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Brazil Power report January 2014


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Sao Paulo, 7th of November 2013 Brazil has one of the largest wind and solar energy potentials in the world. Aiming at their development, the Federal Government has created the necessary conditions to stimulate their use. Wind energy growth in the country demand investments of US$ 50 billion in order to grow from the present 2.8 GW to 17GW in 2021, as estimated by the Federal Government, most of it in Bahia . In 2009, the state sold the first projects in the regulated market and, since then, more than 2.5 GW were hired in auctions and in the free market. But this is still only the beginning, since Bahia has launched its new Wind Atlas, which has identified potential more than ten times higher than the national projection for the source, in the country, in 2021. Bahia is also a major player in the industrial park segment that already comprises three world-class wind turbine manufacturers, three componentssuppliers and others in implementation, allowing Bahia to have the production of all major elements of a wind turbine. Solar power is also beginning to gather pace, with regulations for distributed generation projects already in place and solar energy being traded on the open market. Starting this year the source will be a player in the regulated market auctions with Bahia in the lead with more than 60% of registered projects. If you are interested in renewable energy, I invite you to review the opportunities made available through this communication platform. Warm regards, Jaques Wagner - Bahia State Governor


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Special thanks to Jose da Costa Carvalho of Eletrobras, and Sergio Luis da Silva of Comgas for their strong interest in this report. Thank you to all the people, institutions and companies involved in producing this special report.


5 CONTENTS

7 8 10 11 12 13 14 16 17 18 20 20 22 24

ENERGY SUSTAINABILITY... BUT AT WHAT PRICE? A FASHIONABLE POWER MODEL THE NEED FOR A LONG-TERM VISION LET IT RAIN EMBRACING HYDRO CREATIVITY DRIVES MOTIVATION WINDS OF CHANGE CONNECTING THE DOTS SMART ENERGY DAVID VERSUS GOLIATH BRAZIL’S POWER SECTOR: AN INSIDE VIEW ROMEU RUFINO, PRESIDENT, ANEEL DUILIO DINIZ DE FIGUEIREDO, PRESIDENT, NORTE ENERGIA HERMES CHIPP, GENERAL DIRECTOR, ONS

INTERVIEWS

26  INTERVIEW WITH:

José da Costa Carvalho, President, Eletrobras

28  INTERVIEW WITH:

Dr. Albert C. Geber de Melo, Director General, Eletrobras Research Center Cepel

30  INTERVIEW WITH:

João Bosco de Almeida, President Director - Chesf

32  INTERVIEW WITH:

Romeu Rufino, President, ANEEL: Brazil’s National Electric Energy Agency

34  INTERVIEW WITH:

Hermes Chipp, General Director ONS: Brazil’s National Operator of Electric Systems

36  INTERVIEW WITH:

Luis Fernando Leone Vianna, President, APINE Brazilian Association for Independent Electric Energy Producers

38  INTERVIEW WITH:

Humberto Barbato, President, ABINEE Brazilian Electrical and Electronics Industry Association

40  INTERVIEW WITH:

Mr. Thomas Hanson; Commercial Service Officer Ms. Igly Seraphim; Business Development Specialist U.S. Commercial Service, U.S. Consulate, Sao Paulo

42  INTERVIEW WITH:

Sergio Parada, President, Andritz Hydro Inepar

44  INTERVIEW WITH:

Patrick Simon, President Director of EDF Norte Fluminense

46  INTERVIEW WITH:

Ana Maria Machado Fernandes, CEO, EDP Energias do Brasil

48  INTERVIEW WITH:

Jose Luis Menghini, Executive Vice President, IMPSA

50  INTERVIEW WITH:

Antonio Fernando Krempel, CEO of Intertechne

52  INTERVIEW WITH:

Rafael Jaramillo, Vice President & General Manager, Emerson Process Management

54  INTERVIEW WITH:

Paulo Fernando Soares, General Manager, Vestas

This sponsored supplement was produced by Focus Reports. Project Director: Mariuca Georgescu Publisher: Ines Nadin Journalist: Teddy Lamazere Contributors: Fraser Wallace and Isabella Romeo Gomez Copyright All rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports. While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. Opinions expressed in this report are not necessarily those of the authors.


6

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7 Jirau, one of Brazil’s power houses: Upstream view, with flooded enclosures on left bank Credit: Energia Sustentavel do Brasil

Special Country Report: Brazil

ENERGY SUSTAINABILITY... BUT AT WHAT PRICE?

I

t is June 2013, the Brazilian winter is on

is ranked third according to Bloomberg,

Green rush on costly generation

the doorstep and even though snow is

with state and federal taxes accounting

Considering Brazil’s size and population, one

not falling on the hills of Ipanema, the

for a third of the energy price – clearly the

would never imagine such a country being

electricity sector here is once again

industry is having difficulties adapting to the

64 per cent reliant on hydro for its electricity; this

facing a major upheaval.

government’s agenda.

is according to the National Agency for Electric

While sitting down with one of the

Brazil is the fifth largest country in the

Energy (ANEEL). However, Brazil did make the

most influential men in Brazil’s electricity sector,

world

market uncertainties take centre stage. José

199 million and a GDP in 2012 of $2.25 trillion,

da Costa Carvalho, President of Eletrobras,

according to the World Bank. This South

This South American nation is home to

Brazil’s largest state-owned utility, which owns

American nation is also preparing to host the

the second largest hydroelectric dam in the

56 per cent of the country’s transmission lines

FIFA World Cup and next year’s presidential

world, Itaipu, with an installed capacity of

and 36 per cent of total generating capacity,

elections, followed by the Olympic Games

14 GW; although it is some way behind China’s

is discussing the latest measures taken by

in 2016. However, since 2010 Brazil has been

Three Gorges dam, with its installed capacity

the government to reduce electricity tariffs

experiencing an economic slowdown and in

of 22.5 GW.

by 20 per cent. This has had the effect of

more recent times social unrest seems to be

significantly driving down the company’s

on the increase.

with

a

population

approaching

choice to focus on renewable energies and capitalise on its natural resources.

Such large-scale projects, however, share one thing in common: they are reservoir-

revenues from $17 billion to $9 billion, and

In this climate, several questions spring

based. Reservoirs flood large areas of land

creating nothing short of an ‘earthquake’ in

to mind in relation to this South American

and therefore are accompanied by an array

the sector.

country’s power sector. Is Brazil making the

of environmental and social issues, although

Humbly, Da Costa explains: “We need to

right choice by focusing on renewable

they also serve a very important purpose in

get more from what we have”, emphasising

energies? Are these energies competitive

that they can store significant quantities of

that his company has to bring forward new

and attractive for international investors?

water that can be used to produce electricity

technologies and boost operational efficiency

Is the country prepared to balance its

in periods of drought.

to remain afloat in Brazil.

federal and regional agendas given such

While reducing electricity tariffs is noble,

economic

and

social

In

Brazil,

environmental

organisations

disparities

have severely criticised these traditional

especially in one of the most expensive

between regions? How will it meet the yearly

reservoir-based projects, so in response the

countries for electricity in the world – Brazil

5 per cent increases in energy demand?

government decided to focus more on run-

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high

Power Engineering International December 2013

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Brazil energy report January 2014

Brazil

Participation of renewables in the energy mix Credit: EPE, IEA Brazil (2012)

of-the-river hydro facilities, which are more environmentally friendly but less reliable because of a highly limited or non-existent

84.50%

water storage capability. Eduardo de Melo Pinto, President director of Santo Antonio Energia, the company that

88.90%

Brazil (2011)

operates the Santo Antonio hydroelectric dam, brings a technical perspective to 19.70%

World (2010)

this issue and discusses the challenges of locating non-reservoir based facilities in the lively waters of the Amazon.

18.10%

OCDE (2010)

“Although this new method [run-of-theriver] has a better environmental footprint,

0%

10%

20%

Renewables

30%

40%

50%

60%

70%

80%

90%

100%

Non Renewables

its power generating capacity is much more limited than traditional approaches, especially in the unpredictable Amazonian rivers, such as the Madeira River, where water flow can fluctuate anywhere between 4000 m3/s. and 38,000 m3/s; such variations demand great flexibility.” This

is

exactly

the

situation

facing

Belo Monte (11.2 GW), Jirau (3.75 GW) and Santo Antonio (3.5 GW), all of which are located in the Amazon region. Implementing such large-scale projects in the Amazon has José da Costa Carvalho President, Eltrobras

Albert C. Gerber de Melo General Director Eletrobras Cepel

Mauricio Tiomno Tomalsquim President, EPE

always been a logistical nightmare. Duilio Diniz de Figueiredo, President of Norte Energia, the operator of Belo Monte, says: “To give a

A FASHIONABLE POWER MODEL?

clear impression of the scale of this project,

Mauricio Tiomno Tomalsquim, President of

it meets the government’s agenda but what

our two power plants are separated by 50 km.

the Energy Research Company (EPE), an

about the industry?

In order not to impinge on indigenous territory

organisation dedicated to energy planning,

Thus, through this model the necessary

we built a channel and reservoir by the Xingu

has been an active player in Brazil’s energy

mechanisms to allow the award of contracts

River to channel the water needed for smooth

reform process, proposing in 2004 a ‘hybrid’

at energy auctions, where companies

plant operations [this channel is 16 km long,

power model.

compete

25 metres deep and 210 metres wide].

for

projects

in

generation,

distribution and transmission, were defined.

“This region is logistically challenging,

completely

The company offering the most competitive

given that the river does not have a linear

eliminated market risks for investors because

price would be declared the winner and

shape and is surrounded by dense tropical

contracts are predefined with inflation-

be awarded a power purchase agreement

forest. To ease the movement of materials, we

adjusted revenue regardless of fluctuations

(PPA), which granted 30 years of operation

constructed a port to help reduce the costs

on energy demand.”

for hydropower plants and 20 years for wind

incurred by transporting goods over ground.”

“This model has significantly reduced environmental

risks,

and

It was a necessary response to the 2001

and thermal power plants.

While the installed capacity of these hydroelectric

dams

is

remarkable, their

power crisis in Brazil, where dependency on

Moreover, this power model is supported

hydroelectric power plunged the country

by the Brazilian Development Bank (BNDES),

physical output guarantee or the actual

into darkness because of severe drought

under the supervision of the Ministry of

amount of electricity produced can oscillate

and insufficient water levels in its reservoirs.

State for Development, Industry and Foreign

between 40 per cent and 70 per cent of their

Trade

installed capacity.

Not only did Brazil understand it could

(MDIC). This

government-owned

not rely solely on hydropower it also had

corporation is the largest development

De Melo Pinto also raises an interesting

to plan ahead. However, the latter would

bank in the world, with consolidated

point. “In terms of investments and power

ultimately create tensions throughout the

assets of $329 billion, and finances around

generating capacity, building one hydropower

sector as the government and the industry

70 per cent of all energy projects in Brazil.

plant with a large reservoir can be less

took different viewpoints on what resources

This financial entity has supported this power

expensive and more productive than building

should be exploited and what the priorities

model since its launch. Clearly, BNDES is

two similar-sized run-of-the-river plants.”

should be. As Tomalsquim says: “EPE acts as

omnipotent but could too much power and

a government and ministry advisor”; clearly,

control over a market lead to pitfalls?

Ultimately, by building more of these run-ofthe-river plants to compensate for the lack of power generation, Brazil may not be making

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Power Engineering International December 2013

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BELO MONTE: BRAZIL NEEDS THAT ENERGY!

Norte Energia built in Altamira 5 new neighbourhoods, complete with infrastructure and high quality houses. Families living on the banks of the Xingu River, located in Altamira, southeast of Para region, are getting closer to achieving their dream – living in a new urban development in highquality houses. The construction of the new neighborhoods has already began and incorporates 4.100 houses in five different areas in the city belonging to Norte Energia. Final delivery is expected in the first semester of 2014 and future residents already have an accurate vision of interior layout of the houses through early visits to model homes which started in July.

www.PowerEngineeringInt.com

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Brazil energy report January 2014

Brazil

environmental licensing should be simplified.

THE NEED FOR A LONG-TERM VISION Criticism around hydropower projects have flourished over the years, attracting large environmental organisations and wellknown personalities to protest against the destruction of the Amazon’s natural habitat and the extinction of indigenous tribes. While engaging in such large projects does alter the natural habitat, companies like Norte Energia are investing $1.8 billion in social and environmental programmes for the protection and reproduction of fauna and flora and the implementation of health, education, public safety and sanitation programs for the local communities. Duilio Diniz de Figueiredo comments: “Norte Energia´s vision to improve the region has been combined with the government’s sustainable development plan for the regions, resulting in environmental and social compensations being spread out over time.” Providing electricity and investing in these programmes is the first step. Figueiredo wants to look ahead and says: “Norte Energia should not be seen only as an electricity generator. In five or six years, the region will be transformed and Belo Monte will be completely merged into the landscape.” The vision behind these projects is to create a new living environment, worthy of

A project like Jirau for instance, demands over 20 environmental licenses which need to be annually renewed. In Germany, only three licenses are needed for a hydro project. I believe we can keep the same amount of environmental and social protection without requiring so many licenses.” In addition to licensing, Paranhos highlights other issues. “Federal taxes in combination

Duilio Diniz de Figueiredo President, Norte Energia

with state taxes such as Tax on Circulation of Merchandise and Services [ICMS] represent

attracting other communities, themselves willing to carry on the social and economic projects engaged by the investors. Norte Energia is not alone in deciding the fate of these communities and Figueiredo stresses: “stakeholders such as the federal and state government, city halls of the affected regions, environmental associations, local communities and companies involved are all represented. “Norte Energia is one of 30 representatives with the right to vote. Given that we have one of 30 votes in this council, other stakeholders have key influence over the shaping of this project,” emphasies Figueiredo.

50 per cent of the cost of Jirau’s energy. We need to implement stable and fixed rules from the beginning of a project and avoid changing existing measures that can cause significant increases in a project’s cost. For example, Jirau faced a new problem when the state government decided to change the ICMS tax rate, increasing our cost by $200 million.” SHPP

also

struggle

to

remain

afloat.

Valmor Alves, President Director of Electra Power explains: “being competitive at energy auctions and offering low-cost energy is a challenge that the sector has not been able to resolve. Currently, the price per MWh offered for SHPPs during an auction is $65. My perspective is that this price should be 15 per cent higher, to make us competitive.” The

debate

about

having

auctions

by source and region to increase the competitiveness level of different energy sources has been taking place within the industry over the last few years. ANEEL and the National Operator of Electric Systems (ONS) are strongly in favour of it. Eduardo de Melo Pinto President Director, Santo Antonio Energia

Victor Paranhos President Director, Engergia Sustentavel do Brasil

“None of the non-conventional renewable

Valmor Alves President Director, Electra Power

sources

alone

will

be

the

solution

to

accommodating the increasing electricity demand of the country.To resolve this issue we

the right choice. Not only is it important to

efficiency rates, social and environmental

strongly recommend having energy auctions

decide what kind of hydropower plant to

impacts, to find the best option.”

by source and region,” says Hermes J. Chipp, ONS’ General Director.

construct, it is more crucial to understand

Simultaneously, Brazil has been developing

how this influences other variables such as

its arsenal of small hydroelectric power plants

environment and cost.

(SHPP). These power plants tend to have an

Director

Albert C. Geber de Melo, General Director

installed capacity ranging from 1 MW to

auctions in this manner is fundamental to the

of Eletrobras’ Research Centre (Cepel) claims:

30 MW. To-date, 462 of them are spread across

sustainability of our energy matrix”.

“In 2007, we released the new manual of

the country, representing a total installed

On the performance side, Brazil has

Hydropower Inventory Studies to correlate

capacity of 4.6 GW, says ANEEL. Although they

managed to build a high-level of technical

power generation potential and social and

can be rapidly implemented because of their

expertise and safety in the hydro sector.

environmental impacts, as well as multiple

small size, obtaining environmental licenses

Since every dam is unique, their designs

uses of water.

still remains a burden similar to that for large

are complex, however, several players have

hydroelectric facilities.

managed to excel in this field.

“Through

this

methodology

we

can

Similarly, Romeu Donizete Rufino, General of

ANEEL

stresses:

“managing

Director

Intertechne, a highly-specialized design

constructing one hydro plant of 10 MW or five

of Energia Sustentavel do Brasil (ESBR),

company from Curitiba, has been heavily

hydro plants of 2 MW, taking into account costs,

the

involved in the design of the majority of Brazil’s

Victor

assess, for example, the trade-off between

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Power Engineering International December 2013

Paranhos,

operator

of

President

Jirau, clarifies: “I

think

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Brazil

hydroelectric dams. Its Chief Executive Officer, Antonio Fernando Krempel, declares: “We participate in nine out of 16 projects under construction, which represents a 56 per cent market share. We are proud to be the design leaders of Brazil’s most significant projects such as Belo Monte, Santo Antonio and Teles Pires.” Intertechne’s

success

is

not

only

a

consequence of 25 years of experience in the field with the largest projects, but reflects

Nova Mutum Paraná – city built by Jirau HPP Credit: Energia Sustentavel do Brasil

the company’s unique technical expertise within Brazil. “Our projects are 100 per cent designed with 3D modelling software, while our competition is still limited to creating 2D plans. This makes our designs far more complete and valuable to our customers,” confirms Fernando Krempel. Norte Energia’s Figueiredo also believes in Brazil’s capacity for innovation and claims: “At the beginning of my career, Brazil lagged behind, both in technology and innovation, but today I can proudly say that we have the most advanced technology and are capable of managing some of the most complex hydro

Hermes J. Chipp General Director, ONS

Romeu Donizete Rufino General Director, ANEEL

Antonio Fernando Krempel CEO, Intertechne

projects civilisation has ever witnessed.” American

Let it rain Predictability, security

and

reliability

are

necessary for Brazil, and as such this South

fuel

From that point on, nature and rainfall

its power sector by using thermal power

nation

decided

to

also

would not dictate energy dependency but

plants as a backup system to its hydro

thermal plants fueled by gas, coal, oil and even

backbone.

nuclear power would produce electricity at a

A TEAM OF EXCELLENCE EDF Norte Fluminense, the arm of Electricité de France in Brazil, is a company formed 10 years ago. It operates a combined-cycle thermo-power plant in Macaé in the State of Rio de Janeiro, generating 869 MW and capable of supplying a population of 2.5 million people. In 2012, it was elected the most efficient thermopower plant in the sector in the country for the second consecutive year. As marks of excellence, the company has its teams and a policy of giving value to people, creativity and the environment. Since the beginning it has maintained zero accidents in its installations. In addition to power, the plant generates art. Its towers, walls and tubing have become a scenario for Brazilian and French artists, and this has transformed the space into a huge open air gallery.

