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Power in Brazil: what's a fair price?

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Rafael Herzberg 155,440
Consultant energy affairs Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

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  • Jul 16, 2021
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Power in Brazil: what's a fair price?

There are three main components that make up the cost of energy from the customer's perspective:

1) Amortization

* Generation plants cost around R$ 5 000/kW installed.
* They typically produce 500 kWh/month (under normal conditions)
* At a rate of 1.5% per month to include the investment cost and Brazil risk, results in R$154/MWh.

2) Subsidies

Are equivalent to 9% of the power sales

3) Theft

Represent 7% of national consumption

So the fair reference price is R$154/MWh x 1/0.91 x 1/0.93 or R$182/MWh.

Of course, in practice, the market sets the price, balancing supply and demand.

1 USD = R$ 5.

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Julian Silk's picture
Julian Silk on Jul 19, 2021

Folks,

If this is following the argument correctly, the fair price is about $37/MWH.  There are two things to note in this argument.

1) Much of Brazil's electricity is hydroelectricity, and this is vulnerable to climate change.  How would warming of the Amazon region affect the price?

2) Places like Rio de Janeiro are fairly well electrified.  Even the favelas outside seem to have access.  But much of the Amazon region may not have access, and it would be a huge job building transmission and distribution to cover it.  How does this factor into the price?

 

J.

Rafael Herzberg's picture
Rafael Herzberg on Jul 21, 2021

Hi Julian! 

Great questions!

I like to separate the commodity (kWh) cost from the wire cost (kW). 

The post discussed just the commodity. But as you mentioned the transmission and distribution (T&D) aspects, here is my analysis:

1.  T&D should be paid by energy users according to the investments required to connect the local loads to the public grid.

2. Since very large areas are poor and potentially not able to pay for the T&D investments (wire fees), a good alternative is going for distributed generation like solar, wind, etc. 

3. Climate change, yes it is an important phenomena BUT it could be mitigated if the new hydro power plants are designed to have reservoirs. Unfortunately in the past decades the new hydro power plants in Brazil were not designed to have adequate reservoirs (run-of-river plants, actually) and this only help to intensify the problem.

Y=The official answer to these problems has been quite simple: just increase regulated rates to absorb these extra costs. A very bad concept because the assumption is: there are no options. But from a technical standpoint there are very interesting alternatives. 
 

Julian Silk's picture
Julian Silk on Jul 21, 2021

Thank you for a most informative answer.  It's unbelievable that the new hydro plants do not have reservoirs.

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