A 15.4% increase applies for the three-year period between 2024 and 2026; Paraguay defended higher price
05/08/2024
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Alexandre Silveira — Foto: Cristiano Mariz/Agência O Globo
The governments of Brazil and Paraguay signed Tuesday in Asunción an agreement promising to resolve disputes over the Itaipu Binational Hydroelectric Power Plant, including a mechanism to maintain the Brazilian energy tariff. As reported by Valor, the energy tariff at the plant will increase by 15.4%, from the current $16.71/kW to $19.28/kW.
Despite this increase, which Paraguay requested, there will be no impact on the price of electricity in Brazil. The Brazilian half of the plant will contribute $900 million to offset the increase, amounting to about $300 million a year, which will be deducted from the investment plan. This new price will be valid for the three years from 2024 to 2026.
Brokered personally by Minister of Mines and Energy Alexandre Silveira, the agreement only partially meets Paraguay’s initial request for a tariff of just over $22/kW. Brazil has also included “structural compensations” in the deal. One such compensation is setting a deadline of December 31, 2024, for concluding negotiations on the so-called “Annex C” of the Itaipu agreement, which outlines the financial and structural terms for the construction and operation of the plant. Post-2026, the tariff is expected to drop to between $10/kW and $12/kW, excluding non-operational costs.
By finalizing the tariff agreement and progressing to the negotiation of Annex C, the Brazilian government hopes to end the recurring annual tensions with Paraguay over tariff settings. This situation mirrors a decade-long dispute between the governments of Paraguay and Argentina over the economic terms of Yacyretá, another binational power plant.
Starting in 2027, only the operational costs of the hydroelectric plant will be considered in calculating Itaipu’s energy tariffs, a change anticipated since last year when the final installment of the loan for the plant’s construction was paid off, 50 years after the signing of the international treaty. “The agreement puts an end to the complicated negotiations that occur every time a tariff change is discussed,” a participant in the negotiations told Valor.
Additionally, Brazil is advancing the sale of energy from other Paraguayan plants like Yacyretá (3,200 MW) and Acaraí (200 MW). These operations are expected to increase competition in the Brazilian energy market, potentially lowering energy prices for consumers. Brazil plans to use power purchase mechanisms similar to those already employed with Argentina and Uruguay.
Following this agreement, Brazil will no longer be obligated to buy surplus energy produced on the Paraguayan side at a fixed rate, which has historically driven up costs. Once this obligation ends, Brazil can continue to purchase the unused energy from Paraguay but at market prices, potentially leading to cost savings.
Brazil and Paraguay each have rights to half of the energy generated at Itaipu, which has an installed capacity of 14,000 MW. From this production, the plant supplies only 8.7% of Brazilian energy demand but meets a significant 86.4% of Paraguayan consumption.
The Brazilian government’s initial stance was to keep the price unchanged; however, Paraguay’s reliance on the plant’s revenue for economic stability pushed the negotiations forward. The resolution to this stalemate involved utilizing the $300 million annual surplus injected by Brazil to offset the tariff adjustment. This decision reflects the government’s strategy to invest in maintaining moderate tariff levels.
In Paraguay and Brazil, funds from Itaipu have been diverted to finance infrastructure projects unrelated to energy generation, such as highways, bridges, and airports, particularly in Paraná. This redirection of funds has drawn criticism from experts who argue that, rather than lowering energy costs for consumers, the high cost of energy has been maintained to fund these other projects.
With the new agreement, the Brazilian government expects to deliver electricity from Itaipu to consumers at a rate of R$205 per megawatt-hour (MWh), which is below the current average contract price of R$300/MWh charged by distributors.
*Por Murillo Camarotto, Rafael Bitencourt — Brasília
Source: Valor International