8. ENERGY SECURITY
8.5. Main issues for Brazil
From the figures, strategies and policies presented above, one can draw some conclusions
0 200 400 600 800 1000 1200 1400
1955 1963 1971 1979 1987 1995 2003 2011 2019 2027 2035 2043 2051 2059 2067
Year 25 billion bbl ultimately recoverable oil 18 billion bbl ultimately recoverable oil
Oil consumption growth 4%/year in 2000–2006, 1.5% in 2007 and beyond
Importation
Production
FORECAST REAL DATA
Consumption
Annual oil production (million bbl)
FIG. 8.11. Oil production, consumption and Hubbert peak scenarios for 18 and 25 billion bbl of estimated ultimately recoverable oil [8.37].
11 This includes the creation of the Group of 21, with Brazil, China, India, South Africa and many South American countries, for the Cancún WTO ministerial meeting in September 2003; the efforts to strengthen the Mercosul trading block; the substantial trade incentives to Argentina, Bolivia, Peru and Venezuela; and the bilateral talks with Colombia, Ecuador, Mexico and Venezuela held in preparation for the Miami FTAA meeting in November 2003.
about how energy security in Brazil can be enhanced:
●Foster flexible and robust energy markets with the freedom to import needed energy supplies (which implies adequate import and cross-boundary transport infrastructure).
●Improve the ability to attract more private (national and international) financial resources and to foster technology transfer and further capacity building to develop indigenous renewable sources with adequate attention to environmental challenges.
●Develop those local energy resources that are economical or that can be made economical through technology learning, mainly with technologies likely to be in the public domain within a reasonable time frame. Among the promising options for expanding domestic energy supplies other than hydropower are the use of vegetable oils for diesel substi-tution, fuelwood from reforested tropical areas, and bagasse from sugar and alcohol production for electricity generation.
●Adopt an appropriate supply policy. Supply security should not be measured solely by energy independence. An intelligent supply policy that includes external energy sources can offset many of the drawbacks of dependence and be more economical than a policy that precludes energy imports.
●Diversify domestic sources of energy and maintain a balanced import portfolio. The combined impact of less oil and more natural gas and electricity imports means more security and more integration through stepped-up regional trade.
●Improve energy efficiency in the energy system. Decreasing energy intensities in the production and consumption of goods and services reduces the dependence of the economy on energy supply, including imports.
Improving energy intensities may yield a wider range of benefits than focusing solely on new sources of energy.
●Encourage international cooperation and agreements concerning energy importing and exporting between both governments and companies.
●Create national (or regional) strategic reserves to address transient interruptions or unexpected surges in demand.
REFERENCES
[8.1] UNITED STATES NATIONAL ENERGY POLICY DEVELOPMENT GROUP, National Energy Policy, USNEPDG, Washington, DC (2001).
[8.2] GOLDEMBERG, J. (Ed.), World Energy Assess-ment: Energy and the Challenge of Sustainability, United Nations Development Programme/United Nations Department of Economic and Social Affairs/World Energy Council, UNDP, New York (2000).
[8.3] European Parliament, Green Paper: Towards a European Strategy for the Security of Energy Supply, European Parliament Committee on Industry, External Trade, Research and Energy, Rep. A5-0363.2001, EP, Brussels (2001).
[8.4] European Commission, Green Paper: Towards a European Strategy for the Security of Energy Supply, EC, Directorate-General for Energy and Transport, Brussels (2000).
[8.5] CAMPBELL, C.J., Forecasting Global Oil Supply 2000–2050, M. King Hubbert Center Petroleum Engineering Department Newsletter No. 2002/3, Colorado School of Mines, Golden, CO (2002).
[8.6] WOOD, J.H., LONG, G.R., MOREHOUSE, D.F., Long-term World Oil Supply Scenarios — The Future Is Neither as Bleak Nor Rosy as Some Assert, Energy Information Administration, US Department of Energy, Washington, DC (2004).
[8.7] UNITED NATIONS, United Nations Framework Convention on Climate Change, UN, New York (1992).
[8.8] MITCHELL, J.V., Renewing Energy Security, The Royal Institute of International Affairs, London (2002).
[8.9] LOVINS, A., LOVINS, L.H., The fragility of domestic energy, Atl. Mon. November (1983) 118.
