El Nino Rains Won’t Fill Brazil’s Most Important Hydropower Dams

Aug 01, 2014 2:21 pm ET

Aug. 1 (Bloomberg) -- The drenching El Nino rains that may replenish Brazil’s hydropower reservoirs will probably miss the nation’s most important dams, now at historic lows as the country endures its worst drought in eight decades.

The weather phenomena that’s causing floods in Brazil’s south won’t travel far enough north to help refill reservoirs in Sao Paulo, Minas Gerais, Rio de Janeiro and Espirito Santo states, where 70 percent of Brazil’s hydropower capacity is located, said weather forecasters Climatempo and Somar Meteorologia.

“There is no hope that El Nino will fill the southeastern water reservoirs,” said Thaize Baroni, a meteorologist at Sao Paulo-based Somar. “It won’t change conditions for this year and it can make it worse, as the region may have even dryer weather in the next few months.”

The extended drought means Brazil’s government will probably be forced to continue using costly thermoelectric plants to help avoid blackouts. According to Jose Goldemberg, a professor at the University of Sao Paulo’s Institute of Energy and Environment, a third of the electricity consumed in Brazil currently is produced by thermoelectric plants.

“This government’s team decided to exchange the physical blackout for financial blackout,” said Goldemberg. “Thermal power plants are not made to be used all the time.”

Water Rationing

The Sao Paulo water utility Sabesp is also struggling through the drought. It was warned this week by federal prosecutors to start rationing or risk having its biggest reservoir run out of drinking water within 100 days.

Cia. de Saneamento Basico do Estado de Sao Paulo, the company’s formal name, has no plans to ration water. It’s relying instead on rain forecasts and conservation policies. “Measures taken by Sabesp will guarantee supply until March 2015, when the rainy season will be at its peak,” the company’s press office said by e-mail.

Sabesp is relying on the INPE, the government-controlled weather forecaster, which, according to the company, expects the volume of precipitation in the next rainy season to be equal to or greater than average of previous years, because of El Nino.

The National Institute for Space Research, as the forecaster is formally known, doesn’t have predictions for the last three months of the year, according to researcher Paulo Nobre.

Sabesp didn’t reply to inquiries about how it’s using data from INPE.

Prices Doubling

Industrial customers signing contracts for energy to be delivered starting in 2015 paid 390 reais ($172) a megawatt-hour in June, according to Thymos Energia. That’s more than double the 165 reais for fixed contracts bought in January. The price will increase to 450 reais in September, when the rainy season starts, the Sao Paulo-based energy consulting company estimates.

“Industries in Brazil that are highly dependent on energy are becoming less competitive,” said Mathias Becker, president of the renewable energy company Renova Energia SA.

Tractebel Energia SA and other utilities have been forced to buy energy at record spot prices when output at their dams fell short of supply commitments. The average spot price was 581 reais a megawatt-hour this week, more than triple the 153-real price a year ago.

Hydroelectric dams in Brazil’s Southeast/Midwest region are at an average of 34 percent of total capacity, according to the Electric System National Operator, known as ONS. That’s down from 36 percent in June. A year ago they were above 60 percent.

ONS estimates that the dams may slide to 18.5 percent in November. “Below that, hydroelectric generation may be hampered in some dams,” said Joao Carlos Mello, president of Thymos Energia.