Macaé – Rio de Janeiro / Brazil edfnortefluminense.com.br

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Brazil energy report January 2014

Brazil

EMBRACING HYDRO Focus Reports: From the outside Denge Engenharia seems to be prioritising small hydropower projects. In addition to them, what other projects is Denge Engenharia looking into? Marco Dopico: We are capable of working on any type of plant, from very small to very large projects. Although our internal resources and limited manpower restricts our capabilities, we are able to partner with other companies to complement the resources needed for larger projects. In the past, 80 per cent of our projects were concentrated on small hydro plants. Financially, working on medium to large hydro projects is better than small ones, as the equipment used on small hydro plants is similar to larger ones. More precisely, where the money lies is not on the engineering part, but on the fabrication and therefore this is our core interest. Focus Reports: Regardless of which hydro will prevail in the future, one thing will remain – Brazil as a leader in hydro innovation and equipment. How do you rate Brazil’s innovation capacity?

Dopico: Brazil’s expertise and innovation in hydropower certainly stands out among other countries. All of our dams are supported by major manufacturers, service providers and equipment specialists, providing high-end solutions to our dams. Through collaboration, local expertise and heritage we can assist Brazil’s hydro in remaining at the edge of innovation for decades to come. Focus Reports: What is your vision of the potential of hydropower? Dopico: The future of hydropower in Brazil fundamentally depends on the tariffs set by the government. These projects have a long-term perspective with 30 years PPAs. Returns on investment, however, as well as environmental licenses, are difficult to retrieve and may take up to ten years. Therefore a 30-year concession contract may in reality only represent 20 years of profit. For this reason sometimes concessions are not renewed and the company loses a very large asset.

Marco Dopico Founder and President Director, Denge Engenharia e Consultoria

Focus Reports: From your expertise in hydro projects, where is Denge Engenharia going to invest in the next five years? Dopico: We are looking into different markets, such as the marine sector and petrochemical industries. We have already contacted clients in these areas and are awaiting the conditions and requirements to start manufacturing and assembling equipment for them. It is our priority to invest in other sectors and our expertise allows us to be flexible to work in these new areas.

Jirau Hydro Power Plant - the largest renewable energy project registered according to the Clean Development Mechanism The CDM has been created by the United Nations to support sustainable development and long term GHG mitigation. The Jirau Hydro Power Plant is a result of this ambition and its renewable energy will supply more than 10 million Brazilian households and reduce GHG emission by six million tons of CO2 per year. Located at the Madeira River and with a capacity of 3,750 MW the project has been developed and audited according to acknowledged principles of sustainability to maximize and demonstrate benefits for environment, society and the global climate. Jirau’s CDM registration rewards our ambition to promote sustainable economic growth with renewable and sustainable energy.

atendimento@energiasustentaveldobrasil.com.br Phone: + 55 69 0800-647-7747

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Power Engineering International December 2013

www.energiasustentaveldobrasil.com.br

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13

Brazil

Brazil’s pollution indexes skyrocketed from

CREATIVITY DRIVES MOTIVATION Traditionally arid, industrial spaces do not usually have any relationship with the Arts. However, far from fitting a conventional business operation scheme, EDF Norte Fluminense not only has undermined this premise, but it has also inaugurated a true open-air gallery in its thermoelectric power plant, in Macaé. This initiative gives people a means to express themselves, and Patrick Simon, President Director of EDF Norte Fluminense, proudly states: “To maintain high levels of motivation, we have invested in renewing our equipment, control room and importantly, we have developed a new working environment. We recently started a new painting programme, providing the plant with new designs and paintings.” Working in a pleasant context is a great way to improve employee motivation and performance. Employees and third parties recognise change and new initiatives. The original project of taking

art to a plant is also a tool that helps to improve the company’s global performance. Simon adds: “EDF carried out a worldwide survey (133,000 workers) to better know about working conditions and people satisfaction in all of the EDF Group companies. EDF Norte Fluminense ranked first with more than 90 per cent satisfaction rate. Even more so, 99 per cent expressed their pride to work for Norte Fluminense.”

To balance both sides of the equation, companies operating thermal power plants must ensure that their facilities are running at full availability and also use the best technologies to raise their efficiency levels and reduce their emissions. Patrick Simon, President Director of EDF Norte Fluminense, the Brazilian subsidiary of Électricité de France SA (EDF) shares this belief by saying: “Our thermal power plant operates at a 99 per cent rate of availability, which could be a world record. It is a perfect example of how EDF’s technology ensures our plant operates at optimal levels.” Brazil also needs to look into less-polluting solutions to fuel its thermal power generation, and perhaps the answer lies in biomass.This

EDF Norte Fluminenste’s plant Credit: EDF

has been growing rapidly as a fuel source – it

constant rate, thereby making its production

the gas consumed in Brazil is imported from

predictable and accurate.

neighouring Bolivia.

The plan was to use thermal power plants

“Our national production of gas is around

during periods of drought. In anticipation

4 million m3 per day, we receive from Bolivia

of lack of sufficient energy generated from

around 30 million m3 per day, with the rest

hydropower plants, the government opted to

being LNG [liquefied natural gas].” Brazil’s

first rely on coal-fueled power plants. Coal is

dependence

the least expensive of the fossil fuels, and is

prices, and therefore making thermal power

therefore prioritised. However, its use is limited

generation even more expensive.

on

gas

naturally

increase

by the number of power plants – Brazil only

Silva raises another interesting point: “The

has five coal-fired power plants, located in the

problem today is not about the potential

south of the country.

of gas, or current resources, the real issue is

Natural gas is used as the second main

using sources such as coal.

Sergio Luiz da Silva Director Vice President, Comgas

infrastructure.”

fuel source, but as Sergio Luiz da Silva, Director

However, the utilisation of thermal power

Vice President of Comgas, Brazil’s largest gas

plants during periods of drought has produced

distributor, comments: “Since 2007 in Brazil, the

its own challenges. For example, last year,

balance between the supply and demand

dispatching these thermal plants resulted in

of gas has been tight. In fact, 40 per cent of

an unforeseen $3.5 billion cost. Furthermore,

Patrick Simon President Director, EDF Norte Fluminense

Mirian Rocha

Administrative Manager 41 3099-5601 I 41 8864-6629 Av. Sete de Setembro, 4.476 - 2° Andar 80.250-210 - Curitiba - PR

Renewable energy and Power, the perfect combination for BRAZIL www.PowerEngineeringInt.com ENERGYBOARDROOM.COM

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Brazil energy report January 2014

Brazil

©NorteEnergia/EspaçoVirtual-BSB

THE LARGEST HYDROPOWER

PROJECT UNDER

CONSTRUCTION IN THE WORLD 11,233 MW

Intertechne team has recently participated in important Brazilian and international projects related to energy and infrastructure, increasing its experience and innovation. This cross-disciplinary team of experienced professionals has also worked in the basic design of Belo Monte Hydroelectric Power Plant, and is currently participating in the detailed design of the same plant. When completed, this plant will be the third major hydroelectric plant in the world.

Intertechne Consultores S.A.

INTERTECHNE CONSULTORES BUSINESS GROUP

Engineering Services - Oil and Gas

Equipment Supply and Assembly Services

CHAGLLA 456 MW PERU

EL CAJÓN 760 MW MÉXICO

SANTO ANTONIO 3,150 MW BRAZIL

PALOMINO 80 MW DOMINICAN REPUBLIC

LAUCA 2,067 MW ANGOLA

IRAPÉ 360 MW BRAZIL

TELES PIRES 1,820 MW BRAZIL

Curitiba, São Paulo, Rio de Janeiro - Brazil | México City - México | Neuquén - Argentina

represents today 8.4 per cent of the country’s

with a high-energy consumption or cities

electricity mix, according to ANEEL. This growth

requiring energy centres to provide electricity

has been primarily fueled by Brazil’s enormous

inside buildings or shopping centres.

sugar cane bagasse resource (82 per cent:

Carlos

Roberto

Silvestrin,

Executive

ANEEL) and to a lesser extent by wood, biogas

Vice President at the Association of the

and other types of residual waste.

Cogeneration Industry (Cogen) confirms:

Brazil is already an ethanol and sugar cane

“Cogeneration is the best alternative

world leader, according to Brazil’s sugar cane

to thermal power plants which today are

industry assocation, UNICA. Andre Salgado,

supporting

Managing Director at Areva Renewables, part

example, if we use 1 million m3 of natural gas in

of France’s Areva and a significant biomass

a thermal power plant, its efficiency rate will be

investor in Brazil, clarifies:“Currently, hydro is not

around 40 per cent; whereas the same volume

the best resource to invest in, due to the feed-

of natural gas in a cogeneration system would

in tariffs currently in place, and we feel that

produce an efficiency rate of 60–80 per cent.

biomass holds much more promise.

Overall, cogeneration has clear benefits and

“With a power demand growing at a much

the

hydropower

sector.

For

Andre Salgado Managing Director, Areva Renewables

is much quicker to implement.”

faster rate than the country’s GDP, power generation is under intensive pressure and it

Winds of change

is a priority to develop alternative sources like

While hydropower has only reached one third of

biomass to compensate for this additional

its total exploitation potential, it is estimated that

demand.The government’s Decennial Plan for

wind power alone has a potential capacity of

Energy [PDE] forecasts an average increase of

350 GW. However, the reality today is that wind

450 MW a year until 2021 for biomass.”

represents only 2 per cent of the energy matrix,

However, other generation technologies

with solar power only taking its first steps.

as

With the will to carry on and see a bright

combined heat and power, could also be an

future ahead for the development of wind,

attractive alternative for industrial companies

Elbia Melo, Chief Executive Officer of the

such

34

as

cogeneration, also

known

Power Engineering International December 2013

Carlos Roberto Silvestrin Executive Vice President, Cogen

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15

The new hydro plant of Brazil to issue carbon credits on the global market. The Santo Antônio Hydroelectric Power Station is celebrating certification by the United Nations - UN, allowing it to join the Clean Development Mechanism - CDM. This is Brazil’s first major hydro plant to effectively issue carbon credits on the global market. It is also an example of the Green Economy, a concept adopted by the UN Rio+20 Conference, which recognizes the reduction of carbon gas emissions, the efficient use of natural resources and social inclusion. Santo Antônio Energia augments the nation’s renewable energy supply. A benchmark for sustainable development in Brazil and around the world.

The Santo Antônio Hydro Power Station makes the most efficient use of the Madeira River’s hydrological potential near the city of Porto Velho in Rondônia – part of the Legal Amazon region.

shareholders

Project financed by the BNDES

ENERGYBOARDROOM.COM


16

Brazil energy report January 2014

Brazil

Elbia Melo Chief Exectutive Officer, ABEEolica

Paulo Soares General Manager, Vestas

José Luis Menghini Executive Vice President, IMPSA

Sergio Parada President, Andritz Hydro Inepar

Brazilian Wind Association (ABEEolica) has

solutions in smart grids, training, operation and

Of course, there is no doubt that Brazil

been fighting to obtain 2 GW of contracted

maintenance [O&M] and create synergies

is the perfect place to start these activities

wind every year. As she comments:

between the different business units.”

combining resources in wind, hydro and solar

“Our unique wind as well as our technology

Where investments are made, largely

power, which can be found in its neighbours

makes us 30 per cent more competitive than

depends on what sources are competitive.

as well. Parada adds: “Brazil represents

any other country. Our capacity factors are

While wind power is competitive at Brazilian

around 60 per cent of the Latin American

the best in the world. In 2011, it was around

energy auctions ($50 per MWh) – its price is

market, which still leaves possibilities in other

54 per cent, and even reached 71 per cent in

pretty much double that in Europe – this is

neighbouring countries. I truly believe in the

Salvador de Bahia.”

not the case for solar power, which is quoted

potential of countries like Peru, Colombia and

From an industry point of view and to

to be at least three times more expensive.

Panama, amongst others.”

understand how local content affects the

Simply, until solar attains a competitive level its

sector, Paulo Soares, General Manager of

influence is likely to remain minimal.

Connecting the dots

international wind player Vestas comments:

However, Chipp (ONS) remains optimisitc

Whatever the fuel source may be, all

“Local content policies tend to decrease

on solar, saying:“For the first time solar projects

sources rely on one crucial element – Brazil’s

competition, slow down innovation, retard

will be included in the next auction for future

Interconnected

economies of scale and raise costs by

energy. If the prices continue to decrease in

Network (SIN). In such a large country and

creating supply chain inefficiencies.

the near future, these projects could play an

with resources spread across the country and

important role in the electricity matrix.”

not located in the main areas of demand,

“Local

content

regulations

create

National

Transmission

unnecessary barriers to lowering the cost

Solar power could become as competitive

there are many challenges. While the country

of energy. And the employment effects of

as wind power, but today the market

currently struggles to have all its existing

such policies have not been proven yet: the

conditions do not allow it to grow in parallel.

lines connected to the grid and companies experience

long

delays

in

building

countries with the highest levels of wind jobs

Still, these renewable energies have the

and investments in fact are those that have

potential to grow and one method would be

transmission lines, the situation is now critical.

secured a free and open market place [such

to combine them.

As José Claudio Cardoso, President of

as Germany and the US].”

For instance, Andritz Hydro, Austrian world

Nonetheless, IMPSA, an Argentinean wind

leader in hydro turbine manufacturing and

and hydro equipment manufacturer, chose

its Brazilian subsidiary Andritz Hydro Inepar,

Brazil as its Latin American manufacturing

propose an interesting vision for the future by

platform and invested through BNDES in state-

highlighting the benefits of combining pump

of-the-art facilities.

storage plants with wind and solar power.

Its Executive Vice President José Luis

Its President, Sergio Parada, mentions: “this

Menghini states: “We opted to develop our

method enables us to store energy in the form

technology and products locally to meet

of potential energy; shifting water to reservoirs

standards and gain local expertise to adapt

to create the necessary power depending on

to the specific requirements of the market.”

energy demand. This specific hydroelectric

This company saw early on the potential in

power generation method is used in other

Brazil and has been investing locally for the past

countries and has been proven to be efficient

three decades. Like many large multinational

when combined with wind turbines and solar

companies, IMPSA decided to diversify its

panels. This approach could be highly useful

portfolio of activities by investing in other areas,

to our energy matrix considering the potential

establishing Brazil as its test laboratory.

and unique conditions for wind and solar

Menghini clarifies: “We shall invest in power

power. My perspective is that in ten years a

electronics, mostly focused in high-density

real market for pump storage power plants

drivers. We believe this will complete our

will exist.”

36

Power Engineering International December 2013

the

Association

of

Large

Transmission

José Claudio Cardoso President, ABRATE

Rafael Paniagua President, ABB Brazil

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17

Brazil

SMART ENERGY? Focus Reports: The Losses and Metering Management System (SGP+M) project is the creation of Landis & Gyr (L+G) Equipamentos de Medicão, which started in Brazil in 1994 and was the first electronic metering system to be approved by the National Institute of Meteorology, Quality and Technology (Inmetro). What were the challenges while introducing smart metering in Brazil? Alvaro Dias Junior: When we first arrived in Brazil in 1996, regulation in the smart metering market was non-existent. For instance SGP+M was developed to bring the metering systems outside of the users’ homes, which meant a new development and regulation issue for Brazil. Between 1997 and 1999, despite improvements in our metering systems, social protests against the system froze our initiatives. Inmetro only officially approved our metering systems in 2009. Focus Reports: Implementing new efficient solutions in Brazil is key to become a recognised player in a very competitive market. How can efficiency prevail through the use of your systems?

Dias: Our smart metering systems, which are part of the global smart grid system, provide accurate information and will comply with different lines of electricity tariffs, such as the ‘white tariff’, which allow customers to pay

Corporation, we were participating in a new project – smart city Buzios – in partnership with Enel and Endesa. This project is the first smart city project to spread its wings in Brazil. Focus Reports: While becoming a more internationalised company under Toshiba’s flag, how do you advance in Brazil?

Alvaro Dias Junior Executive Vice President and General Manager, South America, Landis & Gyr

less when they consume electric energy during the day. Until 2009, consumers were using only electro-mechanic meters whereas for the past four years digital meters and metering systems have revolutionised the market. In 2011, when acquired by Toshiba

Dias: With the support of Toshiba, we gained access to new technologies and know-how which can complement and improve our specialised smart metering systems. In the US, for instance, where L+G produces around six million digital meters, we acquired different modules of communication. In Brazil, our systems could be adapted in the same way and this flexibility makes us very competitive in the market. L+G defines itself as a system integrator and therefore we wish to collaborate on all types of projects and adapt to different power sources. For example, we have started a new project in solar metering systems with a local Brazilian client, trying to develop the potential for our systems. Only with time and resources will we be able to show our Brazilian citizens the full potential of our systems.

