Why energy-intensive consumers no longer invest in power generation in Brazil

Abstract

ABSTRACTThis paper describes the reasons why electro-intensive consumers are no longer interested in investing in power generation in Brazil. It examines how newly introduced changes in the electricity commercialization model, which was aimed at attracting investors in hydroelectric power plants (HPPs), are leading a share of important investors to the opposite direction. The high payments for HPP licenses due to the first reform become those projects no more feasible under the second reform. Besides, since the second electricity framework reform in 2004, they were no more allowed to run for new HPP licenses without selling at least 70% of the electricity to captive consumers, i.e., acting as independent power producers, and also Eletrobras (federal state company) returned to invest in generation assets with as a non-economic investor. The Brazilian case is of particular interest because it is predominantly based on hydropower generation, and self-generators, who played an important role as potential investors in power generation during the period of the first electricity sector reform (1995–2003), have been responsible for one third of the licenses awarded.