Brazil urged to extend hydropower plant concessions to lessen generators’ risks

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Brazil hydropower generation plants complying with the renegotiation of hydrological risk factor (GSF) in the free market environment should be granted on average a nearly two-year concession extension, according to the country’s electricity commercialization chamber CCEE.

According to BNamericas, CCEE said that 493 undertakings would be eligible for the extension. Two-thirds of these (67%) would be for up to two years, with another 116 that could be granted between two and four years, 43 more than four years and 19 up to the regulatory limit of seven years.

GSF measures the shortfall between a hydroelectric plant’s physical guarantee and the energy that is effectively generated. Inflated by a scenario of drought in recent years, the electricity contracted but not produced exposed hydro generators to the short-term market. The power generators took legal action, claiming they should not bear the burden of hydrological risk, and obtained injunctions to avoid paying for such exposure.

The lawsuits have hindered negotiations in the market and brought uncertainties for companies and investors. To solve the problem, the mines and energy ministry (MME), regulator Aneel and CCEE proposed renegotiation of the debt last year.

CCEE claims that the compensation for generators totals BRL15.7 billion (US$2.8 billion), which would be remunerated by the end of their concessions. To benefit from the government’s offer, the companies would have to withdraw the lawsuits. The chamber sent the amount to Aneel on Monday.

Walfrido Avila, president of consultancy firm Tradener Comercializadora de Energia, told BNamericas this was a clever, but palliative, solution. “This was a solution for the power generators with the GSF, not for the GSF. This problem will continue, and generators could file new lawsuits in the future,” he said.

In January, Brazil registered an 86% GSF, meaning the plants generated only 86% of their guaranteed volume and those participating in the MRE (energy reallocation mechanism) will have to pay CCEE for the other 14%.

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