[8.10] MME (MINISTRY OF MINES AND ENERGY), Brazilian Energy Balance, MME, Brasilia (2003) (in Portuguese).
[8.11] SCHAEFFER, R., SZKLO, A., MACHADO, G., CUNHA, L., ISED Project — Brazil Team’s First Year Report, COPPE/UFRJ, Rio de Janeiro (2002).
[8.12] MORAES, M.A.F.D., SHIKIDA, P.F.A. (Eds), Agroindústria Canavieira no Brasil — Evolução, Desenvolvimento e Desafios, Editora Atlas, São Paulo (2002).
[8.13] TRINDADE, R., Sai verba para estocar álcool, Gazeta Mercantil (3 Sept. 2003).
[8.14] BRASIL ENERGIA, Petrobras 50 anos, Revista Brasil Energia, No. 275, Outubro, Rio de Janeiro (2003).
[8.15] MME (MINISTRY OF MINES AND ENERGY), Brazilian Energy Balance, MME, Brasilia (2002) (in Portuguese).
[8.16] INTERNATIONAL ENERGY AGENCY, Biofuels for Transport — An International Perspective, IEA, Paris (2004).
[8.17] ELETROBRAS/MINISTRY OF MINES AND ENERGY, Plano Decenal de Expansão 2001–
2010, Eletrobras/MME, Brasilia (2002).
[8.18] IBGE (BRAZILIAN INSTITUTE OF GEOGRAPHY AND STATISTICS), Sistema de Contas Nacionais — Brasil 2003, IBGE, Rio de Janeiro (2003), www.ibge.gov.br/home/estatis-tica/economia/contasnacionais/2003/default.shtm [8.19] NSO (NATIONAL SYSTEM OPERATOR),
Previsão de Carga de Sistemas Interligados — Período 2002/2006, Segunda Revisão Quadrimes-tral — August 2004, NSO, Rio de Janeiro (2004), www.ons.org.br/
[8.20] SENADO FEDERAL, A crise de abastecimento de energia elétrica, Congresso Nacional, Brasilia (2002).
[8.21] PROINFA, Programa de Incentivo as Fontes Alternativas de Energia Elétrica, Decreto No. 4 541, Presidência da República, Casa Civil, Subchefia para Assuntos Jurídicos, Brasilia (2002).
[8.22] NSO (NATIONAL SYSTEM OPERATOR), Planejamento Anual 2004 de Operação Energética, NSO, Rio de Janeiro (2004).
[8.23] NSO (NATIONAL SYSTEM OPERATOR), Planejamento Anual 2002 de Operação Energética, NSO, Rio de Janeiro (2002).
[8.24] “Racionamento 2001–2002”, Negawatt Internal Report, São Paulo (2002).
[8.25] WORLD BANK, World Development Indicators, World Bank, Washington, DC (2003),
www.worldbank.org/data/wdi2002/
[8.26] HYMAN, L.S., Financing electricity expansion, World Energy Council Journal (July 1994) 15.
[8.27] MOREIRA, J.R., GOLDEMBERG, J., The alcohol program, Energy Policy 27 (1999) 229.
[8.28] MOOMAW, W.R. et al., “Technological and economic potential of greenhouse gas emissions reduction”, Climate Change 2001: Mitigation, contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (METZ, B.,
DAVIDSON, O., SWART, R., PAN, J., Eds), Cambridge University Press, Cambridge (2001).
[8.29] GOLDEMBERG, J., Leapfrog energy technolo-gies, Energy Policy 26 (1998) 729.
[8.30] ENERGY INFORMATION ADMINISTRA-TION, Country Analysis Brief: Brazil, EIA, Department of Energy, Washington, DC (2003), www.eia.doe.gov/
[8.31] INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS, WORLD ENERGY COUNCIL, Global Energy Perspec-tives (NAKICENOVIC, N., GRUEBLER, A., McDONALD, A., Eds), Cambridge University Press, Cambridge (1998).
[8.32] FEDERAL MINISTRY FOR THE ENVIRON-MENT, NATURE CONSERVATION AND NUCLEAR SAFETY, Climate Change and Conflict, BMU, Berlin (2002).
[8.33] LOVINS, A., Critical Issues in Domestic Energy Vulnerability, paper presented at the Alliance to Save Energy Summit, 25 October, Washington, DC (2001).
