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Brazil bets on rain, rules out power rationing in 2015

by Adriana Brasileiro | @Adribras | Thomson Reuters Foundation
Tuesday, 19 May 2015 11:00 GMT

But with hydropower reservoirs at 30 percent of capacity, some analysts wonder whether the water will last

RIO DE JANEIRO, May 19 (Thomson Reuters Foundation) - Brazilian authorities have ruled out electricity rationing this year as a slowing economy and higher tariffs help reduce consumption.

But water reservoirs in hydropower-dependent Brazil remain at critically low levels as a result of drought. By putting off unpopular electricity rationing, the government is counting on water that may not last through the May to October dry season, warned Leontina Pinto, a director at electricity sector consultancy Engenho.

About two-thirds of Brazil's power grid is dependent on hydroelectricity.

"It's a very risky bet. They are scrambling to put off the problem until next year, when the situation will be worse and very harsh rationing efforts will inevitably be necessary," Pinto predicted in a telephone interview.

She sees a 40 percent chance that power rationing will be necessary in central and southern parts of the country this year.

"The water levels we have now are not enough to guarantee that the system will go through the dry period," she said.


Reservoirs in Brazil's southeast and central regions were at about 30 percent of their capacity at the end of April. With that level of water, the dams are expected to reach November - the start of the next rainy season - at 10 percent full, according to forecasts by Brazil's power grid operator, ONS.

That is the absolute minimum level required to operate power plants, Energy Minister Eduardo Braga told reporters in Brasilia in January.

Dams that feed key power plants and reservoirs for drinking water have reached critically low levels after a drought over the past three years drastically reduced rainfall in Brazil's highly populated southeast region.

Antonio Nobre, a leading climate scientist at INPE, Brazil's National Space Research Institute, has linked Brazil's worsening drought to global warming and deforestation in the Amazon.

Both are drastically reducing the release of billions of liters of water by rainforest trees, which reduces rainfall further south, he said.

In January, Energy Minister Eduardo Braga said power supply restrictions would only be applied if water reservoirs reached the 10 percent of capacity mark.

He said recently that rainfall in February and March was sufficient to replenish reservoirs to safe levels.

The government also appears to be hoping that cooler months from May to October will cut energy use, Pinto said.

A network of electricity plants fueled by gas, oil and coal is now running at full-throttle and is also expected to help avoid rationing, though the costs of producing such energy is about 50 percent higher than with hydropower.

Those plants account for about 29 percent of Brazil's current generating capacity, up from 22 percent in 2009.

After an unusually dry January, Brazil's southeast region, where the country's mega-cities of São Paulo and Rio de Janeiro are located, got above-average rainfall in February and March.

But April was the driest month in five years, according to Giovanni Neto, a meteorologist at Cemaden, the government's natural disaster monitoring center.


Brazil's economy is expected to contract 1.2 percent this year according to a central bank survey published on May 8. Annual inflation running at above 8 percent is reducing buying power.

Power tariff increases of 38 percent on average so far this year are also helping rein in consumption.

Electricity distributors were allowed to increase prices after they piled up debts in 2013 and 2014, when the government mandated rate reductions to artificially control inflation.

During that time, hydroelectric plants had to reduce production to preserve water, while power distributors were forced to buy more expensive electricity in the spot market to maintain supplies.

"The high tariffs are certainly inhibiting consumption now, especially among residential clients," said Mauro Storino, energy director at Fitch Ratings in Brazil. He predicted power rationing won't be necessary this year.

"But it will be tight, no doubt," he said.

ONS and Empresa de Pesquisa Energetica, the government's energy research agency, last week reviewed their expectations of power consumption growth in Brazil in 2015, cutting this year's expected increase to just 0.1 percent year on year, from 3.2 percent previously.

Some energy experts believe the government is acting irresponsibly by avoiding rationing.

Mario Veiga, one of Brazil's best-known energy specialists, said in a conference in March that electricity use must fall by 6.5 percent this year from 2014 for Brazil to avoid blackouts, and that the government should have started to impose rationing measures last year.

Brazil is expected to reach the 2015-16 rainy season with nearly-depleted reservoirs, and no certainty that the country will receive enough rain to improve water levels quickly, Veiga said.

Another factor that could affect rainfall and increase temperatures across Brazil is the El Niño phenomenon, which affects Pacific Ocean temperatures and has in the past led to lowered rainfall in southeast Brazil.

Australia's Bureau of Meteorology on May 12 said an El Niño was underway and could become a "substantial" weather event later this year. (Reporting by Adriana Brasileiro; editing by Laurie Goering)

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