Designs, fabricates and assembles: Steel penstocks Floodgates Gantry crane Steel equipment in general denge@denge.com.br

www.PowerEngineeringInt.com ENERGYBOARDROOM.COM

www.denge.com.br

Power Engineering International December 2013

37


18

Brazil energy report January 2014

Brazil

Companies (ABRATE) points out: “Transmission

of Brazil’s GDP, according to the Brazilian

auctions have been showing a bit of retreat

Institute of Geography and Statistics (IBGE). If

on behalf of transmission companies, primarily

we combine the regions of Sao Paulo, Rio de

because of environmental licenses, social

Janeiro and Minas Gerais, these account for

manifestations and low project profitability.

half of GDP and 38 per cent of the population.

has

Comparatively, the Amazon rainforest covers

been a real headache and has caused

more than half of Brazil’s territory and even

project delays for new transmission lines. This

including all the remaining states in the north

whole process only slows down the country’s

of the country, economically they represent a

expansion and a large amount of companies

quarter of GDP.

Obtaining

environmental

licenses

not

As Carlos Cavalcanti, Head of Infrastructure

meeting the deadlines.” To enable the safe

at the Federation of Industries of Sao Paulo

are

bearing

these

penalties

and

development of hydro projects in the Amazon

(FIESP) comments: “Sao Paulo represents

or wind projects in Bahia, as well as supply the

80 per cent of Brazil’s industrial GDP.”

southeast of the country, energy efficiency

Ultimately, Sao Paulo needs electric power

and innovative transmission solutions have

to keep up with its intense industrial activity,

become a priority.

but this energy must also be competitive and

Paulo Guimaraes Superintendent for the Economic Development of the State of Bahia

Eletrobras has been collaborating with

clean for sustainable purposes. To achieve this,

Cepel to develop innovative solutions and as

it will require investing in more efficient energy

Da Costa says: “In the transmission area we

systems such as smart grids for instance, and

are studying new designs for more efficient

it will also need to capitalise on its biomass

lines, and higher supervision, control and

resources (60 per cent of the country’s sugar

rural areas. From the unique conditions

data management of transmission systems.

cane resources are located in Sao Paulo ,

these areas offer, they are attracting many

Indeed, Brazil’s

according to ANEEL).

international players, contributing to their

transmission

line

systems

Carlos Cavalcanti Head of Infrastructure, FIESP

are highly complex, especially because of

Rio de Janeiro also will require electricity to

economic development - bringing energy,

distances and accessibility issues. Our aim will

fuel the FIFA World Cup, as well as its intensive

hiring manpower and creating wealth for the

be to overcome these factors and improve the

oil and gas exploration. Notably, these strong

state as a whole.

overall efficiency rates.”

and dynamic regions share different energy

Key

international

players

have

been

needs but have similar economic patterns.

Brazil has a two-speed economy and such important social and economic discrepancies

line

This is not the case for most of the other

demand different energy priorities for its

systems. One of them is ABB; a multinational

regions, especially in the north. In many of

regions. Therefore federal and regional power

corporation that specialises in power and

these areas where the economy is weak and

agenda must align on how these regions

automation technology.

where poverty and low social status are the

integrate different sources, access energy and

Rafael Paniagua, president of ABB in

most visible, electricity can lead to economic

drive strong economic development and/or

Brazil, states: “There are some issues raised

development. Very poor areas and states like

sustainable needs.

in transmission to the principle point of

Piaui located in the northeast have been

consumption. In Brazil, this is represented

growing at double digits and greater access

advantage of their unique resources and the

by the large urban conurbations in the

to electricity has been contributing to this.

richest regions capitalise on more efficient

capitalising

on

Brazil’s

transmission

If

the

poorest

regions

grow

taking

southeast. The key problems lie on what type

The region of Bahia, which is one of the

ways to distribute and harness green and

of technology is required to supply electricity

largest states in Brazil and the sixth largest

competitive energy, Brazil will grow faster,

efficiently over these vast distances. One of

economy, raises another interesting point.

stronger and in a more sustainable way.

the technologies leading this is high voltage

While Bahia’s main cities like Salvador hold

Once again the clock is ticking as

direct current (HVDC). This technology is used

almost all of the economic power in the

EPE releases its Decennial Energy Plan for

on Brazil’s longest transmission line.”

state, the priority for development lies in the

2022 and the government announces a

rural areas.

$130 billion investment in Brazil’s electricity

David versus Goliath

Paulo Guimaraes, Superintendent for the

sector – $100 billion for power generation and

When assessing the validity of Brazil’s power

Economic Development of the State of Bahia,

model, cost of energy, transmission network or

stresses: “Bahia is one of the few states that

It is through this investment that the

type of energy source, a fundamental element

has been capable of growing at a rate higher

government hopes to balance the country’s

remains to unleash – regional integration.

than 3 per cent since 2010, reaching 3.5 per

power system, raising it from the 120 GW of

Regions across Brazil simply cannot grow at

cent today. Important investments, which

today to

the same rate because access to electricity

previously targetted the capital (Salvador) or

However, Brazil will have to wait to see whether

varies and different states have different

other urban areas, are now mainly focusing

or not this will be sufficient on a national level,

needs. For Brazil to meet its annual increase in

on rural areas (60 per cent).”

as well as regionally.

demand, the effort has to be shared. Sao Paulo’s state alone represents a third

38

Bahia holds Brazil’s largest potential for wind and solar power, especially in its isolated

Power Engineering International December 2013

$30 billion for transmission.

an impressive 180 GW by 2022.

i

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Brazil energy report January 2014

Brazilian electricity sector

The construction of the 11.3 GW Belo Monte hydroelectric dam in the Amazon is in full swing Credit: R. Santos/Norte Energia

Brazil’s power sector: An inside view The electricity sector in Brazil is undoubtedly one of the most exciting and dynamic in world, yet it is also one of the most challenging. We get an insider’s view of the sector from its regulator, the company leading the controversial Belo Monte hydroelectric dam project and the national grid operator.

40

Power Engineering International September 2013

A

s one of the BRIC nations,

heads up the consortium building the

Brazil is a major emerging

11.3 GW Belo Monte dam in the Amazon, and

economy in the world. It is

ONS, which operates the national grid.

also the largest economy in the Latin Amercian region.

Romeu Rufino, President, ANEEL

However,

recently

ANEEL’s hydro development vision indicates

conerns have been raised over its continued

a bright future for hydro, but what about the

economic growth.

exploitation of other renewable sources?

more

According to a recent forecast from its

Brazil is one of the best places on earth to

cental bank, the economy is only expected

invest in renewable and green energies, and

to grow 2.2 per cent this year, with a slight

our mission is to achieve this goal. In addition

rise to 2.6 per cent next year, although Guido

to our unique hydro resource we have great

Mantega, Brazil’s finance minister, gave a

potential to utilise other renewables.

positive signal last month, reporting that

PROINFA – a renewable energy incentive

economic growth accelerated in the second

programme – was established because of

quarter from the beginning of the year.

the government’s fundamental desire to grow

Like most countries, its electricity sector

these energies. It has been very successful,

will play a fundamental role in helping Brazil’s

enabling wind, solar and biomass to all

continue its economic development. Here,

become more competitive in energy auctions.

on our behalf, Focus Reports spoke to key

Recent work by EPE – the state-owned

stakeholders in the sector: ANEEL, the regulator

energy research company – show that wind

of the electricity sector, Norte Energia, which

power has the potential to generate close to

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21

Brazilian electricity sector

Overall, renewable energies will grow in the

It is clear that our electric power tariffs are

future. I believe we will soon conduct auctions

too high, particularly given the tax burden on

by source and by region, which will enable

consumers. In this sense, one third of the final

these energies to flourish rapidly. Managing

electricity tariff represents the cost of state and

auctions in this manner is fundamental to the

federal taxes: ICMS taxes on the circulation of

sustainability of our energy matrix.

merchandises and services; COFINS [social security contribution] and the PIS Program for

ANEEL has many responsibilities. Nonetheless,

social integration. Another third corresponds

one of its most important roles is to establish

to the actual cost of generating the electricity,

electricity tariffs. How is this done?

and the final third corresponds to transmission

ANEEL’s role in determining electricity tariffs is highly transparent. A large part of

and distribution costs. Brazil

has

63

distribution

companies

establishing a tariff focuses on the concession

covering very different geographical areas.

Romeu Rufino President of ANEEL

contract and defining the time of concession

For instance, Brasilia is one concession area

granted for the company winning the

that is extremely privileged – its market is

350 GW, which represents nearly three times

auction, as well as the tariffs applied across

highly concentrated, with a high per-capita

the current total level of power generation in

this period.

consumption but a small transmission area.

Brazil. Wind auctions to date have shown real

For instance, the last tariff introduced

Therefore tariffs there are below average. In

promise, so it is only a matter of time before

for distribution companies took a year. We

contrast, if we take Celpa, in the Para region,

success for the wind industry is realised.

consulted with all stakeholders to assess which

it has a diffuse population, resulting in a large

Solar energy is still at an early stage in its

regulation improvements should be applied

transmission area. This, and its low per-capita

development, yet it has incredible potential.

to the tariffs. This regulation provides the basis

consumption, increases tariffs substantially.

Our country, particularly in the north, has

for the tariffs. When dealing with specific

In real numbers, the best concession area

a fantastic solar potential all year round.

companies, tariff readjustments are made

has half the cost of the worst. In some states,

Investing in solar plants in these areas

when consumers need to be compensated or

the ICMS reaches up to 42 per cent of the

undoubtedly represents a secure investment.

to avoid price variations over time.

total electricity price. We must, therefore,work

We just need to provide the appropriate

In the end, we at ANEEL are the guardians

towards reducing these taxes as much as

of the regulations developed by governmental

possible because in the end it is our citizens

Biomass is already strong here. Brazil is a big

bodies to consolidate and establish fair rules

who suffer.

producer of sugarcane, so biomass derived

for the sector. Regulatory stability is our priority.

regulation to develop this market.

With so many decisions to be taken in regard

from this industry – bagasse – is a source of power that reflects our cultural roots. It will

Brazil is recognised as having one of the

to the future of Brazil’s electric power mix,

grow along with thermal plants as they look

highest electricity tariffs in the world. Can

what will ANEEL be focusing on over the next

for alternative sources to fuel their turbines.

these tariffs be reduced?

five years?

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41


22

Brazilian electricity sector

Brazil still lacks good electricity supply

In my 42 years of experience in the power

is the Altamira area, which has seen the

services, and it must be our priority to improve

sector, I have seen first-hand the reforms

biggest changes. Prior to our arrival, Altamira

this situation. Other countries have invested

and adaptations that our industry and Brazil

had 100 000 inhabitants.

in underground electrical lines, bringing

have gone through. At the beginning of

safety and reliability, as well as reducing the

my career, Brazil was behind in technology

challenging because the river does not have

system’s environmental burden. We must work

and innovation, but today I can proudly say

a linear shape and is surrounded by dense

to accomplish similar results and show the

that we have some of the most advanced

tropical forest. To ease the movement of

rest of the world why Brazil is the sixth largest

technology and are capable of managing

materials, we constructed a port to reduce

economy in the world.

some of the most complex hydro projects

the costs incurred by transporting goods by

ever seen.

land.

In addition to this goal, ANEEL will remain

However,

this

region

is

logistically

a strong regulatory agency, implementing

Belo Monte defines my appetite for new

New laws for hydropower projects and

the government directives, ensuring that new

challenges and I am honoured to be part

Norte Energia’s vision to improve the region

regulations are adhered to and providing a

of such a marvelous project, which is a

go hand-in-hand with the government’s

fair electric power market for all stakeholders,

momentous part of Brazil’s legacy for future

sustainable

including all our citizens.

generations.

regions, resulting in environmental and social

We shall remain the guardians of Brazil’s

development

plan

for

the

compensations being awarded over time.

energy policy and collaborate with other

With a capacity of 11.3 GW, Belo Monte will

government and non-government bodies to

be the third largest hydroelectric dam in the

focus on improving the sector. This is ANEEL’s

world. What does it represent for Brazil?

Development of the Xingu – where all

key aim.

Duilio Diniz de Figueiredo, President, Norte Energia

Because of this a council was established the

Regional

Plan

for

Sustainable

Belo Monte is in the Para region, which in

stakeholders, including federal and state

fact is bigger than many European countries.

government and local communities are

Our municipal area – Altamira – is almost as

represented. Norte Energia is one out of 30

big as Portugal.

representatives with the right to vote. Given

How is your wealth of industry experience

Even though 90 per cent of the construction

we have one of 30 votes in this council, other

helping to ensure that Belo Monte’s starts

work for Belo Monte takes place in Victoria

stakeholders have key influence over the

operations on schedule?

de Xingu, which has 10 000 inhabitants, it

shaping of this project.

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23

Brazilian electricity sector

Could you outline the above-mentioned

Since 2010, Norte Energia has established

compensations to elaborate on the social

new job location services helping communities

and environmental benefits of Belo Monte?

find a position on the construction site.This has

Compensation for the communities and funding for environmental protection are

helped to register over 25 000 people, out of which only 6000 are migrants.

significant, and cover health, education,

Our participation has also improved the

public safety, sanitation and housing, as well

regions sanitary conditions and infrastructure.

as the local flora and fauna.

Around $250 million will be invested in water

In terms of health, Altamira will receive a

and sewage networks connecting Altamira to

modern 100-bed hospital. We will also make

Vitoria do Xingu. New neighbourhoods have

improvements to the local hospital at Sao

also been constructed. By 2014, this will total

Rafael, transforming it into a maternity hospital.

4100 living units.

Norte Energia also donated 11 ambulances

One key component of our activities in this

and four rescue boat teams, which will provide

region is our local support for indigenous tribes.

a fast response to communities living along

We have put real emphasis and priority on

the river. Furthermore, malaria is a serious

the matter of preserving these communities,

region’s unique wildlife and plants. Beyond

threat in this region, so our health teams have

their cultural identity, ethnic development,

species protection, we are undertaking a

been involved in addressing this problem.

and protection of their land. We will assist

number of scientific studies, with the aim

From January to June this year, malaria

them with a tailor-made programme, covering

of taking real steps forwards in terms of our

incidents fell by 77 per cent, compared to the

health, education, environmental protection,

understanding.This will help further protect the

same period in 2011.

infrastructure and territorial management.

future of the natural fauna and flora. We have,

With regard to our education plan, 44

We are fully aware of their expectations and

for example, undertaken a fish biotelemetry

schools have been built and 22 are under

are doing our best efforts to meet their land,

project, using combined acoustic and radio

construction. These new facilities, built to

culture and freedom requirements.

telemetry, to learn more about their migration

national standards, will give 8500 students the chance to have a solid education.

Norte Energia has also invested in 14 environmental programmes to protect the

Duilio Diniz de Figueiredo President of Norte Energia

and behavioral patterns before and after Belo Monte was initiated.

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43


24

Brazilian electricity sector

Hermes Chipp, General Director, ONS

were integrated into the grid in 2009 and, this

Energia’s care for local communities, which is underpined by our belief that hydropower is

A country’s electricity transmission network

Amazonas and Amapa.We expect to integrate

a powerful source of multilateral development

represents its backbone, ensuring supply

the last remaining state, Roraima, by 2016.

for a region.

and sustainability. What are your views on the

Overall

these

actions

highlight

Norte

Brazilian transmission system?

year, we will complete the interconnection of

Innovation is a fundamental part of being

If we were to meet again in five years’ time,

In Brazil, the transmission grid does not

able to establish a highly-efficient and

how would you like us to view Norte Energia?

simply connect generation sites to load

reliable power system. What is the status of

Norte Energia should not be seen only

centres: rather it is a fundamental tool to

technology developments in this area?

as a generator of electricity. It is also a social

enable us to take advantage of the diversity

Due to the unique characteristics of the

development

education,

of hydrological behavior of the country’s

Brazilian power system, it was necessary

health, public sanitation, public safety and

river basins, and thereby maximise the use of

to develop our own solutions to manage

environmental development. We have invested

available hydro resources.

the country’s energy resources. CEPEL, the

tool,

promoting

more than $500 million in environmental and

The expansion of new hydro projects in

electric power research centre, together

social projects in the area, as well as supporting

the Amazon region brought with them the

with our major universities, play an important

neighbouring communities. By the end of the

challenge of transporting their power over a

role in the development of tools to achieve

Belo Monte project, the investment is expected

distance of 2500 km to the major load centres,

optimisation.

to reach $1.8 billion. Our investments are a

located in the southeast and northeast of the

The Brazilian power sector closely follows

testimony to our belief in the development

country. Therefore, HVDC technology was the

the international development of technologies

potential of this region.

obvious solution. Our engineering capabilities,

for control centres and grid management,

In five or six years, the region will be

technology used and expertise in high-voltage

and many fruitful national and international

transformed and Belo Monte will be part of the

transmission make Brazil highly competitive in

partnerships have helped us to reach a high

landscape. Hence, the biggest transformation

this domain.

standard in power system operation.

will be social, granting families’ dignity, and for

In recent years, the country has achieved

the first time will give locals better opportunities

landmarks in the integration of electric power

Controlling the operations of generation and

in life.

systems. The states of Acre and Rondonia

transmission companies is a very challenging

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Integrated solutions for a clean environment


25

Brazilian electricity sector

task. How has ONS been successful in this

Collaboration is a must in any industry and

initiative, and what are the measures that

should be embraced to enable the sharing

need to be taken to assist these companies?

of experience, and even assets. This is exactly

ONS is pleased to be a member of the

what GO 15 aims to do. These representatives

GO 15 ‘Reliable and Sustainable Power

are CEOs with clear ideas about the necessary

Grids’, comprising major grid operators from

reforms that need to be put in place to

rigth across the globe. The main aim of this

improve grid reliability right across the globe.

special association is to discuss the necessary

Therefore bilateral agreements have been

transition and adaptation of power systems

signed and currently we are in an agreement

to make grids more efficient through new

process with Spain for wind technology

technologies and to discuss the future of

transfer in return for our expertsie in HVDC.

energy markets. Together these operators represent more than 70 per cent of the world’s electricity

In conclusion, what would you say are the Hermes Chipp General Director of ONS

future priorities and ambitions of ONS?

demand and are discussing above all else

Our first priority is to achieve our institutional

what reforms need to happen to increase the

mission, which is to guarantee the economic

very soon become part of ONS’ day-to-day

participation of renewable energies for the

and reliable supply of power to all consumers,

reality.