[8.34] ANEEL (NATIONAL ELECTRICITY REGU-LATORY AGENCY), 2002 Brazilian Electricity Yearbook, ANEEL, Brasilia (2002),
www.aneel.gov.br
[8.35] ROIZENBLATT, I., The Brazilian Association of Illumination Industry (ABILUX), personal communication, São Paulo 2004.
[8.36] HOUGHTON, J.T., et al. (Eds), IPCC Third Assessment Report: Climate Change 2001 (three vols), Cambridge University Press, Cambridge (2001).
[8.37] ANDRADE, C.A.M., O que fazer com petróleo brasileiro, Instituto de Eletrotécnica e Energia, University of São Paulo, São Paulo (2000).
[8.38] MOREIRA, J.R., POOLE, A., “Hydropower and its constraints”, Renewable Energy — Sources for Fuels and Electricity (JOHANSSON, T.B, KELLY, H., REDDY, A.K.N., WILLIAMS, R.W., Eds), Island Press, Washington, DC (1993).
[8.39] DE PAULA, E., Energía para el Desarrollo de América del Sur, Editora Mackenzie, São Paulo (2002).
Chapter 9
POLICY OPTIONS FOR
SUSTAINABLE ENERGY DEVELOPMENT
A. SZKLO, H. GELLER
Energy policy in Brazil over the past 25 years has attempted to reduce the country’s dependence on foreign energy supplies and stimulate the development of domestic energy sources. Policies have been devised to increase domestic oil production, expand alcohol fuel production and use, generate nuclear energy and conserve energy. The positive experience with alcohol fuel production is described in Chapters 2, 3 and 4 and discussed in Section 9.3 below. Efforts to expand domestic oil output, including developing new techniques for oil production in deep waters, have also been very successful, as noted in Chapter 4. As discussed in Chapters 2 and 4, domestic oil production increased from about 0.2 million bbl/d in 1980 to nearly 1.5 million bbl/d in 2002 [9.1]. These policies and their outcomes benefited the country’s balance of trade, national security, capital goods industry and labour market.
During the 1990s, energy policy concentrated on restructuring both the petroleum and power sectors, mostly aimed at attracting private sector investments through partnerships with Petrobras, Brazil’s national oil company, or by privatizing power utilities. Also, an effort was made to stimulate the development and utilization of natural gas in Brazil. These initiatives have had mixed success. Privatization and restructuring of the electricity sector, two major driving forces of the country’s policies during the 1990s, were reviewed by the Brazilian Government elected in 2002. Flaws in this strategy led to relatively little investment in new generation and transmission facilities during the late 1990s, which in turn contributed to a severe electricity shortage in 2001 [9.2].
Overall, Brazil has successfully implemented several energy policies over the past 25 years.
Policies for increasing modern renewable energy sources and domestic petroleum supply have been very successful. Yet, policies for increasing energy efficiency and expanding natural gas use have met with limited success. Using lessons learned from past experiences, a variety of new energy policies
and initiatives could help Brazil to advance socially and economically, as well as to achieve other important objectives of sustainable energy development.
This chapter reviews major energy policies adopted by Brazil to increase natural gas use, improve energy efficiency and increase renewable energy utilization. The review illustrates that, although these policies were not necessarily motivated by an interest in sustainable energy development, their positive characteristics justify their continuation, intensification or modification.
This chapter also presents and analyses a number of policy options that could be implemented to further promote sustainable energy development in Brazil.
9.1. NATURAL GAS
The Government of Brazil has implemented a number of policies to increase natural gas supply and demand in recent years. This has been done to diversify Brazil’s energy matrix in order to reduce the nation’s excessive dependence on only two primary energy sources: hydropower to generate electricity and oil for the fuels sector.
A major focus of this effort has been on increasing natural gas imports through the adoption of policies focused on gas pipeline capacity expansion and South American energy integration.
Brazil’s gas pipeline length increased from 3954 km in 1996 to 7710 km in 2001, an increase of 14% per year on average for the five years, compared with 6% on average between 1986 and 1996 [9.3]. In addition, as described in Chapters 4 and 8, a major gas pipeline was built from Bolivia to Brazil, totalling 3150 km in length. As a result, by the late 1990s, Brazil’s natural gas supplies had increased appreciably. The Bolivia–Brazil gas pipeline, whose current nominal capacity is around 16 million m3/d, will be able to transport 30 million m3/d by 2007.
