Five Points to Understand the Water Crisis and the Risks of Power Outages

Water crisis, rationing, blackout. The terms reappeared in the routine vocabulary of Brazilians exactly twenty years after the country’s most sensitive contact with the risk of energy insufficiency, in the penultimate year of the government of then President Fernando Henrique Cardoso. Since then, the electricity sector has evolved from the lessons of that crisis, but what explains the current worsening scenario, pushed to the “limit of the limit”, in the words of President Jair Bolsonaro?

THE People’s Gazette listed the main aspects of the water crisis to understand how the country got here, what has been done and what are the chances of a lack of energy.

1. Worst shortage in 91 years

Since September 2020, the rains recorded in the country represent a historic shortage: it is the worst drought in 91 years, according to the National Electric System Operator (ONS). With little water stored to supply power generators, the pressure on the electrical system has been increasing ever since.

As of May, the period already characterized by low humidity came with prospects of severe drought, especially in the Southeast and Midwest, where the main storage reservoirs of the National Integrated System (SIN) are located. At the end of that month, the subsystem’s lakes occupied only 32% of their maximum capacity. In early September, the volume dropped below 20%, according to the ONS.

Scarcity is not new, nor is the depletion of hydroelectric reservoirs. They are at their lowest level since 2015, but drier-than-average seasons have been the rule in recent years, with poor hydrology since 2013 and relatively depleted reservoirs even after seasons characterized by higher affluence.

2. A water crisis different from that of 2001

Although the reserve at the dams is lower today than it was in 2001 (when Brazil experienced compulsory energy rationing and blackouts), government representatives claim and experts agree that the electricity sector is much more robust than it was 20 years ago above – which precludes a simple comparison, just based on how much water is available for power generation.

From the crisis experienced by the country at that time, measures were taken that resolved part of the system’s deficiencies, with advances especially in the transmission and diversification of the electricity matrix.

If Brazil is still considered highly dependent on hydroelectric generation, with 64.9% of its electricity originating from this source, in 2001, the share was 83.3%. In these two decades, the matrix has been diversified, with the growth of thermal plants, which today account for 21.3% of generation, but also renewable sources, with 10.6% of wind and 2% of solar.

A challenge to be overcome in the current scenario, however, is the fact that wind and solar, for example, are not dispatchable – they obviously depend on whether there is wind or sun in order to meet demand.

The increase in the transmission network is also “homework” done in the country after the blackout. Since then, transmission networks have jumped from 70,000 to 164,800 kilometers in length, allowing the so-called import of energy between Brazilian subsystems. It is, in part, this evolution of the system that has kept the Southeast and Midwest regions – the most affected by the current water crisis – supplied with energy generated by winds in the Northeast.

3. Not emptying the “water tank” is expensive

With the “dehydration” of the reservoirs, meeting demand had to be covered by thermal dispatch, which is more expensive, which has been raising the Brazilian electricity bill to unprecedented levels. Between December 2020 and August 2021, the tariff flag (which indicates how expensive the energy generated and consumed in the country is) went from green (in which there is no additional charge) and advanced to red at level 2 ( until then the most expensive in the system). And now, in September, the consumer has been introduced to a new step.

The “Hydric Scarcity” tariff flag raised the price of energy even further, making it clear that the bill for measures taken to avoid shortages will remain high, at least until 2022.

Valid until April of next year, the new banner adds R$ 14.20 to the energy bill for every 100 kWh consumed. The amount is 49.6% higher than that charged previously, of R$ 9.49, when red flag level 2 was applied – which had already been readjusted in order to cover the costs of thermoelectric generation, but whose collection continued insufficient to afford the energy produced from burning fuels such as gas, diesel and others.

Despite raising the electricity bill, the use of thermoelectric plants could not be avoided, since it is the model adopted by the Brazilian electricity sector to address disparities between supply and demand in the country. They are hired to be on standby and remain turned off until the ONS activates them to account for the consumption.

To prevent the reservoirs from continuing to dry up to extremely critical levels, compromising generation at the end of the year, the scenario was the key to preserving the maximum amount of water in the dams until the end of the dry season and the return of rains – expected from October.

The initial calculations made by the federal government – based on variables such as the country’s installed power generation capacity and the projections for emptying the reservoirs and resumption of inflow (the arrival of water at the dams) – ruled out the risk of a lack of electricity , although more expensive. Over the months, however, the water crisis worsened.