sustainability of their own energy models.

taking into account the increasing operational

What we are observing today is that

complexity of the power system because

In partnership with Focus Reports, we will be

operators that own their grid have total control

of the diversity of energy resources and the

publishing an in-depth report on the Brazilian

over what their equipment achieves. Here, in

continental size of the transmission grid.

electricity sector this year – scheduled for the

Brazil, this is not the situation. Nowadays we rely

Secondly, our ambition is to be up to

on 25 grid codes and our objective is always

date with new technological advances in

to build on and improve these procedures, in

power system operation, such as smart grids,

order to help us control and coordinate our

demand-side management, solar panels

complex grid.

and electrical vehicles. All these issues will

November issue. For more information on Focus Reports, visit www.focusreports.net

For more information, enter 27 at pei.hotims.com

www.PowerEngineeringInt.com ENERGYBOARDROOM.COM

Power Engineering International September 2013

45


26

Interview with: José da Costa Carvalho, President, Eletrobras

INTERVIEW WITH:

José da Costa Carvalho, President, Eletrobras Focus Reports: Power engineering international (PEI) released an interview with you back in November 2012, soon after you were appointed as new president of Eletrobras. What has kept you busy this last year? JOSÉ DA COSTA CARVALHO: It has been a critical year, especially considering that in 2015 many of our concessions will expire, which implies that assets need to be returned to the government, who would then launch a new bidding round. Nevertheless, after conducting a series of economic, financial and strategic studies, we have decided to carry-on with the concession and accept the government’s general terms and conditions. As most of our investments have already depreciated and the remaining costs are related to operations and maintenance, we have been actively working on how to deal with this upcoming challenge. As a result, we will implement new measures to reduce operation costs and restructure our organization. Eletrobras has been under a lot of pressure and financial underperformance, with revenues falling from USD 17 billion to USD nine billion, due to our mutual agreement with the government to reduce electricity tariffs by 20 percent. It is our priority to get more from what we have. My role as the president of Eletrobras is to look after the shareholders but also to help the country develop. Eletrobras has such an important history and role in this country that we owe our citizens a better future. FR: Eletrobras represents Brazil’s electricity backbone, regrouping 12 subsidiaries, 56 percent of the country’s transmission lines, 36 percent of the nation’s total power, and electricity distribution to 3.4 million consumers. What are your main priorities today, when the company celebrates more than 50 years of presence in the market? JOSÉ DA COSTA CARVALHO: Eletrobras’ DNA is

related to very large national grid projects in generation, distribution and transmission. In the past, our financial performance has been influenced by our distribution companies which were poorly managed. We have managed to restructure these companies over time, but these companies do not represent our main priority. Brazil’s National Interconnected System (SIN) reflects Eletrobras’ achievements over time in such a large and regionally diversified country. In the next months, we will be connecting Manaus to the grid, Macapa in the next semester and Boa Vista in 2015. Through our efforts and contributions, 99.5 percent of Brazil’s loads have been connected to the national grid. Of course, if we compare electricity prices with other countries, we are still lagging behind. Our goal is to reduce electricity tariffs for the end consumer and this 20 percent reduction is a first signal of our willingness to make our end consumers pay less for their consumption. Our market share will remain the highest, taking on new projects in hydro, wind, and nuclear power projects. Our future challenge will be to connect the rest of South America, but our track records of interconnecting projects with Argentina, Paraguay, Uruguay and Venezuela confirm our ability to expand across borders. We also wish to maintain our position in Brazil’s generation and transmission areas, while growing our participation in South America, Central America and Africa. All of which will depend on our ability to expand our innovation capacity and increase efficiencies in our transmission lines.

FR: In reference to Cepel – Eletrobras’ Research and Development center - you stressed the importance of innovation and increasing efficiency. What has Cepel helped Eletrobras achieve and what are your priorities in terms of R&D?

José da Costa Carvalho, PRESIDENT, ELETROBRAS ENERGYBOARDROOM.COM


27 JOSÉ DA COSTA CARVALHO: Our research institute is fundamental to our expansion and modernization plan. Nowadays, we are prepared for this challenge and are testing various equipment in relation to residential voltage utilization, 800 kv on direct current lines and 1100 kv on alternative current lines. This preparation is fundamental and together with China, we are the only countries prepared for these kinds of challenges in the world. At Eletrobras, our holding as well as our subsidiaries participates to the company’s innovation strategy. Hence, four task forces in generation, distribution, transmission and energy efficiency are studying new ideas in terms of power generation and renewable sources such as wind and solar. Both have storage challenges and we need to find new technology alternatives to help reduce this barrier. In addition, in the transmission area we are studying new designs for more efficient lines, and higher supervision, control and data management of transmission systems. Indeed, Brazil’s transmission line systems are highly complex, especially because of distances and accessibility issues. Our aim will be to overcome these factors and improve the overall efficiency rates. On a different level, distribution is another area which is fundamentally dependent on new technological innovation. Part of this innovation will depend on smart grids which represent a new growth potential and modernization factor. In fact, we are currently undergoing with CEPEL very useful research for new smart grid solutions.

FR: BNDES is Brazil’s exclusive energy financing partner and has been a real contributor to your financing power. In light of ensuring a sustainable growth perspective for the company, what should be the focus of Eletrobras in financing its activities? JOSÉ DA COSTA CARVALHO: Our company has suffered drastic losses last year and our objective is to reduce our costs by 30 percent for the next two years. Today, our electricity coverage is 42 GW and we are planning to reach 54 GW by 2015. These targets will help us secure larger profits and market share. Our projects

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It is our priority to get more from what we have. will rely mostly on BNDES’ support, including other banks and in 2015 we are also planning to rely on equity and public offerings to give us a wide array of possibilities to grow again. To implement our financial strategy for the future, our board of directors will give the support needed to reduce costs and ensure the company’s sustainable expansion. This expansion will need Eletrobras to work on larger projects, fulfilling deadlines, and securing return on investments. To fulfill our restructuring process, our board members are constantly evaluated, and our bonus system depends on their results. Our board of directors is experienced and ranges from various ministers and deputees - mining and energy, development, civil house and finance - to representatives from unions and minor investors. The reforms we are putting the bases for will help the company set the priorities both on a national and international scope.

FR: As president of Eletrobras your responsibility is to secure the foundations for the company’s growth for the next 50 years.What are your priorities in taking the company to the next level? JOSÉ DA COSTA CARVALHO: In the future, our electrical system needs to rely on five fundamental pillars – quality, reliability, tariff mobility, sustainability, and universality. Eletrobras is the country’s electricity representative body and main innovation driver. Our next step will be to spread out of Brazil and become the largest player in South America, Central America and Africa. The pressure from the end consumer is constant, with an ever growing pressure for lower tariffs and higher quality. Therefore, we will continue working on improving our customer service, increase our market share, efficiency and reduce our costs. Finally, we want to give our employees the best working conditions and always value the company’s effort both nationally and internationally.


28

Interview with: Dr. Albert C. Geber de Melo Director General, Eletrobras Research Center Cepel

INTERVIEW WITH:

Dr. Albert C. Geber de Melo, Director General, Eletrobras Research Center Cepel Focus Reports: You started your career as an electrical engineer and soon became renowned in the energy industry, publishing studies and winning prizes. How has your experience been in leading Brazil’s research center for innovation and technology? DR. ALBERT C. GEBER DE MELO: Working at Cepel is filled daily with new experiences that enrich my previous achievements as an academic. Cepel is an applied research entity and the line of work here is exactly where I want to be. We act as an intermediary between the energy industry and academia. Cepel develops hardware and software, as well as electrical engineering systems. We are capable of providing multidisciplinary solutions to our customers. Cepel’s mission is to provide technology assisting the sustainable development of Brazil’s electrical systems. When we refer to sustainability, we do to more than just our long term vision. Through our systems we define sustainability as achieving advanced systems generating more power at a lower cost, yet avoiding environmental harm. For instance, the Ministry of Mining and Energy contracted Cepel to develop new hydro power plants in an area of low or no anthropogenic impact. The idea is to maximize the benefit for the environment or minimize the effects on the environment. This represents a new frontier, in the sense that new technology could help us consider the environment in a novel and sympathetic fashion. At Cepel we have been working on expansion and operation planning as well as real time operation and new technologies such as electronic meters and ultra-tension transmission lines to support the country’s need for innovation and system reliability.

FR: Brazil’s hydropower plants are amongst the most advanced in the world and benefit from a historic competitive advantage in this field. In this regard, Cepel has been developing a new program to further improve the hydro sector. What do you feel these new methodologies can accomplish? DR. ALBERT C. GEBER DE MELO: The Brazilian approach to hydro power energy management is based on river basin inventories which lead to integrated energy planning. Basically, once we have evaluated the true potential of one source in a country, we conduct an inventory, followed by a feasibility study, a basic design and finally an executive design before the dam is built. Throughout each of the five stages, engineering assessments balance energy benefits against social and environmental impacts. In 2007, we released the new manual for Hydropower Inventory Studies to correlate energy generation potential compared to social and environmental impacts as well as multiple uses of water. This manual has been elaborated on with the support of the IEA International Energy Agency in 2010, and is the reference point for financial institutions, and hydro power stakeholders. For instance through this methodology we can assess the tradeoff between constructing one hydro plant of 10 MW or five hydro plants of two MW taking into account costs, efficiency rates, social and environmental impacts to highlight the best option. Of course this inventory study does not only apply to hydro, but to all sources of energy. Through this program we have been able to accurately measure the potential of wind, solar, gas, coal and biomass systems. Specifically for long term planning, we developed MELP – Long Term Expansion planning

Dr. Albert C. Geber de Melo Director General, ELETROBRAS RESEARCH CENTER CEPEL ENERGYBOARDROOM.COM


29 program – to construct the basis of PNE 2030 - National Plan for Energy, for which EPE – Brazil’s research company – under the supervision of Mr. Tomalsquim is responsible for. These methodologies allow us to find the balance between the operation marginal cost and the expansion marginal cost. Our top program in this sense is called NEW WAVE. This program allows us to predict a hydro- thermal generation schedule or simply decide the best way to dispatch each source based on the load forecast including existing and new options for expanding capacity. With New Wave we cover operation planning for a period five years, divided in monthly steps to evaluate the need for regulating water capacity in reservoirs. The beauty of this program is that it provides not only the forecasts and data needed to manage reservoirs efficiently over a long period, but it correlates this information with thermal power usage, deciding moment by moment which option is best. With New Wave we are able to deliver 20 percent more energy.

FR: After showing us the advances of some very advanced computer programs which will certainly revolutionize the energy sector in Brazil, what do you feel is the status of innovation and technology in Brazil? DR. ALBERT C. GEBER DE MELO: Personally, I am not aware of any other country in the world which uses such an advanced level of optimization models. Hence, our models support our hybrid power model and auction bidding system. They have proven to be a success, bringing increased competition, new technologies, long term planning to PPA’s - Power Purchase Agreements - as well as secure and easy access to government financing. In terms of transmission line technology, Brazil is at the leading edge of ultra-tension transmission line technologies. Since the development of transmission lines in our country, demanding the transportation of energy over very long distances, we have adopted and invested in new systems to meet these geographical requirements. Our experience and the support of Cepel’s research laboratories have brought transmission technologies to a whole new level. Overall the state of innovation and technol-

ENERGYBOARDROOM.COM

Brazil will become the foremost country managing renewable energies in a sustainable and efficient manner. ogy in Brazil is very good. The real difference between our country and developed countries in Europe or elsewhere is that the state of technologies among our companies. For instance, in the distribution sector, technology is unbalanced causing both technical and commercial losses. At Cepel have been focusing on improving the overall state of the distribution sector, focusing primarily on automation and distribution losses.

FR: Cepel has a fundamental role in Brazil, since its energy operations and planning depend on the software and methodologies you are unleashing. What are you key priorities and ambitions to drive technology and innovation in the next five years? DR. ALBERT C. GEBER DE MELO: Cepel will be playing on two technology fronts – seeking game changing technologies and incremental improvements. We have already achieved a break through with the development of New Wave. Another revolutionary project soon to come is based on a new solar power platform located in the North East of Brazil. This project will be based on Spain’s solar power platform of Almeria, and will test solar technologies – CSP Concentrated Solar Panels and PV Photovoltaic Panels. On the other side, incremental improvements in technology are necessary since current systems must be constantly updated to meet the needs of our country for larger amounts of electricity. Our challenge will be to find the balance between the two methods and pursue the option best for the country. Our role at Cepel is not independent but collaborative. All of our actions are coordinated with Eletrobras, the Ministry of Mining and Energy and key stakeholders in our projects. The potential for improvements are exponential and this is why we have been starting a new project on nanotechnologies. My vision for the future is very clear. Brazil will become the foremost country managing renewable energies in a sustainable and efficient manner.


30

Interview with: João Bosco de Almeida, President Director - Chesf

INTERVIEW WITH:

João Bosco de Almeida, President Director - Chesf Focus Reports: As the president director of one of Eletrobras’ main subsidiaries, responsible for 14 hydro power plants and one thermal power plant, what has been on your agenda to bring the company forward? JOÃO BOSCO DE ALMEIDA: Chesf is one of the largest generation and transmission companies of the country. With 20,000 km of high voltage transmission lines and nearly 11GW of installed capacity from renewable energy projects, Chesf is a unique player in the Brazilian energy market. Chesf has since the beginning focused on the Northeast part of Brazil in the Sao Francisco river basin. During approximately 55 years, Chesf has been known as a driving force developing the Northeast part of Brazil, as the region’s energy consumers have depended on our capacity to provide power. Our hydropower plants stand across the route of the Sao Francisco and Pernaiba rivers. Given that today our SIN National Interconnected System carries power all across the country, from Rio Grande do Sul to the Northern regions, our energy system has become increasingly competitive , even more so now with the new power model which has given suppliers access to regions throughout the country. We have remained highly competitive in the North, and are open to producing in other regions if we manage to win at auction or gain new concession contracts. Chesf has been investing in a diverse manner, and today we are extremely satisfied with our investments in wind power. We are constructing a large wind farm at this moment, promising 180 MW of installed capacity. This would be one of Brazil’s major wind investments and should be operational by the end of 2013. We are investing in partnership with other private sector actors in wind projects located in Bahia and Rio Grande do Norte regions.

Bahia region holds as well a very large reservoir– Sobradinho - and this dam, constructed by CHESF, is amongst the biggest in the world. In the area around this dam, spread over 200 km, there are very strong and steady winds, highly suitable for wind power development. Furthermore, this region has ideal solar exposure all year long, and solar investments capitalizing on this region’s unique natural resources are highly attractive. In five years solar energy should attain business potential that wind power has today. I expect increasing enthusiasm about this source of energy. We are slowly expanding into this niche, and we currently have a small 2,5 MW solar pilot project under construction in Pernambuco, to study maintenance costs, and gain further information on the practicalities of solar energy. Looking to transmission, we are prioritizing expanding our assets. Total investments of USD 1.75 million from new contracted projects in generation, transmission and partnerships projects until 2014 will give us the growth we are looking for. Of these investments 70 percent will be directed to transmission and the rest to generation. These new projects include many transmission lines, substations and modernization projects – automation and digitalization. Our participation in projects such as Belo Monte, Jirau, Rio Madeira and others are part of our strategy for steady, robust growth.

FR: With recent developments on reservoirs incapable of providing the energy needed for the country in periods of dryness, hydropower projects seem to be prioritizing run-of-theriver systems which are more environmentally friendly. How is it possible to combine environmentally initiatives while at the same time ensuring the energy needed for the country? JOÃO BOSCO DE ALMEIDA: Use of reservoirs

João Bosco de Almeida, PRESIDENT DIRECTOR - CHESF ENERGYBOARDROOM.COM


31 means society will benefit from low economic costs, but may be penalized by higher environmental costs. This dilemma must be objectively considered and society must take part in this decision. Today it seems that the society prefers for reducing large reservoirs and focusing on run-of-the river dams which are more eco-friendly. The main issue is that even though run-of-the river dams are more ecofriendly, they are more costly and less reliable as they are susceptible to falls in the level of the river. This means they require costly support from thermal power plants fueled by sources such as coal, oil, diesel and natural gas which are large contributors of carbon emissions. Today it is not possible to rely solely on wind and solar power to complement hydropower plants unable to operate at peak levels. Currently the only viable solution is thermal power plants which are very expensive dirty sources of power. This applies particularly to coal. The only other reliable and clean source is nuclear, yet with international events highlighting recent terrible catastrophes, this source cannot stand in the front line. Personally I defend that we should combine Brazil’s giant hydro potential with nuclear power as base load energies. They are highly efficient, reliable and cheap. These could be complemented with solar and wind power. This would allow us to maintain a highly ecofriendly matrix while at the same time managing to be efficient and reduce costs.

FR: Transmission lines are the backbone of the national interconnected system and as the leading transmission line company with more than 18,000 km in Brazil, what are the challenges of supplying energy in such a large and diversified country? JOÃO BOSCO DE ALMEIDA: Our transmission line system is larger than all of Europe’s combined. This Brazil transmission context is complex and reliability is a priority. In the future, if we are to exploit new hydro resources located in the Amazon region, new very large transmission line systems will be required to transmit energy from the river stations to the cities substations and private

ENERGYBOARDROOM.COM

Our transmission line system is larger than all of Europe’s combined houses. If our focus becomes more on thermal power plants, transmission line energy requirements will be less pressing as thermal power plants can be located close to sources of energy demand. I believe that we will keep expanding in the Amazon region with small hydropower plants – those under 30 MW in scale. We will need to rely on robust transmission lines and construct more Direct Current transmission lines which are not yet well established in Brazil. Finally we need to reinforce our current transmission lines as Itaipu – Brazil’s largest hydro dam – is providing energy for the southeast regions, while these same regions export energy simultaneously thousands of kilometers to power the North of Brazil.

