Spotlight: The energy sector consequences of Brazil's floods

Looking beyond the humanitarian tragedy, the floods in Brazil’s Rio Grande do Sul state are having significant impacts on the region’s electric power network and fuel supplies. 

Despite the problems in the southern state, future energy price hikes are not expected, local experts told BNamericas.  

Hundreds of thousands of local consumers are still without electric power, while some hydroelectric plants have halted operations, either because of a lack of capacity to deliver output due to problems with substations or structural problems in hydro dams, such as drowned machines. 

Another reason for the interruption of the plants’ operations is to hold back the floods at the headwaters and avoid higher water levels reaching sensitive areas. 

Meanwhile, various transmission lines have either collapsed or stopped transporting power. 

“These impacts have resulted in approximately 1GW of reduced power availability in the region,” Ingrid dos Santos, CEO of energy trader Indra Energia, told BNamericas. 

On the other hand, Rio Grande do Sul’s power consumption has been temporarily reduced, partially offsetting the supply bottleneck. 

Santos added that the increase in thermoelectric deliveries to compensate for the reduction in the supply of hydroelectricity may have an impact on energy prices over the course of the week, but only to a limited extent given the small share of the southern water reservoirs in the national electricity system. 

Ana Paula Ferme, head of utilities and economic regulation at Thymos Energia, does not foresee a significant loss in energy supply that would proportionally impact the resources available in the southern region. 

This is even with the activation of thermal plants such as state company Petrobras’ UTE Canoas, one of the most expensive in the system, with a variable unit cost (CVU) of 1,115 reais/MWh (US$216/MWh).

"The SIN [national power system] has a significant oversupply of energy, which has kept the PLD [reference price] at a minimum," Ferme told BNamericas. 

In a press release, electricity trading chamber CCEE – which enables the purchase and sale of power in the free market – said it would suspend any proceedings to shut down companies that are suffering the consequences of the floods until there is a final decision from electric power regulator Aneel on the cases. 

With regard to electricity rates in the regulated market, possible increases could be motivated by measures that the federal government may adopt to help distributors and transmitters in the region that are severely affected. 

"So far, there are indications that the government will use extraordinary resources, and not the CDE [energy development account] funds or the creation of a specific account, although the source of these resources has not yet been clearly defined," Ferme said. 

Petrobras' energy transition director Maurício Tolmasquim confirmed during a press conference on Tuesday that national grid operator ONS has asked UTE Canoas to dispatch energy for safety reasons. 

The challenge, according to the executive, is to make the supply of gas to UTE Canoas, Refap and distributors compatible. 

"That's why we ordered an engine to be able to dispatch diesel to the thermoelectric plant as quickly as possible, leaving the gas for Refap and the distributors," said Tolmasquim.  

PANORAMA

With many areas still badly flooded, around 286,000 consumers in Rio Grande do Sul still had their electricity supply interrupted on Monday, according to Aneel. 

Local utility RGE had 43,900 customers cut off, which is equivalent to around 4.7% of the distributor's customers, while CEEE Equatorial had 142,000 clients in the same situation (8.1% of its customers).

The mines and energy ministry (MME) reported that since the floods began about two weeks ago, the number of reconnections in the state has reached 270,000 consumer units.  

After last weekend’s rains, the level of the Guaíba river rose by 40cm, exceeding 5m on Monday, which hampered work throughout the state. Even so, more than 4,000 workers are still engaged in maintaining the electricity system, according to MME. 

Aneel says there are no longer any dams in an emergency situation, as the Salto Forqueta SHPP has changed its status from emergency to on alert. 

The regulatory agency also said that the Nova Santa Rita substation is still offline, which has taken 16 important transmission lines out of operation. 

"This weakens the connection between the transmission systems and leaves the remaining systems overloaded and more susceptible to new contingencies that could lead to load cuts," it warned. 

In the area of fuels, the government highlighted the successful effort to transport liquefied petroleum gas (LPG) from the Alberto Pasqualini refinery (Refap) in Canoas. 

Last Friday, oil and gas watchdog ANP reduced the scope of the temporary flexibilization of the mixture of biodiesel in diesel and ethanol in gasoline in Rio Grande do Sul, applying it only to the municipalities of Canoas, Esteio, Rio Grande and Santa Maria. 

The regulator’s press office told BNamericas that such measures remain in force and that its teams are carrying out daily fieldwork, checking distribution bases, gas stations and LPG retailers. 

"There is product available at the distributors, and deliveries from the Refap refinery are in line with the schedule," the press office said. 

The agency pointed out that some of the fuel stations visited have been found to be short of products, especially in regions that are flooded and are not in condition to operate. 

"These situations have occurred due to the impossibility of access to the stations by fuel delivery trucks – in many cases, lack of access to the city itself – and not because of a shortage or lack of products."

DOWNSTREAM

According to Moody's, Petrobras unit Braskem halted operations at its Triunfo petrochemical complex, which accounts for around 30% of its ethane production in Brazil, but suffered no flood damage to its industrial assets, and the company will produce elsewhere to compensate for any losses in volumes. 

Fuel distributors Vibra Energia, Ultrapar and Raízen have a national presence, with certain assets in Rio Grande do Sul, which had a 6% share of Brazil's fuel market in 2023, and whose flooded and damaged roads have disrupted vehicle traffic in certain areas. 

"However, the drop in fuel sales in May 2024 will be diluted among the companies' full-year results when operations normalize after the heavy rains," said the rating agency. 

Petrobras continues to operate Refap, but with a reduced load of around 20,000m3/d, said the company's director of industrial processes and products, William França, during a Tuesday press conference. 

The Rio Grandense refinery, in which Petrobras has a stake, had its operations halted. 

 "It's important to note that, because we are an integrated company, with great synergy between our refineries, we are able to supply, if necessary, the south with other refineries. Therefore, the financial impact is practically zero," said França. 

WEATHER CONDITIONS 

Alexandre Nascimento, managing partner and meteorologist at consultancy Nottus, said that in the last two weeks, the highest volumes of rain in Rio Grande do Sul have ranged from 600cm to 900cm. 

"The excess water, in a short space of time, collapsed the state, causing Jacuí and Taquari rivers to overflow and fill the region of lake Guaíba and Lagoa dos Patos," he told BNamericas. 

A new rain front advanced last weekend, leading the levels of the rivers, lake and lagoon to rise again. The volume of rain was lower, but the water fell on areas that were already very waterlogged. 

According to Nascimento, new cold fronts should continue to move over the region in the coming weeks, keeping the region on alert. According to the ONS, on May 13, the Jacuí river was at 91.7% of its total storage capacity, the Uruguay river 95% and the Iguaçu river 80.2%.

"The flows are much higher than normal and should continue to be so, due to the continued rainfall," said Nascimento.