ONS assessments show that it rained even less than expected in the dry period, with reservoirs descending beyond the projected level. According to the operator, the country will need to increase its generation by 8% as of September to meet the demand and avoid shortages.

Equalizing these two sides (supply and demand) involves hiring additional generation, system governance measures and even reducing consumption. This last front was the one that took the longest to get off the ground in the government’s action plan.

4. Measures to face the water crisis

In order to coordinate actions in the face of a water and electricity crisis, President Jair Bolsonaro created, by provisional measure, the Chamber of Exceptional Rules for Hydroenergetic Crisis Management (Creg). The publication took place in June. Before it, however, authorities in the national electricity sector were already monitoring the situation and were taking steps to ensure the country’s energy security.

The first moves focused on supply and governance and flexibility measures. There were changes in water use rules, to reduce the flow of reservoirs, and in the criteria for the transmission of energy between subsystems in the country, ensuring that electricity generated in one point of the country can be consumed in others that are deficient. That was when the activation of the thermal plants began, the purchase of energy from neighboring countries, such as Argentina and Uruguay, and changes in the shutdown schedules programmed in plants, in order to guarantee availability.

More recently, the Electric Sector Monitoring Committee (CMSE) recommended the increase in energy contracting and capacity reserve and the simplification of licensing processes for new plants. The objective is to guarantee energy supply to Brazilians between 2022 and 2025, until the hydroelectric plants recover.

The committee highlighted “the preventive and anticipated nature of the measure, with the delivery of resources at lower costs”. Also according to the group, the measure “will contribute to guaranteeing the service and structural elevation of the storage levels of the reservoirs of the hydroelectric plants, especially at the end of the dry periods”. The suggestion was approved by Creg this Thursday (9).

With the concern with the supply at the forefront, it was only in August that measures that sought to reduce consumption began to be announced, in practice, in order to take pressure off the system.

The first of these was a Voluntary Demand Reduction program aimed at large consumers, intensive in energy – read the industry. According to the established guidelines, participating companies must propose periods in which they are willing to save a minimum of 5 MW of energy every hour, through windows of four to seven hours a day. In return, they will receive financial compensation for voluntary rationing.

The idea is to shift the consumption of these large consumers, alleviating peak hours and thus contributing to cheaper energy, without the need for so much electricity generated by thermal plants.

As a result, compulsory rationing in the public service was decreed. The cut must be at least 10% of energy until next April.

Finally, the government extended the bonus for the voluntary reduction in consumption also to small consumers, such as residential ones. The bonus will be R$50 per 100 kWh reduced in consumption (or R$0.50 per kWh), limited to the savings range between 10% and 20%.

The program will extend until December 2021 (which may be extended) and the reduction in consumption will be verified by comparing the average consumption of the last four months of 2020 with the same period of 2021. The bonus will be given to the consumer in January.

With the program, the Ministry of Mines and Energy hopes to reduce the demand of the National Interconnected System (SIN) by 1.41%. The bonus is expected to cost around R$339 million per month – R$1.3 billion over a four-month period – and will be paid with System Service Charges (ESS), which are part of the energy bill paid monthly by the consumer.

5. What to expect from the end of the year and 2022

With the significant deterioration in the hydrological scenario, analysts point to an increase in the risk of rationing, but see blackouts – that is, blackouts – as more likely.

According to XP’s report, “lower hydro generation in the Southeast requires bringing more energy from the North and Northeast regions, which puts more pressure on the transmission system and requires an operation with fewer backups to meet the energy demand. This means that the system will be more vulnerable to disturbances such as fires, storms and human failures”, which means the risk of a cut in supply. The probability of rationing calculated by XP is 17.2% in the next 12 months.

The risk of lack of energy to supply sectors that are gaining traction is also worrying, which hinders the recovery of the economy – which is already on the sidelines, judging by the GDP in the second quarter.

Once the 2021 dry season is over, there is still an expectation of the start of a new cycle of rains, which may or may not lead to a period of less stress in the Brazilian electricity sector, since amending another year of shortage could put generation in trouble.

According to Roberto Brandão, senior researcher at the Electric Sector Study Group at the Federal University of Rio (Gesel/UFRJ), the end of the dry season and the transition to the wet season (as of October) is a major concern today. “As time goes by, another concern will arise, which is next year’s supply, because we’re going to use up the reserves we had. It’s something that will be on the radar. It’s inevitable that the reservoirs will arrive at the end of the year in absolutely critical conditions and this makes the system vulnerable to another dry year,” he says.