La Niña can reduce rainfall by up to 30% and further damage hydroelectric plants – 08/29/2021 – Market

Technicians from Inmet (National Institute of Meteorology) are counting on the return of the rains to the center-south of the country at the end of September, where the drought this year has put the reservoirs of hydroelectric plants on alert.

However, the possible effects of the climate phenomenon La Niña, starting in October, have already entered the radar, which could reduce the volume of rainfall by 10% to 30% in the region.

The phenomenon causes a periodic change in the temperature of the waters of the Pacific Ocean, which tends to reduce rainfall in south-central Brazil, aggravating the drought in the Paraná River basin.

The fear is that this will happen again at the beginning of the rainy season this year, which would further jeopardize the recovery of the region’s reservoir capacity.

According to the ONS (National Electric System Operator), the reservoirs of the Southeast/Midwest subsystem plants have been operating at critical levels for months, and the crisis in the national electricity system worries analysts.

Inmet data show that the states of São Paulo and Paraná had below average rainfall since January. During all months of this year until July, most states had a lower volume of rain than in the same period last year.

According to meteorologist Cleber Souza, from the institute, there are positive signs of recent rains in the South region. Although rainfall is not expected above average for the coming months, the return of rain in the Southeast and Midwest in the second half of September it would bring relief to both farmers and the electrical system.

“It is difficult to predict exactly what the exact impact of La Niña on this year’s rains would be, but it is a phenomenon that makes cold fronts weaker and is undoubtedly a source of concern,” says Souza.

The energy risk scenario also worries economists, who are beginning to foresee the effects of the lack of water on the economy’s recovery.

Brazil could enter a stagflation picture (economic stagnation with inflation) if the rains do not return in the fourth quarter, according to Gabriel Leal de Barros, chief economist at RPS Capital.

For him, there was a change in posture on the part of the government, which now recognizes that the situation in the electricity sector is dramatic. “What worries is, in addition to the water framework, the future increase in the most expensive tariff flag by Aneel (National Electric Energy Agency)”, he says.

According to Barros, in order not to disrupt the electricity sector and increase the deficit in the cost of thermal plants, the new value of the banner will be important to define the impact of energy prices on inflation for next year as well.

In the assessment of Roberto Wagner Pereira, an energy specialist at the CNI (National Confederation of Industry), possible measures to reduce the impact of the lack of rain in the sector are already on the table, such as hiring more thermal plants and promoting a voluntary program to reduce use .

“We have to hope that they work and that we go through it in a comfortable way. I don’t see a risk of blackout today, but there is an obvious risk of rationing and we hope that this will be enough”, he says.

The lower volume of rain also worries rural producers and investors in agricultural commodities, assesses economic consultant Nicola Tingas, from Acrefi (National Association of Credit, Financing and Investment Institutions).

There is an environment of deteriorating economic conditions, affecting everything from the production of manufactured goods to agriculture, which should also have crop failures, he says. According to him, with supply problems, there could be another increase in inflation.

“The set reduces the motivation to invest and there is a slowdown in the pace of economic recovery, with risks that inhibit a higher rate of investment.”

He also assesses that the government could have been quicker in the measures taken to resolve the crisis. “The ideal was that some actions had been anticipated – and the problem may now be bigger than we would like,” he says.

In this scenario, the GDP (Gross Domestic Product) of agriculture should grow less this year, indicates the Ipea (Institute for Applied Economic Research), which cut the high estimate for the indicator in 2021, from 2.6% to 1.7 %.

“The worst thing is the lack of structured planning in the medium and long term, as climate change tends to make this a frequent problem”, says Rafael Cagnin, from Iedi (Institute of Studies for Industrial Development).

He assesses that the use of thermoelectric plants is reasonable to overcome the immediate challenge, but it does not provide a definitive answer, given that it is more expensive, more subject to exchange rate variations and, above all, incompatible with the environment.

“This water crisis is not just a challenge for 2021, but how we are going to deal with it indicates our understanding or not of the environmental emergency”, says the economist.