With the return of consumption to pre-pandemic levels, a projection of a 3.4% increase in energy demand in August alone and inflow (the volume of water that reaches the reservoirs) once again below the historical average, the crisis caused in the Brazilian electricity sector due to the lack of rainfall may advance into 2022.
Data from the Monthly Review of the Electric Energy Market, prepared by the Energy Research Company (EPE), show that in June the total energy consumption in the country increased 12.5% compared to the same month in 2020. It was the highest demand ever registered in that month of the year. In the first half, the increase in energy consumption was 7.7%. The number of the first six months of the year also surpassed by 3% the one verified in the same period of 2019, before the pandemic.
In June, there was significant growth, especially in industry (up 19.4% over June 2020) and in commerce (19.0%), segments that have their activity driven by the advance of vaccination and the recovery of the economy, with a reduction in restrictions adopted in the fight against the Covid-19 pandemic. Meanwhile, the reservoirs continue to empty.
Updated reviews by the National Electric System Operator (ONS) indicate that the hydroelectric power plants of the Southeast/Midwest subsystem – the most important and also the most worrying amidst the current water crisis – should reach the end of August with just 21.7 % of its storage capacity, and the projection for November varies from 11% to 8%. The data was released in the monthly operation bulletin, published last Friday (20), and reaffirms the worst shortage in the Brazilian electricity system in 91 years.
In the other subsystems, the reservoirs should end the month in a better situation than expected, which, however, does not relieve the pressure on the National Interconnected System (SIN), since the Southeast/Midwest reservoirs account for 70 % of water for energy generation in the country.
With no expectations for rain to raise the level of the dams before spring, the country follows the strategy of intensifying thermal generation so that the reservoirs fall as little as possible to the waters expected for the last quarter. The end of the dry season usually takes place in October.
Electric Sector Calculations
Water follows little. In the twelve-month accumulated result ending in June, the volume that reached the hydroelectric reservoirs was a third below the average. In a public hearing at the Chamber of Deputies, secretary Christiano Vieira da Silva, from the Ministry of Mines and Energy, stated that “the expectation with this trajectory is to create new records of historic lows starting in September”.
Even with reservoirs “dehydrating” and little rain as far as expected (in the case of the South, where precipitation hardly came), the calculations made by the federal government still rule out rationing or shortages in 2021 and argue that the electricity sector has sufficient installed capacity to meet the demand. But consultants and experts point out that the risk has risen.
A market monitoring report prepared by PSR Energy, the main consultancy in the segment, reveals that an increase in the pace of demand expansion could lead to an average load cut of close to 7%. According to the consultancy, consumption rose 7.5% in the first seven months of the year and, if this rate of expansion reaches 9% in the next four months, rationing between 2.7% and 6.8% of this demand will be necessary.
The assessment of the PSR is that “actions need to be taken to avoid problems with the supply of energy and power, if inflows remain too low”.
The consultancy reminds that, in fact, some actions are being taken by the government, such as thermal activation greater than those indicated by the optimization models, relaxation of restrictions on multiple water use, reduction of the minimum operating volumes of plants, search for a new supply of energy, among other actions regarding the offer, but actions on the consumption side are also appropriate, with compensation mechanisms, “with or without payment for it”. “The risk is not zero and increases a lot if demand grows more than estimated by the ONS”, says the consultancy.
Earlier this month, XP raised its rationing risk estimate for the next 12 months from 3.5% to 5%. Despite this, she still considers this risk “low”. The reason for the revision was the worsening of the hydrological scenario.
Roberto Brandão, senior researcher at the Electric Sector Study Group at the Federal University of Rio (Gesel/UFRJ), states that the storage condition at the end of 2021 could mean problems in sight in 2022, since the electricity sector will arrive at the station in the most critical scenario ever experienced in the country. According to Brandão, amending another year of scarcity could put the generation in trouble.
“The end of the dry season and the transition to the wet season (October, November, December) is the great concern today. As time goes by, another concern will arise, which is next year’s supply, because we will spend the reserves that it had. It’s something that will come on the radar. It’s inevitable that the reservoirs arrive at the end of the year in absolutely critical conditions and this makes the system vulnerable to another dry year,” he points out.
Despite the possible risks, the researcher assesses that the system has slack to operate, but was unprepared for such an extreme event. “If we hadn’t lost almost three Itaipus in terms of water reaching the reservoirs, we wouldn’t be having this problem. In fact, on the contrary, the system would be very loose, because from 2015 to now consumption growth was small, from 3.5%, while the installed capacity grew in the order of 20%”, he says.
The MME representative stated on the same agenda in the Chamber that the scenario assessments on the risk of shortages that have been conducted using the repetition of the 2020 rainfall scenario to ensure more safety to the system.
“We are imagining the same scenario, very adverse. If the rain comes, in October, we will have a much more comfortable situation, but we are working with the scenario of not having this rain. It is a more critical scenario for which the system is being prepared,” he said, while defending the forecasts for guaranteeing the supply.
Supply and consumption measures
With more expensive generation due to the need to activate thermoelectric plants, thus avoiding the use of water from the reservoirs, electricity rose 20.9% for the consumer in the last twelve months ending in July, according to data from Broad National Consumer Price Index (IPCA). The high cost concerns consumers, including large ones, as revealed by a recent survey by the National Confederation of Industry (CNI).
The water crisis appears on the radar of the business community with fears of a further increase in the cost of energy, the possibility of rationing and the risk of blackouts. The fear of additional obstacles in the path of resumption leads energy-intensive segments to seek solutions such as moving production outside peak hours (the popular peak hours) and even using parts from external suppliers to avoid consumption in own manufacturing (which is considered a form of energy import).
Government actions on consumption are expected in September. That’s when, according to the Ministry of Mines and Energy, the demand reduction program will be put into practice – being prepared by the Ministry and expected for months to expand measures that, so far, have focused on the governance of the electricity sector and the organization supply, with little incentive to reduce the energy used by the consumer (regardless of their size).
In a recent statement, Minister Bento Albuquerque stated that both industries and small consumers – including residential ones – will have incentives to save energy. Participation will not be compulsory, which seems coherent, says Gesel researcher Roberto Brandão, since, in his assessment, “the situation is not irreversible” and compulsory measures could be “hasty”.
Despite this, he believes that a large awareness campaign for rational use and more transparency regarding the criticality of the current scenario could collaborate in the medium term. “It would be highly recommendable at this time. It’s such a deal: some effect does. And 1% reduction in demand in several months is enough. In a month it’s very little, but a favorable variation in demand is always positive”, ponders.