Sale of energy from Itaipu on the free market is an option in Brazil-Paraguay negotiation

The Brazilian government is resuming preparations to negotiate with Paraguay the conditions for the commercialization of energy from the binational hydroelectric plant of Itaipu, studying scenarios that provide for everything from maintaining the current terms to the sale of energy in the free and regulated markets, as private electric companies do. , Anatalício Junior Risden, the plant’s Brazilian director general, told Reuters.

The changes are being evaluated at a time when, on the Brazilian side, the privatized Eletrobras is no longer participating in the processes over Itaipu, which currently sells 100% of its energy in quotas on the regulated market, and not on the free market.

But the assessments, Risden said, will be guided by the “cost reduction” guidance given by Mines and Energy Minister Adolfo Sachsida so that the new contract effectively translates into cheaper energy.

Risden, Admiral of the Navy Reserve, said that Brazil and Paraguay had already been talking about revising the so-called “Annex C” of the Itaipu Treaty, which establishes the financial bases of the tariff, given the expected drop in costs with the discharge, in 2023. , of the construction debt of the enterprise.

But the negotiations had been frozen while there was no definition of the Itaipu tariff for this year, which ended up happening this week.

“The Brazilian government made a decision, through Itamaraty, that it would only start the Annex C negotiations after the tariff for the year 2022 has been equated…

Itaipu officials announced on Tuesday that they had reached an agreement on the electricity service tariff for 2022, after nine months of negotiations. The rate was reduced by 8.2%, the first decrease after 13 years from a value that was frozen.

Now, the expectation is that the Ministry of Foreign Affairs will resume this process, together with the Ministry of Mines and Energy, armed with studies prepared by the binational with six “possible and feasible” scenarios, said Risden.

There is no deadline for the conclusion of negotiations between Brazil and Paraguay, in talks that take place before the October elections – and that can be redirected if the current government fails to be reelected.

Under current terms, each country is entitled to 50% of Itaipu’s energy. In the case of Brazil, it is sold on a quota system to distributors in the South, Southeast and Midwest. Paraguay, on the other hand, gives part of its energy to Brazil, at a certain price, since it does not consume everything it is entitled to.

These conditions are subject to review as of 2023, with the completion of Itaipu’s construction debt payments.

The director-general of the Brazilian side explains that the six scenarios studied range from maintaining conditions exactly as they are today, to Itaipu acting as a “private company”, being able to commercialize energy more broadly in the existing markets.

Brazil has two energy markets: the regulated one, in which consumers are served by distributors, who contract energy in government auctions; and a free one, in which consumers negotiate the input directly with generators and traders.

The Itaipu study is being revisited after the privatization of Eletrobras. The electric giant was responsible for selling the power from the plant to the distributors. Now, that role belongs to the new state-owned ENBPar.

“The previous study was carried out together with Eletrobras, today it is a private company that has other interests… So we have to look at the statute (of ENBPar), everything that is there, and readjust”, explained Risden.

The director-general of the Brazilian side also pointed out that, despite the wide spectrum of possibilities for revising the terms, the study has a technical bias.

“The political decision would be (d)the Ministry of Mines and Energy and the Ministry of Foreign Affairs,” he said, noting that the plant has a role in social and regional development.

Impacts for the electricity sector

The review of Itaipu’s energy sales bases is of great importance for Brazil and Paraguay, given the size of the enterprise, which is completing 50 years.

With 14 gigawatts (GW) of power, the plant is the second largest hydroelectric plant in the world. In 2021, it was responsible for 8.4% of the total energy consumed in Brazil and 85.5% of the energy in Paraguay.

Of the total debt for the construction of the plant, of around US$ 28 billion, 1.4 billion will be paid this year, leaving approximately R$ 300 million to be paid off by March 2023.

The expectation is that this will generate a strong reduction in the tariff of the enterprise. Risden doesn’t comment on exact figures, but says the tariff could be “a lot lower” than the current $20.75/kW.