Outlook indicates reservoir recovery and reduced reliance on thermoelectric plants following worst drought in 80 years
01/21/2025
The heavy rains that have swept across much of Brazil since December have significantly improved hydropower reservoir levels after 2024 saw the worst drought in over 80 years. With projections suggesting further reservoir recovery, experts foresee reduced reliance on costly thermoelectric plants in 2025. However, specialists warn that challenges remain.
Prior to 2024, Brazil’s last major water crisis occurred in 2021, prompting the government to activate all available thermoelectric plants and hold an emergency auction for new power plants—a move that faced scrutiny. Conditions improved as rains returned in 2022 and persisted, albeit in smaller volumes, in 2023.
The combination of reservoir recovery, increased wind and solar energy production, sugarcane bagasse-fueled thermoelectric generation during the harvest season, and strategic thermoelectric dispatching by the National Electric System Operator (ONS) helped Brazil navigate the historic drought last year without significant disruptions. The Electric Sector Monitoring Committee (CMSE) reported on January 9 that ONS projections indicated reservoir levels in Brazil’s national grid (SIN) could reach between 62% and 92% by the end of the dry season in June.
ONS Director-General Márcio Rea said as of January 15, reservoir levels were at 57.2% in the Southeast/Central-West subsystem—Brazil’s primary energy region—and 59.5% in the Northeast.
Mr. Rea expressed optimism, noting that preventive measures combined with river flows at 97% of the historical average indicate a “very good” situation if rains continue in critical areas. “We are working to store as much as possible,” he said.
Optimizing resources
ONS Operations Director Christiano Vieira explained that the operator’s strategy is to maximize water storage during the rainy season for use during the dry season. This usage, he explained, tends to be less intense from April to June due to increased wind and solar generation, with consumption rising from July, when temperatures are typically higher. “There’s a depletion [reduction in levels] of 7% to 10% per month until October and November, when the rainy season returns,” Mr. Vieira said.
Valor columnist Edvaldo Santana, a consultant and former director at the National Electric Energy Agency (ANEEL), emphasized the significant rainfall in December and January, noting, “It hasn’t rained this much in December for 20 years.”
Fred Menezes, executive director of Armor Energia, echoed this, highlighting accelerated reservoir recovery in the North, Central-West, and Southeast regions since November. Mr. Menezes mentioned that on January 4, the average level was 54.8%, with expectations that by the end of the wet season in November, reservoir levels will reach or exceed those of 2024.
“The pace of reservoir recovery in 2025 is faster and more consistent,” Mr. Menezes said. According to the ONS, all subsystems should exceed 60% of reservoir storage by the end of January, with three surpassing 70%.
Franklin Miguel, president of Electra Energy, noted reservoir levels have risen nearly ten percentage points since late 2024, making the current levels the third highest in five years. “This above-average rainfall was crucial in reversing the decline in hydraulic storage levels nationwide.”
The Generation Scaling Factor (GSF)—a measure of hydroelectric output relative to guaranteed capacity—is expected to average around 70% during the dry season, allowing wind, solar, and sugarcane bagasse plants to support hydroelectric generation.
Ampére Consultoria projects a GSF of 84.3% for 2025, slightly below the preliminary figure of 87.3% in 2024, according to the Electric Energy Commercialization Chamber (CCEE). Higher reservoir levels will ease pressure on the grid, reducing reliance on high-cost thermoelectric plants and keeping market energy prices low.
Electricity prices in Brazil’s free market are projected to average around R$60 per megawatt-hour in the first half of 2025, with some increases expected in the latter half of the year to R$130/MWh–R$150/MWh. “This price rise, despite favorable conditions, reflects a more conservative operational approach with heightened risk aversion parameters,” Mr. Miguel of Electra Energy, noted.
For regulated market consumers, favorable hydrological conditions should keep tariff flags green in the first half of the year, with yellow flags—indicating minimal additional charges—possible in the second half, Ampére Consultoria predicted.
While the improved hydrological conditions provide short-term relief, specialists urge caution. Consultant Santana warned that even if reservoirs reach 90% capacity by March, a severe dry season combined with high temperatures and heavy reliance on hydroelectric plants during evening demand peaks could diminish “hydraulic comfort” by September.
Despite uncertainties, Mr. Rea and Mr. Vieira affirmed that energy security for 2025 is assured, even under the ONS’s most severe climate scenarios. They emphasized, however, that weather forecasts beyond 15 days remain uncertain, requiring continued vigilance.
*By Fábio Couto — Rio de Janeiro
Source: Valor International