino when asked about rumours the project may not advance beyond the planning stage because of the economic crisis affecting the country.
Chinese companies Citic and Hubi Construction will also be involved in the project, which is located in Pedras Altas in the southern state of Rio Grande do Sul, near Brazil's main coal deposits. Dias does not rule out the entrance of new investors.
Energy supply and demand
The Brazilian government initially included the plant in an auction held at the end of April. However, the recession in Brazil has had significant implications for the energy sector - bidding was delayed because there was a surplus of energy resulting from a drop in consumption, which falls in times of economic contraction.
Brazilian consumers, who had previously enjoyed energy subsidies, were hit with a 50% hike in electricity bills by the government earlier this year as they covered the costs of expensive thermoelectric plants burning fossil fuels around the clock to cover a shortfall in hydro-generated energy.
Somewhat perversely, changing weather patterns have led to a new emphasis on coal – understood to be a major cause of climate change – as a source of energy in Brazil. This despite its potential for using wind and solar as alternatives. Irregular rainfall has led to scepticism about the reliability of hydropower, from which Brazil derives two-thirds of its energy. The carbon intensity of Brazil’s energy sector has increased in recent years.
Droughts recently reduced reservoirs to a critically low 10% of their storage levels in regions such as the northeast. The region currently has water stores of around 25%, which is not considered critical because it has a transmission network allowing it to draw from other sources. But new wind energy has also met part of the demand.
According to Dias, the construction of a new coal-fired plant and having a diversity of energy sources is necessary in Brazil: "Brazil should continue encouraging generation of renewable energy. But this cannot be at the expense of base-load generation," said Dias who is a former president of the Rio Grande do Sul State Electricity Company (CEEE).
Once online, Ouro Negro will use coal from Candiota, the country's largest coal mine and will operate around the clock. But to limit its emissions of harmful greenhouse gases it will use a desulphurisation system, the company says. This will involve particulate matter abatement - technology that will prevent minute solid particles from entering the atmosphere.
Against the trend
Since signing the Paris Agreement last December, Latin American countries such as Mexico and Argentina have ramped up investment in renewable energy. They see renewables as a replacement for coal, which, beyond its climate impacts, is also becoming unprofitable. In April, Peabody Energy, the world's largest coal company, filed for bankruptcy in response to the weakening coal market.
Companies including France’s Engie have abandoned new coal, relegating it further down the list of options for energy generation. Coal prices have averaged US$40-45 per tonne recently, compared with US$70-80 per tonne five years ago.
Brazil is the 7th largest emitter of greenhouse gases in the world with 30% of national emissions coming from the energy sector, according to WWF-Brasil.
André Nahur, coordinator of the Climate Change and Energy Programme at WWF-Brasil, said that by continuing to invest in coal-fired power plants, Brazil is embarking on a path that makes little environmental, social or economic sense.
"If the government promotes a gradual reduction of economic incentives for thermoelectric plants in favour of solar power generation in Brazil, it could generate savings of over R$150 billion [around US$460 million] for public coffers," said Nahur, who co-authored a report on energy finance in Brazil.
Ouro Negro's Dias said the company intends to invest in wind and small hydroelectric plants (SHP) but maintained that Brazil is not taking advantage of its coal potential to generate energy. With the best technology, the impacts of burning fossil fuels could be limited, Dias reiterated.
Thiago Almeida, climate and energy coordinator at Greenpeace, said that as well as being the state with the largest coal deposits in Brazil, Rio Grande do Sul has great potential for wind and solar energy. Constructing new coal plants, therefore, is "unnecessary and irresponsible", he said.
"Building a solar or wind park takes between six months to a year and a half. It’s worth bearing in mind that wind power is the second cheapest [form of energy] in Brazil and its price continues to fall," Almeida added.