FR: In an interview you mentioned: “Chesf will remain strong over the next 30 years.” How are you planning to accomplish this target? JOÃO BOSCO DE ALMEIDA: We will become leaders in solar and wind power. These will make us highly competitive and profitable and transform us into Brazil’s most ecofriendly company. Our operations in the Northeast will contribute further to the development of these regions which today are growing at double digit pace. These areas are poor and lack infrastructure in comparison to the southeast of the country, but we are extremely proud to participate to their future economic prospects. Modern industries like the automotive and petrochemical industries as well as technologically oriented businesses are setting their premises in these regions following the energy sectors lead.


32

Interview with: Romeu Rufino, President, ANEEL: Brazil’s National Electric Energy Agency

INTERVIEW WITH:

Romeu Rufino, President, ANEEL: Brazil’s National Electric Energy Agency Focus Reports: ANEEL took light upon the energy sector in 1996 with the aim of providing favorable conditions for the electric energy market to flourish and to balance the benefits between agents and the society. What have been the main milestones since ANEEL’s beginnings? ROMEU RUFINO: ANEEL was one of the first regulating agencies in the energy sector. ANEEL was founded on ideas of autonomy and independence, meaning whilst been under the supervision of the Ministry of Mining and Energy we still can take policy positions at our discretion. In 1996, the energy industry reformed radically, with a shift from public state owned companies towards the private sector. The distribution sector was most changed as a result of these reforms, with most of the state run companies being privatized. This unprecedented change created many new challenges for ANEEL- particularly with regard to regulating these newly independent companies. The biggest challenge at ANEEL historically, was to harmonize the energy sector which fell under a new power model scheme. We witnessed the rise of many new players due to the privatization drive, particularly companies arriving from overseas. These new agents had difficulties adapting to local regulations, culture and Brazil’s business environment. We assisted attempting to ensure Brazil’s regulatory system supported international investment without compromising local business’ interests. Indeed we have been trying to support Brazilian companies building momentum in a growing energy market. FR: Hydropower in Brazil only represents one third of its total potential capacity. However, many signs are showing that hydro expansion

is limited. How do you perceive the potential of hydro already representing 70 percent of the total electricity generation in Brazil? ROMEU RUFINO: The potential for hydropower is still great considering what more could be achieved. It is my belief that missing opportunities available in the hydro sector- opportunities with great potential- would be a mistake. Hydro is a clean energy and is among the cheapest energy in the world - it must be embraced. Certainly, since we have been constructing hydro power plants with large reservoirs many individuals have become more sensitive to environmental concerns. This has created uncertainty as to whether maintaining reservoirs in the future is a prudent policy. I am concerned that reservoirs are the real solution to our energy conundrum as run-of-the-river hydroelectricity plants are becoming more common because of environmental and social concerns. This is an issue because they are much less efficient than plants with reservoirs. If we abandon reservoirs and only develop run-of-the-river hydroelectricity plants we will not satisfy our growing demand for energy. The biggest reservoirs in Brazil are located in the southeast and northeast regions. They allow the regulation of water levels during seasonal variations in precipitation. These two regions have well developed hydro resources. Many rivers located around the Amazon however are still untapped. What remains uncertain is whether environmental concerns will permit new hydro schemes in these areas. Our biggest ongoing project is Belo Monte, which promises to be a very large source of power for the country and will deliver nearly 12 GW in total. To give this a little more context, Belo Monte could produce 10 per cent of

Romeu Rufino, PRESIDENT, ANEEL: BRAZIL’S NATIONAL ELECTRIC ENERGY AGENCY ENERGYBOARDROOM.COM


33 Brazil’s electricity from just one plant. There are other projects of significance too, such as Jirau, Santo Antonio and Teles Pires; all underline the importance of hydropower to Brazil.

FR: While hydro sees a bright future ahead, what is the perspective for other renewable sources of energy in Brazil? ROMEU RUFINO: Brazil is the best place on earth to invest in renewable and green energies. Our mission is to achieve this goal. I mentioned our unique hydro resource yet we still have great potential to utilize other renewable technologies. In the past, PROINFA – an incentive program to develop renewable energies in Brazil – was created as a result of the government’s fundamental desire to grow these energies. This program was a success enabling wind, solar and biomass to become much more competitive in energy auctions. Recent studies from EPE – Energy Research Company – show that wind power in Brazil has the potential to generate nearly 350 GW. This figure represents nearly three times the total current level of power generation in Brazil. In the past wind auctions were very promising. It is only a matter of time before real success for the wind industry is realized. Solar energy is still at an early stage of development yet has incredible potential. Our country, particularly in the north has fantastic solar potential throughout the year. Investing in solar plants in these areas is no doubt a very secure investment. We only need to provide the appropriate regulation to develop the solar market in Brazil. Biomass is also strong in Brazil already. We are grand producers of sugar cane and ethanol. Certainly, biomass represents a source or power close to our cultural roots. It will grow together with thermal plants needing alternative sources to power their turbines. Overall, renewable energies will grow in the future as complementary sources. My belief is that soon we will manage auctions by source and by region. This initiative will assist these energies to flourish rapidly. Managing auctions in this manner is fundamental to the sustainability of our energy matrix. FR: Brazil is known for having one of the highest

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Brazil is the best place on earth to invest in renewable and green energies. electricity tariffs in the world. For Brazil to become attractive, energy tariffs must drastically change. How will Brazil be capable of reducing these tariffs? ROMEU RUFINO: It is clear that our energy tariffs are overly high, particularly given the tax burden on the consumer. In this sense, final electricity tariffs represent one third of the price corresponding to state and federal taxes – ICMS taxes on the circulation of merchandises and services; COFINS Contribution of financing social security, PIS Program for social integration. Another third of the cost of energy corresponds to the actual cost of generating electricity, and the last third corresponds to the distribution cost of transmission between the point of generation and the consumer. Brazil has 63 distributing companies organized over radically differing geographical areas. For instance Brasilia is one concession area and in this sense is extremely privileged-its market is highly concentrated, with high percapita consumption and an area with a small transmission area, reducing operation costs. Therefore electricity tariffs in Brasilia are below other areas which do not have the same advantages. In comparison, if we were to take Celpa, in the Para region, which has diffuse settlement patterns, there is a need for very large transmission lines. This, and the low per-capita consumption there, increases tariffs substantially. In real numbers, the best concession area has half the cost of the worst concession area. In some states, taxes on the circulation of merchandises and services (ICMS) can add up to 42 percent of the total electricity price. We must work towards reducing these taxes as much as possible as in the end it is our citizens who suffer the consequences. With Brazil’s overall per-capita consumption rising, the market will grow as well, diluting the cost of such infrastructure and reducing the price of energy. It is important to work towards the reduction of our energy tariffs and Brazil has the necessary conditions to accomplish this goal.


34

Interview with: Hermes Chipp, General Director ONS: Brazil’s National Operator of Electric Systems

INTERVIEW WITH:

Hermes Chipp, General Director ONS: Brazil’s National Operator of Electric Systems Focus Reports: You first joined ONS in 1998 as operations planning director and you are currently the general director of one of Brazil’s major institutions of the energy sector. What were the reasons behind joining ONS and what does this entity represent for the sector? HERMES CHIPP: Before joining ONS, I dedicated most of my career to Eletrobras – Brazil’s largest electric utility company. In 1995, I was designated to be one of Eletrobras’ representatives in the process of restructuring the electricity sector, at a time when ANEEL – Brazil’s National Electric Energy Agency and ONS were to be created. Specifically, I coordinated the restructuring of commercial rules and the restructuring of the transmission business, which were both affecting the sustainability of the power sector. When this process finished, I was asked to join ONS in 1998 as operations planning director and finally became the general director of ONS in 2005. ONS is a grid operator which does not have the property of any asset in the system. It is legally constituted as a non-profit private civil association. Our associate members are the generators, transmitters, distributors and free consumers. As a key actor for the energy sector, we must be always independent, impartial and transparent. Our decisions must always aim at the best solution for society, concerning both costs and safety in power supply. FR: What developments do you see among the sources at hand – hydro, wind, solar, biomass, coal, gas and nuclear – and what should be prioritized to ensure the sustainability of Brazil’s energy matrix? HERMES CHIPP: I prefer the expression electricity matrix instead of energy matrix, because we are talking specifically about the variety of sources used to produce electricity in Brazil.

Indeed, we have a mixed electricity matrix, with a very high percentage of renewable sources. However, since we are still an emerging country, our needs for additional energy rise four or five percent annually. Hydroelectricity is the prevailing source for electric power in our country, representing today 77.9 percent of the installed capacity. We still have a large hydroelectric potential to be explored and, in the next five years, almost 18,000 MW of hydro plants will be added to the system. But the share of hydro in the total installed capacity will decrease to 73.3 percent in five years, due to the growth of other energy sources. Even with this significant growth, most of the new plants will be run of river plants, since it has become much more difficult to plan and to build hydro plants with large reservoirs to regulate their production. This is mainly because of difficulties associated to environmental licensing, land ownership rights and opposition from different segments of society. If no investments are made in hydro reservoirs to increase the system regulating capacity, the role of thermal generation to firm energy production becomes vital. Today, conventional thermal generation represents 16.3 percent of the installed capacity of the Brazilian interconnected power system. In the next five years, this figure is expected to reach 16.9 percent, with nuclear, gas, coal and oil thermal plants adding up to almost 25,000 MW. This indicates that thermal power is not being strongly considered in current planning studies conducted by EPE, – Brazil’s Energy Research Company. But once the hydro expansion does not include large reservoir-based hydro projects – most of the hydro projects developed in the Amazon region are run of river plants or have small reservoirs –, I believe that more thermal

Hermes Chipp, GENERAL DIRECTOR ONS: BRAZIL’S NATIONAL OPERATOR OF ELECTRIC SYSTEMS ENERGYBOARDROOM.COM


35 plants will be necessary to satisfy the increasing demand for energy. Concerning nuclear, it represents a viable future for our country as its technology is very secure. If we take for instance our experience with Angra II nuclear power plant, its energy performance is without doubt much better than any other existing source today. Of course, with current events affecting nuclear energy around the world, nuclear power in Brazil remains undefined for now, but surely represents a solution for the future. Non-conventional renewable sources are also playing an important role in our future expansion. The share of wind generation will grow from 1.5 percent to 5.8 percent in the next five years, with the addition of 6,700 MW. Besides this, the share of sugarcane biomass production will remain stable around 4 percent, with the addition of 900 MW until 2017. However, the non-exploited potential of these sources is much higher. We are following the development of solar energy in the world. Brazil has a huge potential, with solar radiation levels comparable to the Middle East. For the first time solar projects will be included in the next auction for future energy. If the prices continue to decrease in the near future, these projects could play an important role in the electricity matrix. Nevertheless, none of the non-conventional renewable sources alone will be the solution to cope with the increasing energy demand requirements of the country. To resolve this issue we strongly recommend having energy auctions by source and region. A regional and thermal auction would postpone the need to expand transmission lines, produce gains of predictability, energy efficiency and guarantee the availability of energy. Even though this process is still to happen, we are seeing a great deal of improvements. Of course Brazil is already a renewablefocused country, but to continue to be a green giant we must decide on which energy mix will provide us the best solution for energy sustainability. This is our endeavor.

FR: A country’s transmission network for electricity represents the backbone of energy supply and sustainability. What are you views on

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Our decisions must always aim at the best solution for society, concerning both costs and safety in power supply. the Brazilian transmission network? HERMES CHIPP: In Brazil, the transmission grid not simply connects generation sites to load centers, but it is a fundamental tool to take advantage of the diversity of hydrological behavior of river basins, since the transmission of large blocks of energy between river basins and regions allows achieving optimization in the use of the available hydro resources. The expansion of the new hydro projects in the Amazon region brought the challenge of transferring their energy production for around 2,500 kilometers to the major load centers, located in the Southeast and Northeast of Brazil. Therefore, HVDC technology came out as a natural solution. Our engineering capabilities, technology and experience in high voltage transmission lines make Brazil very competitive in this domain. In the recent years, the country achieved important results in the integration of the electric power systems. The states of Acre and Rondônia were integrated to the grid in 2009 and, this year, we will complete the interconnection of Amazonas and Amapá. We expect to integrate the last remaining state, Roraima, by 2016.

FR: Overall, what would you say are ONS’ priorities and ambitions for the future? HERMES CHIPP: Our first priority is associated to the accomplishment of our institutional mission, which is to guarantee the economic and reliable supply of electricity to all consumers, taking into account the increasing complexity of the power system operation due to the diversity of energy resources and the continental size of the transmission grid. Secondly, our ambition is to be up to date with new technological developments in power system operation, such as smart grids, demand management, solar panels and electrical vehicles. All these issues will very soon become part of our day-to-day reality.


36

Interview with: Luis Fernando Leone Vianna, President, APINE Brazilian Association for Independent Electric Energy Producers

INTERVIEW WITH:

Luis Fernando Leone Vianna, President, APINE Brazilian Association for Independent Electric Energy Producers Focus Reports: APINE is celebrating 18 years of presence in Brazil, influencing the electricity market locally and internationally. Could you start by outlining how APINE participated through the elaboration of the different power models? LUIS FERNANDO LEONE VIANNA: In 1995, our association was created only a few months after a new law was passed to reorganize the energy market. This marked the beginning of the free market and a solid foundation for independent producers which we represent. The second main event in the power sector happened in 2004 with the development of the hybrid power model, setting the premises for a new auction bidding system and ensuring lower risks and long term contracts for investors. That same year, I was appointed as president of the association and Dilma Rousseff - head of the Ministry of Mining and Energy - gathered all the associations to elaborate this new hybrid model. At that time, and for some years our communication with the government was excellent, especially when Ms. Dilma Rousseff was managing this ministry. Today, the situation is another. The government is taking many decisions and implementing new regulations without our participation and we are taking some cases in court to show our discontent from this unilateral attitude. Currently, energy investors are really worried and last transmission auction bid confirms this tendency. Our association values the interests of independent producers but we also wish to have all stakeholders satisfied, participating and investing in

the sector. Otherwise, the energy industry will not be able to meet the energy demand and our country will not reach the objectives in generation, distribution and transmission projects it has set for the next 10 to 30 years. Recently a new resolution has been put in place –CNPE Resolution three - obligating generating companies to cover 50 percent of the thermal electric plants costs, with the remaining 50 percent split between consumers, generators and commercializors. With these unforeseen costs, how are the generating companies planning to remain competitive? In 2008, the government decided to relaunch thermal power plants to increase the sector’s reliability for energy especially in emergency situations when the hydro power plant reservoirs are low. The problem is that this alternative is costly since these plants operate for a limited time. To cover for these additional costs the government decided to transfer part of the costs to the final consumers since they are the ones consuming this energy. This scenario worked well until last year, but when the government announced the reduction of the electricity price by 20 percent which was based on the reduction of electrical and sectorial taxes and the end of generation and transmission concessions, the whole

we need to develop our free market as it only represents 25 percent of the contracting market.

Luis Fernando Leone Vianna, PRESIDENT, APINE BRAZILIAN ASSOCIATION FOR INDEPENDENT ELECTRIC ENERGY PRODUCERS ENERGYBOARDROOM.COM


37 system collapsed. Theoretically, generation and transmission concessions can reduce their costs since their assets are depreciated over time. However, generators or traders were not planning to bear part of the costs that consumers were paying to compensate the costs of thermal power plants. Figuratively, this represents a dog biting its own tail. Our association and other associations like ABRACEEL are currently in court to protest against these illegal measures and we demand a more sustainable and economic approach for our associates and the energy sector.

FR: What are the main priorities at hand to restructure the energy sector? LUIS FERNANDO LEONE VIANNA: Reducing energy tariffs is fundamental because our citizens are paying a much higher price than other countries. However this price reduction must be done carefully and with the consent of all the associations, chambers and support bodies. This price reduction must be done through federal and state taxes – this represents the best option. Moreover we need to define what should be Brazil’s ideal energy matrix. Of course EPE – Brazil’s energy research company - is performing a series of very accurate studies about the potential of every source and making forecasts and plans to assess our best options. Nonetheless, the issue at hand is that Brazil needs to add 1000 MW every year to our national grid and defining which sources will help us achieve this goal in an efficient and affordable way is a challenge. Finally we need to develop our free market as it only represents 25 percent of the contracting market. In Europe, many countries have achieved 100 percent free market, and this gives consumers the ability to choose the energy provider they want and develops much more competitiveness and price reduction in the long term. I would like to send a strong message to the industry to work together in achieving a stronger free market, as this is our best option to improve our system and reduce energy tariffs.

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The industry keeps portraying environmental issues, but I believe the real challenge is social or even ideological. FR: Given the current troubling affairs, what can we expect from Brazil’s energy industry in the next five years? LUIS FERNANDO LEONE VIANNA: Important energy auctions will take place in the next five year including A-3 and A-5 auctions which define long term contracts – between 15 to 25 years depending on the energy source – to start respectively in the next 3 years or 5 years after the auction bid takes place. Through this process new power plants will be included in our energy system using gas, coal, wind, nuclear or other sources to fuel them. Naturally, prices will increase since more power plants will be added to the system, yet we hope that a strong participation in the auctions will bring forward competitive prices for auction winners. I fear that in the next five years current problems we are having with large hydro power plants such as Belo Monte will only worsen. A strong national agreement will be needed to consolidate this project and others so as to ensure a very large energy capacity as well as maintain the jobs and development projects taking place with the establishment of these plants. The industry keeps portraying environmental issues, but I believe the real problem is social or even ideological. We need to find a balance between the needs of our environment which is precious and unique and the needs of our energy matrix. Our decisions today will have a strong impact on the future of our country, so we must make sure we carefully assess the best options and always plan with a long term perspective.


