Official forecasts indicate a low probability of heavy rains in the coming months, but grid operator ONS insists there is no supply risk
03/18/2025
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Reservoir levels across Brazil have stagnated, and electricity prices in the free market—where consumers can choose their supplier and contract terms—have surged. However, Brazil’s national grid operator ONS maintains that there is no risk to power supply, given the current reservoir levels.
In 2024, Brazil experienced one of the most severe droughts in 83 years, raising concerns about water storage for hydropower generation. Rainfall returned at the start of the wet season in November, allowing hydro plants to rebuild reserves. However, precipitation tapered off in January and became scarce in February and March.
Instead of rain, prolonged heat waves intensified, further straining the system. Both government and private sector forecasts suggest a low likelihood of significant rainfall in the coming months. ONS projections indicate that the wet season, which typically lasts from November to April, could end earlier than usual.
River flows below historical averages
According to ONS’s weekly operations report released on Friday (14), river inflows are expected to remain below historical averages in all four energy submarkets by the end of March.
The natural energy inflow (ENA)—a measure of river flow as a percentage of the Long-Term Average (MLT)—remains low. A value above 100% would indicate flows above the historical norm, which is not the case.
ONS projects that in March the North will close at 98% of the MLT, the Southeast/Central-West at 56%, the South at 45%, and the Northeast at just 24%.
In terms of water storage, the North is expected to maintain 95.8% capacity, while the Northeast should reach 77.6%. The Southeast/Central-West submarket is projected at 67.5%, and the South at 36.7%—the lowest among the regions.
“The outlook for the coming months indicates full capacity to meet national demand. Reservoirs are in a favorable condition, and operational policies are aimed at preserving water resources. We are closely monitoring the potential early arrival of the dry season,” said ONS Director-General Marcio Rea in a statement.
Thermal power plants
The drying trend has triggered a sharp increase in energy prices in the free market. For more than two years, from 2022 to mid-2024, the settlement price of differences (PLD)—the benchmark price in the free electricity market—remained at the regulatory floor of R$61.07 per megawatt-hour.
However, the 2024 drought has pushed the PLD above this threshold, with significant volatility. Because prices are set on an hourly basis, they have risen sharply at sunset, when around 35 gigawatts of solar generation exit the grid. To stabilize the system, ONS has resorted to thermal power plants to compensate for the loss of solar output.
Heat waves drive up electricity demand
The heat waves in February and March also fueled record-high electricity consumption, occasionally forcing thermal plants to ramp up for supply security.
Additionally, unexpected events have further strained the system. One such incident involved the temporary failure of a transmission line carrying power from the Belo Monte hydro plant, leading to brief disruptions.
As a result, the PLD in the key Southeast/Central-West submarket has surpassed R$300/MWh for several weeks. Energy contracts have also risen above R$300/MWh, in some cases nearing R$400/MWh, depending on market conditions, according to price projections from energy traders.
For instance, Paraty Energia reported that on February 4, the price of hydro and thermal power—known as “conventional energy”—for contracts starting in March was R$93/MWh. By March 11, the same contract had soared to R$317/MWh, marking a 241% increase.
*By Fábio Couto, Valor — Rio de Janeiro
Source: Valor International