Investments aim generation expansion and transmission auctions; most of the funds will be in the Northeast region

03/11/2024

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Amount corresponds to investment in large generation plants, of which 34% are related to renewable sources, such as wind and solar — Foto: Pixabay

After attracting $35 billion (R$ 175 billion) in already contracted investments for decarbonization in 2023, Brazil is preparing for a new cycle of multi-billion-dollar investments between this year and 2026. The electricity industry will require around R$225 billion in new investments to enable the expansion of generation and transmission networks to deliver power to all regions of the country.

The study was carried out by energy research company Empresa de Pesquisa Energética (EPE), linked to the Ministry of Mines and Energy, which mapped the main investments announced and planned to meet Brazil’s electricity needs.

To enable the expansion of generation in the Ten-Year Energy Expansion Plan (PDE) reference scenario, until the year 2031, R$192 billion should be raised by the end of 2026.

The amount corresponds to investment in large generation plants, of which 34% are related to renewable sources, such as wind and solar, currently the drivers of the Brazilian electricity sector growth. The capital expenditure should be made, primarily, in the free energy market, a segment in which consumers can choose a supplier and sign agreements according to source, term, or price.

The other 66% encompasses technologies such as the mandatory implementation of natural gas thermal plants with mandatory power generation 70% of the time, on average (which does not allow flexibility), according to Law 14,182, which authorized the privatization of Eletrobras.

Additionally, they include other plants with the ability to adapt to energy demand, which plays a key role in meeting demand at peak times, designed to support the use of intermittent sources such as wind and solar. This support aims to ensure the continuous supply of energy from renewable sources, meeting electricity demand at any time of the day or night.

In this context, electricity transmission infrastructure plays a pivotal role in increasing the flow margin of renewable generation to consumer centers, improving regional service in the states, and improving reliability and continuity in energy supply to the different regions of the country. In 2023 alone, Brazil contracted R$37.5 billion in projects through two auctions.

For future projects, EPE has pointed to works to be authorized in auctions expected to result in R$32 billion in investments by 2026 for the construction of 9,000 kilometers, in addition to substations. Most of this total, equivalent to R$23 billion (or 72%), is planned to be allocated in bids scheduled for March and September 2024.

The Northeast region accounts for almost half of the planned investments, reaching R$ 15 billion, 49% of the total. The allocation of such funds aims to expand the capacity to transport surplus energy and improvements in the Southeast region, the country’s largest consumer center.

The study was coordinated by Thiago Prado, president of EPE, jointly with Renata Carvalho, advisor for EPE’s Electric Energy Studies Department. According to them, the plan outlines guidelines for public policies aiming to explore integration in the system expansion as demand grows.

“Given the expected auctions for contracting transmission networks, the maturing of the capacity market that adds energy security and the adoption of new technologies, as well as the continued expansion of renewable energies and the growing interest in hydrogen, Brazil continues to be a reference in renewables and new projects in the world,” Mr. Prado said.

“The integration of power generation and transmission planning is a key element for the renewability of the Brazilian electrical mix, providing safety and reliability, at the lowest cost for consumers,” Ms. Carvalho added.

On the other hand, Luiz Barroso, CEO of PSR consultancy, notes that the thermal electric plants included in the Eletrobras privatization law are considered riders—provisions added to a bill having little connection with the subject matter—that could be costly to Brazilians.

“The amount of investment is substantial, which shows Brazil is a great country to receive direct capital flow,” he said. “On the consumer side, every investment increases the electricity bill, and investments that are not economically proven from a planning perspective will end up increasing the cost of energy for consumers.”

Companies are already preparing to get projects off the ground. The most recent announcement was made by energy company Casa dos Ventos, with more than R$12 billion to be allocated by the end of 2026 to support its business expansion cycle. The company’s plans also include approving the first solar projects, which should total around 1 gigawatt of installed capacity.

Chinese money is expected to flow to Brazil from state-owned companies, especially State Grid, which won 80% of the last transmission auction. The agreement is expected to be signed in April, with investments exceeding R$18 billion.

Brazilian state-owned Petrobras is looking for ready-made renewable energy projects to “buy time” in the energy transition. The oil giant is currently studying 45 memorandums of understanding. The company recently signed a partnership with equipment manufacturer WEG for the development of the wind production chain in Brazil.

Alexandre Silveira, minister of Mines and Energy, said that in March 2024 the department will carry out another mega-auction, which, added to the competitions held in 2023, should total more than R$60 billion in the expansion of the transmission network. According to the ministry’s calculations, each real injected into this infrastructure should result in R$3 in investments in renewable generation, especially in the Northeast.

“We will bring more dynamism to the investment environment in the coming years. Brazil is one of the most attractive markets to invest in the energy transition, given the quality of its energy resources, and also thanks to its regulatory stability and legal security,” Mr. Silveira said.

The financial viability of projects brings uncertainties, as it is a capital-intensive industry. Therefore, development banks should play a pivotal role. Luciana Costa, director of Infrastructure and Climate Change at the Brazilian Development Bank (BNDES), emphasizes that the bank is the main global supporter of renewable energy projects, with expertise in the sector, being committed to support initiatives. In this context, the bank’s main funding route will remain focused on renewable energy for the free energy market.

“The transmission sector is mature, proven, and capable of obtaining funding on its own at competitive costs. However, Brazil is a volatile country and sees the capital market constantly opening and closing. Therefore, the bank is preparing to provide funding. In 2023, BNDES approved R$20 billion in operations encompassing energy transmission, distribution, and generation, including gas thermal plants. The exception is coal projects,” she said.

Another issue is that many institutions require projects to have long-term agreements as a guarantee, while the BNDES does not include such a condition. The bank has adopted capital market instruments, helping to attract private investment, and chooses to co-finance projects to share risks. “At times when the market is closed, as we saw in the first half of 2023, we enter and make a large funding with our own funds,” Ms. Costa adds.

According to James Ellis, the head of research for Latin America at BloombergNEF, Brazil accounted for 82% of total new investments in clean energy in Latin America in 2023, attracting $25.4 billion. This combination of investments is focused on renewable energy and electrical network infrastructure (transmission and distribution). Thanks to the substantial volume of investments, the country has an extensive pipeline of renewable projects backed until 2030.

*Por Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/