38

Interview with: Humberto Barbato, President, ABINEE Brazilian Electrical and Electronics Industry Association

INTERVIEW WITH:

Humberto Barbato, President, ABINEE Brazilian Electrical and Electronics Industry Association Focus Reports: You have been the president of ABINEE since 2007, promoting the Brazilian Electric and Electronic sector and representing around 600 members. What has kept you busy in the last three years as President of the association and what have been ABINEE’s main achievements since the association first started in 1963? HUMBERTO BARBATO: Over the last 50 years, ABINEE’s participation has been active in the development of industrial reforms. Historically, Brazil has been developing its industries especially after its industrial revolution in the early 1930’s. When the electronic and electric industry became a reality after the creation of ABINEE, we knew we had to show the government and other stakeholders the fundamental strategic need to push this industry forward and help the country grow. Our industry represents a pillar in the development of others, as well as electronic components and technologies developed by our members and partners are spread to other industries and markets. Therefore we have been contributing to the government and showing them what are the emerging main challenges and restrictions, to help the industry grow and help our industrial politics improve. FR: Since the government is planning to invest USD 160 billion in infrastructure projects for the energy industry, what will be the repercussions on Brazil’s energy matrix? HUMBERTO BARBATO: We are currently living the biggest development challenge our country has ever witnessed. However throughout time, the challenges were different and our country has had difficulties to adapt. In a way, we like to believe that Brazil has a “learning by doing” attitude. Our electric sector first spread its wings in

1966 to reach its first important development phase by 1979. From that point, the energy sector was under severe difficulties, given that all companies were state-owned and inflation rates were not allowing these companies to follow the necessary investments needed to genuinely improve the sector. Between the 1980’s and 1990’s our country suffered from high inflation rates and our industries were weakened. This period created a high level of instability in the market. It was only in 1995, when a large privatization plan started that the energy sector started to witness improvements. Privatization not only improved the energy sector, but other sectors as well. Moreover, Brazil suffered from a very large poverty rate, and given a high percentage of very low income revenues, it was difficult to raise the country’s consumption rate. When that large share of the population started increasing its buying power and consuming in the market, Brazil’s lack of infrastructure came to light. Brazil is a large agricultural and mining country, and these two sectors which generate large rates of exports, ultimately increased our currency’s value. This factor in combination to our infrastructural deficit created a gap in the competitive power of our local industries. Consequently, our electric and electronic industries which represented around 25% of the GDP, dropped down to 14% which represents a very large deficit. This phenomenon has even increased from 1998 to today. Overall, the announced investments are more than sufficient to improve our infrastructure. However, the problem is that they are too slow to be efficient. By accelerating the amounts invested every year, our industries would grow parallel to the infrastructure level. In fact, our industries generate many employments and are source of many invest-

Humberto Barbato, PRESIDENT, ABINEE BRAZILIAN ELECTRICAL AND ELECTRONICS INDUSTRY ASSOCIATION ENERGYBOARDROOM.COM


39 ment opportunities. The government only needs to realize that jeopardizing this sector will weaken the country.

FR: Which factors have helped the electric and electronic companies develop over the last 50 years? HUMBERTO BARBATO: In the late 1980’s ABINEE played a major role in establishing the consumer’s protection code, which set the fundamental norms protecting the consumers’ rights, and redefined the responsibilities between the suppliers and final consumers. This measure was necessary for the citizens and helped reshape the electric and electronic sector. On another note, Brazil’s electric sector was established in the 1970’s when the country’s GDP was increasing at high rates –around eight or nine percent per year. This fast growing period enabled electric companies to develop a good and relatively steady level of technological capabilities. It also permitted equipment and service providers – Siemens, ABB, Alstom - to develop strong technologies in generation, distribution and transmission areas. FR: ABINEE last year published a study on the potential of photovoltaic solar energy for Brazil’s energy matrix. With solar energy representing less than 1% of the country’s energy production, how feasible is it to give solar more representation in the country? HUMBERTO BARBATO: Brazil has such a diversified energy matrix that solar energy did not have the chance to grow as quickly as other renewable sources such as wind or biomass. Wind power is the fastest growing source at the moment, and recent studies show a potential to reach 15 MW by 2017. Photovoltaic generation is not consolidated yet, as the government and companies are not sending the right message to the end consumer. It would be necessary to show that they could become their own generators of electricity with photovoltaic energy, just like in Spain for instance. Brazilians are not aware of the great advantages of this technology and until they accept it and the government finds the financial support to incentivize this source,

ENERGYBOARDROOM.COM

Privatization not only improved the energy sector, but other sectors as well. photovoltaic energy will not grow. Furthermore, Brazil’s energy model is based on bidding auctions which focus on getting the lowest price and the best technology possible. Despite its obvious benefits for the sector, it is ultimately creating distortions since one technology may win all bidding auctions consecutively for many years and exclude all other players and industries for that period. In consequence, a particular niche and industry remains highly competitive for a short period of time, but never in a long term, and this is to my perspective a real problem for the energy industry. We need to find better ways to have all renewable and non-renewable sources competing on the same level at the same time. We cannot exclude sources simply because of price or technology. Photovoltaic generation is yet too expensive to be competitive against other sources. To really promote this energy, energy auctions simply need to be specialized by source or final energy price.

FR: What are ABINEE’s priorities and ambitions for the next five years? HUMBERTO BARBATO: Our challenge in the next five years will be to contribute to the government so as to bring as much foreign investment to the country as possible. We need to show the government why foreign investors are not coming to invest here and do our very best to fix these issues to maintain our local companies safe. One of the first measures should be to improve our judicial insecurity. On the foreign investor’s side, they need to realize that coming to Brazil needs to be done on a long term basis if they want to be successful. This long term commitment really is crucial to the success of our industry and development of our energy matrix. For instance, the best foreign international companies present here, arrived a century ago and have experienced all the difficult phases and models. This clearly shows how a long term perspective is beneficial.


40

Interview with: Mr. Thomas Hanson; Commercial Service Officer Ms. Igly Seraphim; Business Development Specialist U.S. Commercial Service, U.S. Consulate, Sao Paulo

INTERVIEW WITH:

Mr. Thomas Hanson; Commercial Service Officer Ms. Igly Seraphim; Business Development Specialist U.S. Commercial Service, U.S. Consulate, Sao Paulo Focus Reports: On July 22nd, the Ministry of Finance in Brazil reduced the GDP growth forecast for the Brazilian economy this year from 3.5 percent to three percent, how will American companies deal with any reduced confidence in the Brazilian market arising from this? MR. THOMAS HANSON: Even with the cut, Brazil remains an interesting market for U.S. companies. The challenge is attracting and securing Foreign Direct Investment here in the country through public finance programs, and controlling interest and inflation rates. It is simply a matter of what moves the Federal Government makes on a sector by sector basis. Monitoring this is a priority for the Commercial Service. MS. IGLY SERAPHIM: The U.S. Commercial Service seeks to help U.S. Businesses to do business internationally. It runs from large companies, to smaller ones who are seeking to sell products. It goes from opening an office, having a plant to finding a local partner. This is the current administration’s focus, with the National Export Initiative, seeking to increase exports. FR: How successful are U.S. businesses in dealing with local regulations, such as BNDES local content requirements? MS. IGLY SERAPHIM: I think the key aspect is how businesses go about understanding the regulations; it is a question of transparency. The rules did recently change for the wind industry for example. Change in regulation has affected many companies, who are still trying to figure out how to meet these requirements. The U.S. Commercial Service will often go directly to the Government, seeking understanding on regulatory change.

It depends on where the project is taking place as well- certain circumstances will see either the state or federal government being the responsible authority for a project. MR. THOMAS HANSON: The renewable energy industry is one in particular where the regulations are still being defined. This adds a layer of complexity again which U.S. Commercial Service clients must deal with. MS. IGLY SERAPHIM: The solar industry in particular is seeking incentives similar to those the wind industry received in its infancy, so we will be looking to BNDES to see if any solar specific regulations come forwards.

FR: In 2007, the US and Brazil signed a Memorandum of Understanding with regard to the biofuels industry. Has collaboration in this sector allowed greater cooperation across the renewable sector as a whole? MS. IGLY SERAPHIM: Much of the focus currently is on second generation biofuels, and in particular the aeronautical industry is receiving a great deal of attention. In 2011, the Strategic Energy Dialogue was signed between Dilma Rousseff and Barack Obama. This also covered biofuels and also many other renewable and technologies such as oil and gas, civil nuclear and even smart grids. A great deal of this dialogue concerned exchange of information. To this end, there is a trade mission from the U.S. coming to Brazil at the end of September to discuss biofuels. This has the involvement of the Renewable Fuel Association, the Department of Commerce and on the Brazilian side UNICA, the trade body responsible for the sugarcane industry here. They are trying to bring U.S. technology here to Brazil and create an exchange of ideas.

Mr. Thomas Hanson; Commercial Service Officer Ms. Igly Seraphim; Business Development Specialist ENERGYBOARDROOM.COM


41 Does the U.S. consulate host regular events connecting businesses from the U.S. and Brazil, and if so, have you noticed any changes in interest from the U.S that correspond to changes in the Brazilian electric supply model since 2001? MS. IGLY SERAPHIM: Since 2001, there has been an increase in use of thermal power plants in Brazil. Brazil needed thermal plants and fast during the 2001 crisis, so in seeking to import such technology Brazil reduced import taxes to zero. This represented a huge opportunity for U.S. businesses and we did see some companies take an advantage of this. We also saw some consulting companies take advantage of technologies that Brazil is becoming more familiar with; whilst hydro is obviously an area in which native Brazilian businesses lead, wind has granted useful opportunities to U.S. commercial enterprises. Energy efficiency is yet another key area which offers U.S businesses valuable openings. Brazil is still currently lagging behind and I consider that information exchanges in this sector are of particular use. There is also the U.S.T.D.A, the United States Trade Development Agency, which visits and takes Brazilian entities to the U.S. to see what U.S. companies can do. The companies visiting the U.S. from Brazil definitely do prefer technologies they have seen functioning and working in the U.S. and this certainly helps U.S. businesses enter the market.

FR: How important is electricity strategically for the U.S. Commercial Service here in Brazil? MS. IGLY SERAPHIM: Our key areas of focus are where the U.S. has a competitive advantage. This is why we are looking at high-tech products. The U.S. too is a large exporter of tangible products, but a larger exporter still of services. A single plant might not look like a large investment, but the U.S. really benefits from supporting the management of that plant and the integration of that plant into the grid through consultancy services. It is very specific and as Brazil develops, and there are more particular and specialized management requirements, there will be further niches that U.S. businesses can really develop

There are opportunities for sector specific expertise and systems control technologies. and profit from. In developing the Strategic Energy Dialogue, there are some key opportunities for U.S. businesses to grow their connections to the Brazilian market. MR. THOMAS HANSON: Smart grids are one key example where American experience can really make a difference in the Brazilian energy industry.

FR: How will the U.S. consulate seek to increase connections between Brazilian and U.S. businesses over the next five years? MS. IGLY SERAPHIM: In Brazil the government has a profound impact on the Brazilian electricity industry because some of the key players are still state owned. It is very important to have a good relationship with these key players as that lets the Commercial Service better anticipate the Brazilian government’s priorities. Even though Brazil is always going to depend on hydro, new hydro is restricted by concern over reservoirs. Wind too, has great opportunities but is restricted by transmission. We are just trying to keep our ear to the ground to ensure that U.S. companies are aware of any upcoming changes. MR. THOMAS HANSON: While U.S. businesses do have some fierce competition from Europe in terms of products involved in systems control, I would stress that American companies are at the forefront of these advisory and consulting services. There are opportunities for sector specific expertise and systems control technologies. These can be deployed in Brazil by U.S. companies regardless of the regulatory environment, or whether there is a concession or whether the client is in a public private partnership. Do not be discouraged. It is worthwhile investing Brazil, developing contacts here and learning the market. Companies that have taken the time to adjust to this market have profited. It is a great market, although it can take a slightly longer time to set up.

U.S. Commercial Service, U.S. CONSULATE, SAO PAULO ENERGYBOARDROOM.COM


42

Interview with: Sergio Parada, President, Andritz Hydro Inepar

INTERVIEW WITH:

Sergio Parada, President, Andritz Hydro Inepar Focus Reports: In 2006 you joined as president of Andritz Hydro, a time when the company needed to be restructured. How did you confront this mission? SERGIO PARADA: At that time Andritz Hydro was already the owner of Va Tech, another important player in the hydro sector. Two years later, the company decided to acquire GE’s hydro operations and entered the joint venture with Inepar with a large factory based in Araraquara, in Sao Paulo State. Through these acquisitions my responsibilities changed, giving me a double title as president of both Andritz Hydro do Brasil, former Va Tech and since 2011 also from Andritz Hydro Inepar, former GE Hydro Inepar. In terms of product mix and how these acquisitions changed our activities, in 2012 we transferred some of our product categories from Andritz Hydro do Brasil to Andritz Hydro Inepar. Today Andritz Hydro do Brasil only focuses on three main product lines: automation &protection, speed governors and excitations. Andritz Hydro Inepar produces the rest of the products and equipment utilized in hydropower plants, such as turbines and generators. Therefore, Andritz Hydro Inepar and IESA produce 90 percent of the components in a hydro power plant, and Andritz Hydro do Brasil the rest. Our role in managing these two companies is to develop a first class team, which takes time. It involves setting clear goals, vision, and values, while at the same time leading and setting the example, and most importantly building team spirit that involves everyone in the process of leading the company to success. As a global company, our vision is to have the best products and technology at a competitive price and locally we want to deliver our products on time and respect the clients’ wishes.

FR: With the very low prices offered by wind companies, small hydropower plants are losing attractiveness. Do you see a risk in incentivizing wind power in a country that is dependent on base load energies and requires 6 GW of new energy every year? SERGIO PARADA: Small hydropower plants are valuable assets to our country and the last auction showed that they remain a competitive source. Andritz Hydro sees potential in this source and although wind and biomass are highly competitive, I have no doubt that small hydro will remain of our interest in the future. Andritz Hydro is also manufacturing turbo generators in India and selling them there to compete in the biomass market. Consequently, our company has a chance to play on both sides and become even more competitive at auctions competing for small hydro and biomass. These projects are also a great chance to develop our employees’ skills and expertise, as every power plant is unique and demands different types of qualities in design for instance. Given the additional energy Brazil needs every year, it is clear that we cannot rely solely on wind or solar energy, as these sources are intermittent and depend on weather conditions. However, one of the best options to provide the necessary power stability to our grid and where these energies could play a role, are pump storage power plants. This method enables to store energy in the form of potential energy, shifting water to reservoirs to create the necessary power depending on energy demand. This specific hydroelectric power generation

Our customers look at the performance, prices and delivery time of our solutions.

Sergio Parada, PRESIDENT, ANDRITZ HYDRO INEPAR ENERGYBOARDROOM.COM


43 method is used in other countries and has proven to be efficient when combined with wind turbines and solar power... This approach could be highly useful to our energy matrix considering the potential and unique conditions for wind and solar power. My perspective is that in 10 years a real market for pump storage power plants will exist.

FR: Andritz’ largest competitors are Voith and Alstom. How would you define the company’s competitive edge and ability to become the number one player in the hydro sector? SERGIO PARADA: Today we do our best to be technically superior to these companies and specifically in Brazil we to offer very competitive equipment solutions. Hence, in Brazil we are spending a lot on R&D aiming to be ahead of our competitors, bringing new solutions and new perspectives to our clients. Our customers look at the performance, prices and delivery time of our solutions. This is basically where we define Andritz Hydro’s value and competitive edge. When few large players compete for market share, the pressure is constant and for us it is not an option to be the leader just by lowering prices. In the end, our objective is to be recognized as a reliable and competitive supplier, and be fairly compensated. In 2008, when acquiring GE Hydro, the plant in Araraquara, in Sao Paulo state, become also available for the operations in Brazil. What is the importance of this manufacturing plant for Andritz Hydro both locally and internationally? In the last four years, the demand for our equipment was so high that we had to outsource some capacity. This was mainly in response to Santo Antonio and Jirau, which required a large amount of equipment. With the stabilization of the market, having these large projects received their equipment; we are looking for new opportunities outside of Brazil. In February 2013 we won a project in El Salvador, Cinco de Noviembre, in partnership with Queiroz Galvao, one of the leading worldwide EPC companies in various industries. They, as other Brazilian civil construction companies, which have a high level of

ENERGYBOARDROOM.COM

Brazil represents around 60 percent of the Latin American market expertise in hydro dams, have seen the Brazilian market shrinking, forcing them to look at foreign markets to increase their portfolio of activities and revenues. These international ventures include projects in Africa, Latin America and Asia. Since BNDES, Brazil’s development bank, is supporting these projects, they have confidence in securing these projects with Brazilian suppliers. Of course, we are looking at large EPC partners like OAS, Queroz Galvao, Andrade Gutierrez, Oderbrecht or Camargo Correa to follow in their footsteps and increase our international presence and revenues. In the end, Brazil represents around 60 percent of the Latin American market, which leaves potential in other neighboring countries. I truly believe in the potential of countries like Peru, Colombia and Panama, among others.

FR: What are your priorities in taking the company to the next level in the next five years? SERGIO PARADA: In five years, the Brazilian hydro division of Andritz will be one of the most profitable companies in the Andritz Hydro group. Locally, clients shall refer to as the most reliable company and most preferable partner for hydro products. We will maintain a strong presence in Brazil, bidding for hydro projects mostly and of course internationally our products shall flood all important Latin American markets with hydro potential. The management style will remain the same and our employees will become even more involved with the values and mission of our company. Since Brazil is a highly complex country to work in, local participation is crucial to the success of our company and personal initiatives are always welcome. With bright perspectives ahead of us, and a motivated team, Andritz Hydro Inepar will prevail for a long time in Brazil and soon across Latin America.