Brazil was importing about 12 million m3 of natural gas per day from Bolivia as of 2002 [9.1]. In
addition, a gas pipeline from Argentina was providing some 2 million m3/d as of 2002. This pipeline could eventually transport up to 12 million m3/d [9.3].
The so-called Zero Burn-Off Plan also helped to expand natural gas supplies in Brazil. Petrobras introduced this plan in 1998 to reduce flaring of natural gas as much as possible on offshore rigs. The natural gas was piped to on-shore supply terminals and then marketed to consumers, mainly in Rio de Janeiro and the Amazon States. As a result, natural gas supplies from the Campos Basin in Rio de Janeiro were boosted by around 1 million m3/d as of 1999, equivalent to one fifth of all natural gas distributed in Rio de Janeiro State [9.4]. However, 19% of Brazil’s gross natural gas supplies were still burned off (not used) in 1999, dropping to 17% in 2000. This is a high figure, particularly when added to the percentage of Brazilian gas associated with oil that was reinjected to enhance oil recovery.
Nonetheless, domestic gas supply (excluding imports) increased from 6895 million m3 in 1998 to 8397 million m3 in 2001 [9.5].
The restructuring of Brazil’s electricity sector at the end of the 1990s, especially the deregulation of Brazil’s electricity market through the intro-duction of eligible consumers and independent power producers having open access to the trans-mission grid,1 boosted the use of natural gas for power generation to some degree. The amount of electricity generated from natural gas increased from none in 1995 to 19.3 TW·h as of 2004 [9.6]. As of September 2005, natural gas fired thermal power plant capacity had reached 9157 MW, with another 1868 MW under construction [9.7].
There have been, however, a number of problems related to expanding natural gas supply and demand. First, there is still considerable uncertainty regarding relative energy prices — for example, the relationship between natural gas and fuel oil prices, which impacts industrial gas demand.
Second, the Brazilian gas distribution network remains incipient, meaning that development in the market is still heavily dependent on the expansion of thermal power generation fuelled by natural gas.
Third, the pricing of gas supplies from Bolivia in dollar terms has made this fuel very expensive since the devaluation of the Brazilian real in recent years and the increase of international oil prices, to which the price of the imported natural gas is related.
Fourth, some potential gas users have found it
difficult to deal with, or have refused to accept, the take-or-pay clause in gas contracts. Thus, it is worth considering revised or additional policies to expand the use of natural gas in ways that are economical, energy efficient and environmentally beneficial.
9.1.1. Policy option: Remove barriers to NGCHP implementation
As mentioned above, the bottleneck that was caused largely by constraints on natural gas supplies was removed through the startup of the Bolivia–
Brazil gas pipeline at the end of 1998. Indeed, the analysis of the energy used by Brazil’s industrial sector as a whole from 1998 to 2000 indicates that sectors such as chemicals, food and beverages, pulp and paper, ceramics and textiles increased their use of natural gas and reduced their oil consumption.
Natural gas has managed not only to serve new projects, but also to displace fuel oil in some existing facilities, especially in the chemical sector.
However, significant potential remains for using natural gas fired combined heat and power (NGCHP) systems. This would increase overall energy efficiency,2 reduce the consumption of other fuels such as oil, reduce the need for new conven-tional power plants and the associated transmission and distribution infrastructure, and enhance the reliability of the electricity grid. However, some long standing barriers have inhibited NGCHP systems in Brazil [9.8]:
●First, Brazil’s electricity system consists primarily of centralized generation based mostly on hydropower. Many thermal power plants exist merely to supplement hydropower plants, operating only for a limited number of hours per year in most years (see Chapter 2).
●Second, Brazil’s power sector has lacked clearly defined mechanisms to allow NGCHP ventures to transfer their energy through the power grid. Potential owners of combined heat and power (CHP) projects have also faced high backup power rates and other barriers related to the power sector, which has hampered the implementation of CHP projects.