44

Interview with: Patrick Simon, President Director of EDF Norte Fluminense

INTERVIEW WITH:

Patrick Simon, President Director of EDF Norte Fluminense Focus Reports: You stand amongst the youngest CEO’s in the country, managing an important asset for the energy supply of Rio de Janeiro. How have you been embracing your new position since you joined in 2008? PATRICK SIMON: When I arrived, I found a company that was very profitable already. My mission was therefore to continue this past success and further increase revenue, while at the same time fostering technical and safety improvements. Fundamentally, my mission was to increase EDF Norte Fluminense’s prominence within the EDF group. In the past, EDF had decided to sell its mains asset in Brazil, Rio de Janeiro’s electricity distribution company Light, but kept Norte Fluminense. Thanks to this company, EDF had the option of reestablishing itself, and becoming an active player in the energy market. My role was to bring a breath of fresh air to EDF in Brazil, and this began by communicating Norte Fluminense’s successful results and highlighting the quality of our human resources. My belief is that our plant’s employees are highly skilled, reliable people and our European colleagues should be more aware of this. Our staff has a palpable motivation and their accomplishments over the years are proof of their determination. Our technical, safety and financial results are among the best of all EDF’s operations worldwide. To maintain high levels of motivation, we have invested in renewing our equipment, control room and, importantly, we have developed a new working environment. For instance, we recently started a new painting program, providing the plant with new designs and paintings. EDF carried out a worldwide survey – 133,000 workers - to better know about working conditions and peo-

ple satisfaction in all the EDF Group companies. EDF Norte Fluminense ranked first with more than 90 percent of satisfaction rate. More: 99 percent expressed their pride to work for Norte Fluminense. These are our accomplishments. We are proud of them and it is my duty to maintain them.

FR: The thermal power plant you are operating here is fueled by natural gas. What was behind the decision for using natural gas? PATRICK SIMON: Our supplier of natural gas is Petrobras, and we have a long-term contract with them. As Petrobras is the sole long-term supplier of this resource we are, clearly, highly reliant and cost sensitive to the gas they supply. We are developing a new natural gas project named Paracambi, a 600 MW gas fuel power plant. We have the land, authorizations, access to the grid and natural gas pipelines. We are only missing the gas contract as Petrobas has not yet given us a competitive offer. This is one reason we lost the auction in 2011 in the face of competition from very cheap renewable energies such as wind. We would like to bid again at the next auction but are still waiting for a more favorable contract from Petrobras or any other gas supplier we may find. There are high expectations for the future of natural gas in Brazil. With the recent discoveries in the Santos Basin and the potential for shale gas development, there is no doubt that Brazil has security of supply. However, today the situation is critical and access to natural gas is complex and costly. It is unclear how long it will take to extract these assets, and until then we must rely on current supplies, but will not take just any price for that supply.

Patrick Simon, PRESIDENT DIRECTOR OF EDF NORTE FLUMINENSE ENERGYBOARDROOM.COM


45 FR: How is EDF portrayed as a technologically advanced company in thermal power development? PATRICK SIMON: EDF as a global company uses state of the art technologies and solutions to satisfy demand in the energy sector, such as thermal, hydro, nuclear, wind and solar. We also address transmission, distribution and energy efficiency requirements. EDF has an ambitious program in Brazil and we are in contact with leading decision makers and local players in the sector to find new opportunities and raise awareness of our company’s capabilities within the energy sector. Our thermal power plant operates at a 99 percent rate of availability, which could be a world record! It is a perfect example of how EDF’s technology ensures our plant operates at optimal levels. Siemens provides our equipment, and informs us that our results from their technology are amongst the best in the world. FR: What are your plans to further grow EDF’s operations and revenues – USD 485 millions in 2012 - in Rio de Janeiro? PATRICK SIMON: Henri Proglio, EDF’s global CEO came to Brazil in 2011 and again this year. He confirmed the will of EDF to grow in Brazil. The power sector is highly competitive, even more so with the auction system, but the opportunities here are immense and thermal power is not the sole point of interest for us. Currently, we are investigating how we could participate in hydropower projects. We are conducting a feasibility study on environmental and technical aspects of the Tapajos river basin located in the Amazon with Eletrobras, Endesa, Neoenergia, GDF Suez and others. By the end of 2014, we hope to be active investors in this project. This project - considering its size of around 8 GW installed capacity – is of key importance for EDF in Brazil. Several of our expatriates and a small team are working on the details of this project. Furthermore, we are interested in a wide variety of projects including nuclear power. We have a contractual relationship with Eletrobras Eletronuclear with regard to Brazil’s nuclear program. This cooperation agreement

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Our technical, safety and financial results are among the best of all EDF’s operations worldwide. does not involve Angra III nuclear plant but new, future projects. Of course, after Fukushima’s incident this program has been delayed and it may take a long time to progress. Brazil has all the conditions that would make nuclear power a success. Our French engineers have visited the facilities of Angra and were impressed by the level of operational quality, safety and systems used, even with technology dating back to the late 70’s. Finally we wish to have a grasp on the renewable energy industry here in Brazil, as the EDF group is a world leader in wind and solar power through its subsidiary EDF Energies Nouvelles. Therefore, we decided to start a pilot solar project with Light, a solar rooftop for Maracana fooball stadium. The project was done to highlight EDF’s solar power capabilities and commitment to renewable energies.

FR: In the near future, perhaps in the next five years, where is EDF NF considering to expand? PATRICK SIMON: EDF NF in five years will be part of a global company and likely will have a second thermal power plant at Paracambi. We will own a medium and a large hydropower plant, and be focused on the best environmental management plans across our operations, bringing the highest benefits to the local communities located in these areas. Finally, we will develop a wind farm program as well as a trading company to commercialize energy. Hydro, wind and thermal power represent a very interesting mix that will enable us to process a very sophisticated commercialization program. This is an ambitious plan and my dream. I feel confident we will attain these targets.


46

Interview with: Ana Maria Machado Fernandes, CEO, EDP Energias do Brasil

INTERVIEW WITH:

Ana Maria Machado Fernandes, CEO, EDP Energias do Brasil Focus Reports: Until 2020, the government is planning to invest USD 160 billion in the energy sector. What are your views on how the country will manage to modernize its infrastructure, being such a large and diversified country? ANA MARIA MACHADO FERNANDES: The country currently endures a construction phase for some years to come, especially with the international events in 2014 and 2016. One of the challenges our industry is currently facing, when we speak about projects and construction development and management, is the lack of qualified engineers. Brazil does not hold enough specialists and therefore we are requiring a large number of highly specialized engineers and experienced C-level managers from other countries. These engineers and managers are mainly coming from Europe. We are also in need of finding large amounts of hydro projects workers with the right qualifications. To ensure the safety of our projects, the workers are assisting the programs months prior to the project to ensure the highest level of safety and working measures. For instance, in our hydropower project in Amapá, the government requested that a minimum of 60 percent of our project workforce for that project had to be taken locally; therefore we have been training local people to hold the right qualifications to work for us. FR: EDP operates wind farms, small and large hydro power plants as well as a thermal power plant. In light of the importance of renewable energies in Brazil, how have these defined EDP’s business over time? ANA MARIA MACHADO FERNANDES: All these activities are important, however we put a much stronger emphasis on hydro power since this source still remains the main generator of electricity in the country – over 70

percent. EDP Brazil has been following the European model, slowly adapting to the renewable model. In 2005, renewable sources for the EDP Group only represented between 35 to 40 percent of our portfolio whereas today we are above 70 to 80 percent. Our group has given us the directives to grow our renewable market and this is necessary to adapt to our local needs, renewables meaning hydro, wind and solar at least. Hence, being an environmentally respected company is always a positive factor to our group. Wind has become a fast growing source of energy since its first auction took place in 2009. Although we could not participate in this auction at that time as we were not sure about the real potential of this source, it became clear after some time that wind power had to be part of our energy portfolio. The wind in the Northeast of the country is extremely consistent, steady and of high value for our wind parks. Brazil’s wind power capacity is immense and being an active player in this segment is a necessity. EDP Group currently is the third largest generator of wind power globally and we intend to continue actively pursuing this energy. In the future, the growth of hydro power might be put on hold considering the reservoir challenges the country is facing. Thermal power seems on the right path to become a much stronger option for the future. Nevertheless, it is difficult to foresee which sources will fuel these thermal power plants and whether the technology is sufficient to improve the efficiency needed for them.

FR: Mr. José da Costa Carvalho, President of Eletrobras mentioned the role of innovation to develop new, smarter and efficient solutions to be more competitive in the market. How do you implement innovative techniques to your portfolio?

Ana Maria Machado Fernandes, CEO, EDP ENERGIAS DO BRASIL ENERGYBOARDROOM.COM


47 ANA MARIA MACHADO FERNANDES: We rely on technologies that are offered to us by international suppliers. Of course, we always purchase the technologies which have the best value for our projects, since efficiency rates of our hydro, thermal and wind plants depend on them. One important point I would like to stress is that currently coal seems to be regaining strength and could play an important part for the next 10 years. However, the current technology is not sufficient to fulfill a clean coal usage and Brazil, I think, will always look at this source very carefully and with the necessary restrictions.

FR: Among the recent projects EDP manages here – HPP Santo Antonio do Jari, HPP Cachoeira Caldeirão and Porto do Pecem thermal power plant – what have been the challenges at hand? ANA MARIA MACHADO FERNANDES: These projects and the hydropower sector in general are under heavy scrutiny and the government keeps announcing measures about the role of reservoirs for the country. My belief is that hydropower and reservoirs are intertwined and cannot be separated. These reservoirs although dependable on weather conditions, are of high value and provide very large amounts of electricity throughout the country. Belo Monte is Brazil’s second biggest hydropower station and despite the ongoing troubling affairs, its presence in the future will be indispensable for the country. As an industry we need to make sure that we send a strong message to the local communities to show them how these projects can improve their lives, without jeopardizing the environment. In addition, current regulations for development of hydropower projects are very strict, including environmental and social responsibility measures. The latter also involves relocating families and helping neighboring communities living along the river. For instance, we are building Santo Antonio do Jari plant and our environmental license does not require us to provide electricity to the local communities. However, EDP

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Being an environmentally respected company is always a positive factor to our group. created a pioneer project to support these communities and give them the chance to have electricity. We are not obliged by law to give electricity to these communities, but we have decided to offer these new facilities to them, being the respective investment already contemplated within the global CAPEX, that is when the Project profitability is accessed, this item was already included. No one should be living in the darkness half of the day.

FR: If we were to come back in five years’ time, where would you like us to find EDP Energias do Brasil? ANA MARIA MACHADO FERNANDES: Energias do Brasil will maintain investments in renewable markets (understood as above), fulfilling our group’s strategy to become a highly recognized renewable investor around the globe. In the near future we also wish to push our presence in commercialization of energy and related services. The free market already representing 25 per cent of the total market has yet room to grow further significantly. Overall, since the development of our commercialization area in 2001, our performance has been significant. We are the 3rd player as of today in this segment. Moreover, my three main priorities for the coming years are energy contracts, clients and highly skilled personnel. These are simple yet crucial objectives for the growth of our company. We cannot stress enough how crucial it is to understand the local culture and the business environment. They truly make a difference in our business. With our existing diversified portfolio, in hydropower, thermal and wind plants , we feel we have the right product mix, which, combined with our objective to constantly search for profitable projects, will allow us to create more value for the shareholder and other significant stakeholders


48

Interview with: Jose Luis Menghini, Executive Vice President, IMPSA

INTERVIEW WITH:

Jose Luis Menghini, Executive Vice President, IMPSA Focus Reports: IMPSA is a family owned Mendoza-based Argentinean company with over 100 years of history. What did it take for IMPSA to become a key Latin American company with global operations? How did the company overcome Argentinean-Brazilian cultural differences? JOSE LUIS MENGHINI: IMPSA first stepped beyond Argentina in the 1970s, and our first operations took place in Paraguay, Uruguay and Colombia. In the early 1980s we started to focus on Brazil at a time when discussions on Mercosur, an economic and political agreement between Argentina, Brazil, Paraguay and Uruguay, brought new business opportunities between these countries. For the past three decades we have been investing in Brazil and building momentum in a country where opportunities exist, but demand time and effort to grasp. In fact, cultural differences exist, as one country is more Italian or Spanish in culture where the other has Portuguese roots. Hence, historically these two countries evolved distinctly. However, as Latin Americans we share a sense of community and in Brazil we did not have any issues being considered as anything but locals: if you invest, take risks locally and believe in the rules of engagement, you slowly get a sense of localism. FR: With five business units targeting hydro and wind, IMPSA is a specialist in renewable energies. What is the split between the different business units and what have been the challenges in establishing a strong footprint in both sources? JOSE LUIS MENGHINI: Internally, we believe that what separates wind from hydro is the density of the fluid. We like to consider both of these sources as equal. In terms of revenues in our Latin American operations, wind has a slight advantage, and this year

wind represented 55 percent of revenues; however, every year there are variations. In Brazil, the results are similar. We have a strong tradition in hydro and a relatively new tradition in wind. However both sources are equally important. Brazil’s know-how and tradition in hydro is the best in the world. Sadly, internationally Brazil has been condemned and heavily criticized for violating human rights and indigenous territory; but the reality is different. Brazil has actually been investing in the most developed social, environmental and economic projects of the areas surrounding hydropower plants. This is the reality.

FR: Brazil’s resources in wind power are unique both in quality and in quantity, yet this energy represents a small share of the energy matrix (around 2 percent). What opportunities did IMPSA see as an early adopter of this source? JOSE LUIS MENGHINI: Without question, Brazil’s wind potential is excellent. Nonetheless if we look at wind speed conditions in the Northeast of Brazil, where the wind is best, results indicate between seven to nine meters/second. In Argentina, more precisely in Patagonia, wind speeds vary between nine and 14 meters/second. Of course, wind speeds are not the only criterion to take into consideration, as we must look at turbulence, steadiness and other factors. Overall Brazil offers great conditions to settle our wind farms and this is why we decided to invest heavily in this market early on. IMPSA became the first, and until now the only, manufacturer of wind-powered gener-

Brazil’s know-how and tradition in hydro is the best in the world.

Jose Luis Menghini, EXECUTIVE VICE PRESIDENT, IMPSA ENERGYBOARDROOM.COM


49 ators with BNDES-approved equipment. What is the key factor that allowed for this achievement and does this differentiate IMPSA from competitors like Weg and Vestas? JOSE LUIS MENGHINI: When BNDES analyzed wind manufacturing facilities for generators they realized important discrepancies: there were two sides of the coin. On the one hand they found low standard facilities fabricating generators with poor engineering conditions and levels of fabrication and technology. On the other hand, our facility had advanced state of the art technology (which we developed locally), and high levels of safety and environmental standards. Therefore BNDES’s decision to grant us with this recognition was only logical and fair on paper, but we sincerely appreciate their recognition and their support in helping us in defining our strengths as a local player in Brazil. In terms of competition, most of our competitors transfer technology. We opted to develop our technology and products locally to meet standards and gain local expertise to adapt our products to the specific requirements of the market. Even competition with large international companies is fierce, we stand firm on our capacity to bring the best technologies to our customers. Overall, we are an extremely transparent company and transparency is always an asset. We interact with our customers and provide them with our perspectives on the solutions they need. Also we do not solely focus on our return on investment but on our customers’ as well, and having this close relationship and attention to a customer makes us unique.

FR: IMPSA has recently invested approximately USD 116 million in a wind turbine plant in the south of Brazil, in addition to its two plants located in Pernambuco producing equipment for large-scale hydropower plants and wind farms. What will be their strategic importance for the group? JOSE LUIS MENGHINI: Our investments in these plants show our faith in Brazil. Not only are we ensuring transparency and our commit-

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Brazil has a better exporting platform than other Latin American countries. ment to the rules and regulations in place, we also believe in Brazil as a strong platform to export internationally. In this sense, Brazil has a better exporting platform than other Latin American countries.

FR: Looking ahead at IMPSA’s five-year expansion plan to develop its activities across Brazil and Latin America, what shall we expect? JOSE LUIS MENGHINI: We shall invest in power electronics, mostly focused in high-density drivers. The reason behind this new investment is because we believe this will complete our solutions in smart grids, training, O&M and create synergies between the different business units. In terms of wind and hydro projects, both units will keep growing. In the area of hydro we hope to work on projects similar to Belo Monte, Brazil’s second biggest hydropower plant. As for wind, our objectives are to maintain a growth of 1.5 to 2 GW every year. We will continue bringing reliable products, differentiating our products from European and International competitors and making sure that our Brazilian approach is consistent with the demand of our global operations. From a financial standpoint, we are looking into incorporate our company in Luxembourg to optimize our overall operations focusing on financial, governance and administrative points. This is a step towards making IMPSA a truly global company.


50

Interview with: Antonio Fernando Krempel, CEO of Intertechne

INTERVIEW WITH:

Antonio Fernando Krempel, CEO of Intertechne Focus Reports: Intertechne has been active on several fronts, from designing major hydropower plants and dams, to large infrastructure projects in Brazil. How would you define the potential of Intertechne in Latin America? ANTONIO FERNANDO KREMPEL: Intertechne is 100 percent a design company with 670 employees in Brazil and abroad. We have production offices in Sao Paulo, Rio de Janeiro, Salvador, Manaus, Neuquen, our head office in Curitiba and commercial offices in Mexico City, El Salvador and Lima. Our company is well known in Brazil as in 2012 we were the 20th biggest design company in a Brazilian ranking, including some that play also as EPC contractor, owners engineering firms and design companies. Solely in terms of design, we were ranked 12th amongst more than 120 companies. Indeed, hydro represents the core of our business. In terms of installed capacity, our market share for hydropower plants under construction in Brazil is 95 percent in terms of “installed capacity”. Since we participate with Brazil’s largest hydropower projects like Belo Monte or Santo Antonio – 11,233 MW & 3,150 MW – this market share result is easy to attain. However, excluding installed capacity figures, we participate in nine out of 16 projects under construction which represents a 56 percent market share. We are proud to be the design leaders of Brazil’s most significant projects such as those at Belo Monte, Santo Antonio and Teles Pires. We also operate internationally, and are currently working in Mexico, El Salvador, Honduras, Guatemala, Dominican Republic, Peru, Argentina, Angola and Turkey. Our expansion in Latin America is steady and will allow us to serve existing clients and pursue new business outside of Brazil.

FR: To what extent do you feel thermal generated power plants can support Brazil’s hydro generation projects? ANTONIO FERNANDO KREMPEL: Gas fueled thermal power plants are the best realistic alternative if gas becomes more accessible. In fact, access to cost-efficient natural gas will mainly depend on the results of the pre-salt auctions. LNG on the other hand– liquefied natural gas - will be dependent on prices incurred through importing it from other countries – Bolivia, for example - as transport through long pipeline systems has a cost. Even more significantly, cities in Brazil do not receive the same amount of gas because of telescopic pipelines used for long distance gas distribution. For example if, per day, Sao Paulo were to receive 30 million cubic meters of gas, Porte Alegre would only receive 2 million cubic meters of gas as it is located very far away from Sao Paulo and the main gas source. Of course, the fastest solution for large gas transmissions throughout the country would be to install LNG gas terminals in the principal areas of consumption, especially in the south. Another feasible idea would be to construct a pipeline parallel to the existing one to increase the pipeline network, including to more distant cities. In the end, the future of gas related projects in Brazil will depend on three variables – the price of gas, dependence on gas imports, and which stakeholders will pay for the pipeline distribution networks or LNG gas terminals. Until we sort out these issues, the prospects for further gas fueled thermal plants are uncertain. In 2011, the company was generating around USD 65 million revenues, representing a 40 percent growth from the previous year. What has been on your agenda as the CEO of Intertechne to reach this performance? ANTONIO FERNANDO KREMPEL: Currently our

Antonio Fernando Krempel, CEO OF INTERTECHNE ENERGYBOARDROOM.COM


51 hydropower design work in Brazil accounts for 50 percent of our revenues. The other half of our revenue comes from international operations and other infrastructure projects. For example, currently non-hydro infrastructure projects represent 25 percent of our revenue and this is growing fast. We are working at this moment on the new Viracopos airport and are in charge of the designing subway lines in Sao Paulo and a research reactor in Sao Paulo state. Revenue from non-hydro infrastructure projects will increase further in the future, particularly abroad. Hydropower designs, however, will remain our main focus in Brazil as these projects require a long term perspective. Belo Monte, for example first saw light in the 1980s and is yet to be completed. Intertechne is participating in some of Brazil’s most important hydropower projects such as Belo Monte, Jirau and Santo Antonio – 11233 MW, 3750 MW and 3150 MW. What have been some of the challenges in taking on such large design projects? ANTONIO FERNANDO KREMPEL: The most challenging design project so far besides Belo Monte was Irapé, located in Minas Gerais state. This dam 208 meters high is the tallest construction of its type in the world. It will be capable of generating 360MW. Despite the challenges of designing such a superlative dam, including building a 100 meter long bridge and laying 34 kilometers of access roadways we have made this project a true success. Belo Monte on the other hand is impressive due to its size, the incredible amount of power it generates and the level of investment necessary to push the project forward. For instance, water flows over the Iguaçu falls at 1,500 cubic meters per second whereas the river at the Belo Monte site carries 14,000 cubic meters per second. This represents nine times the flow of Iguaçu falls. The width of Belo Monte’s channel is 210 meters which equals two Maracana soccer stadiums put together. The original designs required 200 million cubic meters of excavation in the channel. Our rethinking of this, has managed today to reduce this to 120 million cubic meters. Every project raises different problems but having successfully designed these unique proj-

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The future of gas related projects in Brazil will depend on three variables – the price of gas, dependence on gas imports, and who will pay for pipeline distribution networks or LNG gas terminals. ects we have great confidence in our ability to accept any new challenge. Intertechne has been working on large projects with the most active clients in the energy industry like Eletronorte, Cemig or Tractebel and contractors like Odebrecht, Andrade Gutierrez, Camargo Corrrea, Alstom or Andritz. What makes Intertechne the partner of choice? ANTONIO FERNANDO KREMPEL: Since the foundation of our company 25 years ago, we have emphasised commitment and understanding of our clients’ needs. As a company we have been innovative, adding value as well as creating new and tailor made solutions for our customers. These conditions are essential to become a recognised player in project design. Our experience and long track record with some of the most important hydropower plant designs in the world – including Belo Monte - proves us to be a robust and reliable engineering company. Our projects are 100 percent designed with 3D model software. Our competition is still limited to creating 2D plans. This makes our designs far more complete and valuable to our customers. Overall, our technical and managerial expertise as well as our vision gives us a competitive advantage over the competition in any dam building project. If we were to come back in five years’ time, where would you like us to find Intertechne? ANTONIO FERNANDO KREMPEL: We will continue our focus on hydro design given that this has always been at the base of our company. Moreover, since our clients are expanding abroad, we will go with them to undertake new and exciting projects including a 2000 MW plant in Angola. We will of course also retain an emphasis on infrastructure projects and increase our geographical presence.


52

Interview with: Rafael Jaramillo, Vice President & General Manager, Emerson Process Management

INTERVIEW WITH:

Rafael Jaramillo, Vice President & General Manager, Emerson Process Management Focus Reports: Could you start by introducing Emerson’s presence in Brazil, and how Brazil fits within your Latin American portfolio? RAFAEL JARAMILLO: Emerson Process Management is one of five business platforms of Emerson, as our Latin American operations include network power, climate, industrial automation and other platforms. Emerson Brazil is one of the three major poles of Latin America, which also includes Argentina and Mexico. Our strategy in Brazil and across the world is to get as close to our customers as possible, while offering short lead-time and fast plant availability. This is why we decided early on to settle our plant in Sorocaba (Sao Paulo) and meet the demand of long lead-time, complex projects. We are the only process automation company in Brazil that has such a complete factory for process automation. We assemble valves, pressure and temperature transmitters, systems, cabinets, and skids. We have been expanding our factory capabilities from the first factory in the 1960s with rudimentary possibilities to a full open concept including shared storage, material planning and quality facility. This open concept gives us more flexibility and transparency as customers can visit our facility. This factory expansion and complete modernization strategy is our commitment to Brazil and to our long-term vision for this market. Moreover, when our customers are willing to invest billions of dollars in new refineries or power plants, they expect a return on investment for the next 30 to 50 years. This defines our need to stay close to our customers and provide a quick response for any type of demand on a permanent long-term basis. This is why we also decided to open new service facilities, located here in Sorocaba, as

well as Rio de Janeiro, Salvador and Macae. We are also planning to open a new one in Santos, as the oil and gas sector is concentrated there. We are certainly focused on oil and gas, but other markets in Brazil such as food and beverage, biofuels, pharmaceuticals, power plants and other industries, which also depend on process automation, hold great prospects for our solutions. These markets overall have allowed us to achieve doubledigit growth year after year.

FR: Considering the wide array of sources that Brazil has to offer, from renewable energies to an increasing need for thermal power, what is EPM’s strategy in this highly diversified Brazilian energy market? RAFAEL JARAMILLO: Our process control and automation solutions adapt to the needs of thermal power plants as well as hydro. Our solutions in general optimize their assets, whether it is an existing plant needing to be revamped or a new Greenfield plant. Our technology allows our customers to predict system malfunctions and anomalies at all times, created by vibrations, abnormal temperatures and oil viscosity. Hydro and thermal share the same concern: availability. These plants need to be fully operational at all times to meet today’s energy demand, and by being able to predict flaws in the system, preventive measures can be taken, and our technology gives them the confidence to operate safely and smoothly at all times and from distance with the use of our wireless technology. We have been collaborating on several hydro projects with renowned local players such as AES for Aguas Vermelhas and Promissão. We are really excited about these proj-

Rafael Jaramillo, VICE PRESIDENT & GENERAL MANAGER, EMERSON PROCESS MANAGEMENT ENERGYBOARDROOM.COM


53 ects as we have developed a new Iops (integrated operations) concept where we centralize our operations, requiring fewer personnel for process and maintenance of these plants located in different locations. This technique allows our customers to reduce costs drastically and to specifically target those instruments that are malfunctioning. Biofuels are another sector where our integrated operations have a real purpose. Since mills are spread across large distances in Sao Paulo or in Bahia, having one control center to monitor windmills spread across a large territory becomes necessary, saving time and money. We are currently working with a client for a new Iops control center in Sao Paulo. These integrated operations are already well spread across the world, and Emerson has been able to market these solutions in Norway as well as in Australia mainly for the oil and gas sector. We have already started discussing this option with Petrobras in Macae and I hope to one day see a Petrobras control tower managing all the refineries and platforms from one place.

FR: Besides integrated operations, Emerson partnered with Petrobras on a multi-billion dollar project to develop the largest petrochemical facility in Rio de Janeiro. What have been the greatest challenges in realizing this project and meet the requirements of Brazil’s largest state-run energy company? RAFAEL JARAMILLO: This project represents one of Emerson’s largest business ventures and most complex projects achieved around the world to date. The complexity of this project is directly correlated to the large number of EPC players present throughout the project. Normally projects gather together two or three EPCs, but this one includes more than 20. When we were awarded the contract to participate in this great project, other EPCs had already been providing their solutions and services, creating logistical and administrative challenges for us. From the first steps, we had to gather an experienced and efficient team, relied on our worldwide project management capabilities and engineering centers in India. Through our commitment and impressive results at Petrobras, we have been

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I hope to one day see a Petrobras control tower managing all the refineries and platforms from one place. able to carry on similar or even larger projects. Gaining experience and participating in such projects is a blessing, and today our clients rely on us knowing what we have been able to accomplish successfully throughout time. This is why leading international players such as Braskem and Vale have demanded our services and solutions.

FR: What next large projects do you have in the pipeline to increase your presence in Brazil and how do you envision the success of Emerson in Brazil in the near future? RAFAEL JARAMILLO: Emerson Process Management is planning to gain a larger market share within the oil and gas industry, targeting mainly FPSOs (floating production, storage and offloading). Many refineries will appear to take advantage of Brazil’s large resources in oil production, and existing refineries need to be revamped and maintained. These factors indicate significant opportunities for us. Furthermore, through our services and complete solutions, customers like Petrobras will be able to save millions of dollars. Overall I would like to stress that Emerson in Brazil and worldwide must be seen as the partner of choice. Emerson must be the customer’s first choice, and this is why we generously invest in proximity service centers to provide customized and fast response to our customers. Our plan for expansion is to consolidate our five different business units at Emerson here in Sorocaba. A new building will be built to integrate these units and provide the most advanced technical solutions to our customers. In terms of human resource planning, we will double our employee number in the next five years and continue with our double-digit growth. We are living a great moment for Emerson in Brazil and we know many more opportunities are at our reach.


54

Interview with: Paulo Fernando Soares, General Manager, Vestas

INTERVIEW WITH:

Paulo Fernando Soares, General Manager, Vestas Focus Reports: In an interview for Bloomberg you stated: “Money is hard to come by - you need a solid case to justify what you are doing here.” Now, Vestas is the second largest turbine manufacturer, with over 44,000 turbines in over 66 countries. Which conditions led Vestas to become a dynamic wind player in Brazil? PAULO FERNANDO SOARES: The quotation from Bloomberg refers to a wider context than wind power business in Brazil. My point was related to the build-up of additional manufacturing capacity in Brazil to meet FINAME local content guidelines, while at the same time, companies being challenged on a global level from issues related to the current support for renewables in Southern Europe, PTC extension in the USA, or excess of manufacturing capacity in China, India, USA, and others. These issues are central to key decisions that business leaders are confronted with. While the new current FINAME guidelines for local content are, in my opinion, much clearer than the previous ones, adjustments of the current companies’ set-up in the wind sector are still needed for them to meet those requirements. It is difficult to make the case for additional local infrastructure when we have, as a country, only installed 400MW of new capacity in the past years. Local content policies tend to decrease competition, slow down innovation, retard economies of scale, and raise costs by creating supply chain inefficiencies. We are working diligently to lower the cost of energy: that’s our commitment – to public authorities, our customers, and their consumers. Local content regulations create unnecessary barriers to lowering the cost of energy. And the employment effects of such policies have not been proven yet: the countries with the highest levels of wind jobs and investments in fact are those

that have secured a free an open market place (like Germany and the US for example).

FR: Mr. Tomalsquim, President of EPE, shared his strong enthusiasm about wind power in Brazil, attracting foreign investors, technology, and reducing wind prices during auctions. The Brazilian wind is the best in the world – stable, strong, no turbulences – and Mr. Edison Lobão’s energy plan aims to deliver 12 GW of wind energy capacity by 2020, compared to the two GW today. What would you like to share with us about the potential of wind in Brazil? PAULO FERNANDO SOARES: The potential for wind energy here in Brazil is immense, and Vestas recognizes and appreciates it. For the industry in general all that is required to grow is stable volume, the right business case and the correct policies. The presence of these three elements will ensure wind energy companies’ interest for the Brazilian wind market. Vestas is very committed to it and we consider Brazil as one of the leading countries when it comes to the development of wind energy in the world. Vestas is also committed to achieving the local content levels required to secure that projects with Vestas technology qualify for BNDES financing. However, Brazil’s local content requirements are a challenge for the wind industry to meet and are not conducive to a sustainable development of the wind energy sector. We believe that a free and open market place in Brazil would be more efficient in terms of attracting wind energy jobs and investments to the Brazilian market. We recommend that Brazil shifts its focus from local content requirements to building local capabilities, sound investment climate and competitiveness. By doing this, investing companies and the Brazilian government can create long-lasting benefits

Paulo Fernando Soares, GENERAL MANAGER, VESTAS ENERGYBOARDROOM.COM


55 that are underpinned by sustainable economic growth. We say this with confidence, as Vestas has more than 30 years’ experience in developing new markets for wind energy. Brazil has exceptional wind resources and several advantages compared to other countries. I have sold turbines in Inner Mongolia, which also has excellent wind resources. What is even more beneficial for the sector here in Brazil is that the temperature does not drop to minus 40 degrees in winter and there are no natural disasters. Moreover, Brazil’s wind industry is maturing later than in other countries - this means we can learn from other countries’ past experiences. This also implies that, the latest technology is available just as the industry starts to grow in scale here and Brazil has significantly benefited from having manufacturers with past experience in important issues such as grid-related ones. How did you convince Vestas shareholders to locate here- did your experience help, particularly in China, which you mention was at a similar stage to Brazil now in developing its wind industry? PAULO FERNANDO SOARES: I try to work with facts. For example, I do not completely agree with many discussions related to the tariff levels in in Brazil. A tariff starting at BRL 88.0./MWh (which was the value from last auction), will increase, according to the IPCA, about 5% a year. Five years later, this tariff will be at BRL 107.0/MWh. At the end of 20 years of a project the cost would be BRL 222.0/MWh. The average tariff across this period is BRL 145.0/MWh. It is also important to provide information to all stakeholders and to show that we may have solutions available to overcome obstacles that may exist in Brazil. For example, the local production of parts is a requirement if a company intends to get finance from BNDES but projects can still be carried out without BNDES, if you have the capabilities to access finance elsewhere, and many companies can do that. You just need to structure a solution which enables those companies to compensate the higher cost of getting financed elsewhere.

ENERGYBOARDROOM.COM

We believe that a free and open market place in Brazil would be more efficient in terms of attracting wind energy jobs and investments to the Brazilian market. I believe that the government can justify offering BNDES financing at lower interest rates and ask for something in exchange but local content is not mandatory if alternative sources of finance from organizations such as International Finance Corporation can, in combination with other factors, enable a project to be economically feasible. For us, it is essential to look for those solutions. I try using my experience from other markets and other situations, but also to focus on the business reality here in Brazil. We do have a difficult market, but we also have grid parity. I’m convinced that there are still good opportunities in Brazil for the entire wind industry.

FR: What are your priorities and ambitions to drive Vestas forward in Brazil in the next five years? PAULO FERNANDO SOARES: First of all, I hope that the next two auctions in August and October will maintain this positive momentum. Wind generation capacity in Brazil could be built up very quickly, and this also carries many other positives aspects and social benefits which are not always recognized. For example, in several quite poor regions in Brazil, installation of wind farms provides, among other things, employment, financial benefits to the land owners, support governments’ efforts to legalize land ownership titles, improve infrastructure in general, etc. At the moment, Brazil is only scratching the surface when it comes to the immense opportunities the wind industry brings to the country.


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Brazil energy report January 2014

Company index ABB..............................................18, 39

ELECTRA POWER.............................10

ABEEOLICA...................................... 16

ELETROBRAS...7, 10, 26, 27, 28, 29, 30, 34

ABINEE........................................38, 39

EMERSON PROCESS MANAGEMENT...........................52, 53

ABRATE..............................................18 ANDRITZ.........................16, 42, 43, 51

ENERGIA SUSTENTAVEL DO BRASIL .......................................10

ANEEL.. 7, 10, 14, 18, 20, 21, 22, 32, 34

EPE..............8, 18, 20, 29, 33, 34, 37, 54

APINE................................................ 36 AREVA RENEWABLES............ Page 14 CEPEL....................10, 18, 24, 27, 28, 29 CHESF..........................................30, 31 COGEN.............................................. 14 COMGAS.......................................... 13 DENGE ENGENHARIA..................... 12

FIESP..................................................18 IMPSA....................................16, 48, 49 INTERTECHNE.......................10, 50, 51 LANDIS & GYR..................................17 NORTE ENERGIA.. 8, 10, 20, 22, 23, 24 ONS...................... 10, 16, 20, 25, 34, 35 SANTO ANTONIO ENERGIA............. 8 STATE OF BAHIA...............................18

EDF - UTE NORTE FULMINENSE....................... 13, 44, 45

U.S. Commercial Service...........40, 41

EDP...............................................46, 47

VESTAS............................16, 49, 54, 55

ENERGYBOARDROOM.COM


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Brazil energy report January 2014

THE PHILLIPINES COMING SOON

Brazil Power report 2014  

Written after exclusive interviews with Russia's decision makers from NOCs and multinational E&P companies, legislators, financial institut...

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