●Third, low electricity prices, particularly for industries that connect to the grid at higher
1 See Section 2.3 in Chapter 2 of this report.
2 As mentioned in Chapter 2, Brazil’s overall first thermodynamics law efficiency is less than 40%.
voltages, have discouraged investments in CHP projects.3
●Fourth, among commercial businesses and industries in Brazil there is limited awareness of CHP systems and their potential advantages, and relatively few vendors actively market CHP systems.
This historical context has started to change.
The 2001 electricity supply crisis highlighted the need to further diversify Brazil’s electricity supply.
Ten per cent of newly available gas supplies were allocated to CHP projects in 2001. In addition, at the beginning of 2003, the Government imple-mented a new model for the Brazilian power sector that is driven by two main principles: first, that the Ministry of Mines and Energy (MME) should ultimately be responsible for the country’s energy planning,4 and second, that the electricity market should be fully contracted over the long term, under both a deregulated arrangement (bilateral contracts between power producers and eligible consumers) and a regulated arrangement based on power supply bids. These binding commitments will neces-sarily include thermal power options as alternatives to the hydropower expansion, because these options:
●Allow the optimal use of hydropower reservoirs by running at maximum load during the dry season or at peak periods;
●Will be selected when the expansion should be made quickly5 and if there is no available economic hydropower potential (e.g. in isolated systems);
●Are located close to the electricity markets, and thus are able to improve the quality of the power distributed (voltage enhancement, etc.).
However, while reform of the electricity market can remove some market barriers to NGCHP systems, particularly those involving access to the transmission grid and retailing surplus electricity, deregulation does not overcome all the barriers. For instance, if power supply bids lead to lower energy prices, NGCHP systems will be negatively affected because the incentives for conservation will decline [9.9]. There is also the possibility of anticompetitive behaviour on the part of the power utilities that may negatively affect CHP investments, such as unreasonable terms for backup power. Thus, additional policies are needed to remove barriers and stimulate NGCHP imple-mentation. These include the following:
●Require utilities to pay full avoided costs for power surpluses provided to the local grid on a firm basis by qualified facilities (distributed cogenerators)6 and provide backup power at regulated tariffs that reflect the real value of the emergency power required by cogen-eration systems under maintenance.7
●Remunerate qualified cogenerators as spin-ning reserves for the electric system and for other services provided by these producers to the local grids (e.g. voltage enhancement, emergency power).
●Educate end users in the commercial and industrial sectors about the advantages of and potential for CHP adoption, and facilitate contacts between CHP vendors and end users.
●Give priority to CHP projects as new gas supplies become available and are allocated to commercial and industrial consumers.
●Provide financial incentives such as long term loans at attractive interest rates from the national development bank or accelerated
3 For more details about electricity price trends in industry, see Chapter 2.
4 An agency of energy planning has been created, called Empresa de Pesquisa Energética (EPE), aiming at technically supporting the country’s long term energy planning.
5 Actually, the model considers two serial bids, one five years before the target expansion and the other three years before the target expansion. Thus, it allows the expansion through hydropower and complementary thermal power plants (five year bid) and through thermal power plants if the market expansion is higher than previ-ously forecasted (three year bid).
6 The full avoided costs include avoided genera-tion, transmission and distribution costs via long term contracts. Power transmission and distribution costs hover between US $5/MW·h and US $15/MW·h in Brazil.
Avoided operating costs depend on the season (dry or rainy), owing to the predominance of hydropower in the Brazilian system. Nevertheless, it is possible to estimate that the distributed cogenerator would receive at least US $40/MW·h under this type of incentive policy.
Actually, in 1998, a power utility in São Paulo State signed long term contracts with two cogenerators at US $34/MW·h, making their investments feasible [9.10].
7 Backup power tariffs may be three times the normal electricity tariff [9.11], compromising the economic feasibility of cogeneration plants.
depreciation for CHP systems that meet certain conditions, such as high overall efficiency and low pollutant emissions.
●Encourage third party financing and project implementation by energy service companies (ESCOs), energy suppliers such as gas or electric utilities, or equipment suppliers. One option is to use bidding programmes in which ESCOS bid for NGCHP ventures through performance based contracting. For instance, this could be done under the aegis of the new
●Encourage third party financing and project implementation by energy service companies (ESCOs), energy suppliers such as gas or electric utilities, or equipment suppliers. One option is to use bidding programmes in which ESCOS bid for NGCHP ventures through performance based contracting. For instance, this could be done under the aegis of the new