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Wednesday, May 25, 2016
- Brazil, which boasts that it has one of the cleanest energy mixes in the world, is now plagued by corruption, poor market conditions, and bad decisions – a near fatal combination.
Brazil’s energy mix is made up of 42 percent renewable sources, three times the global average.
But the country also hopes to become a major oil exporter, thanks to the 2006 discovery of the “pre-salt” wells – huge reserves of crude under a thick layer of salt far below the surface, 300 km from the coast.
Megaprojects involving the construction of refineries and petrochemical plants, dozens of shipyards that mushroomed up and down the coast, and the dream of turning the new oil wealth into a better future lost their charm in the face of the corruption scandal that broke out in 2014, revealing the embezzlement of billions of dollars from the state oil giant Petrobras.
Nearly 200 people are facing charges in the scandal for paying or receiving kickbacks for inflated contracts. Around 50 of them are politicians, most of them still active members of Congress.
The heads of the country’s biggest construction companies were arrested, which dealt a blow to the real estate market and major infrastructure works nationwide.
The investigations took on momentum when over 30 of those facing prosecution struck plea bargain deals, agreeing to cooperate in exchange for shorter sentences.
The scandal is one of the main elements in the economic and political crisis shaking the country, which saw an estimated drop in GDP of more than three percent in 2015, rising inflation, a dangerously high fiscal deficit, a threat of impeachment hanging over President Dilma Rousseff and chaos in parliament.
Besides the corruption scandal, Petrobras has been hit hard by the collapse of oil prices, which has threatened its investment in the pre-salt reserves, and by the losses it accumulated during years of government fuel-price controls.
The government took advantage of Petrobras’ monopoly on refining to curb inflation by means of price controls, mainly for gasoline.
But the oil company scandal, which broke out after the October 2014 elections in which Rousseff was reelected, fuelled the growth of inflation, to over 10 percent today.
With Petrobras in financial crisis and selling off assets to pay down its debt, none of the four planned refineries has been completed according to plan. The only one that was finished is operating at only half of the planned capacity.
Most of the shipyards, which were to supply the oil drilling rigs, offshore platforms and tankers involved in the production of pre-salt oil, have gone under, and the government’s plans to build a strong naval industry have floundered.
The priority put on oil production, to the detriment of the fight against climate change, along with subsidised gasoline prices dealt a major blow to ethanol, which was enjoying a new boom since the emergence in 2003 of the flexible fuel vehicle, specially designed to run on gasoline or ethanol or a blend of the two.
The innovative new technology revived consumer confidence in ethanol, which had been undermined in the previous decade due to supply shortages. With the flex-fuel cars, consumers no longer had to depend on one kind of fuel and could choose whichever was cheaper at any given time.
The use of ethanol, which is consumed in nearly the same quantities as gasoline in Brazil, broke the monopoly of fossil fuels, making a decisive contribution to the rise in the use of renewable energies.
But gasoline price subsidies drove many ethanol plants into bankruptcy and led to the sale of one-third of the sugarcane industry to foreign investors. Many local companies, facing financial disaster, sold their sugar mills and distilleries to transnational corporations like Bunge, Cargill, Louis Dreyfus and Tereos.
Brazil has practically given up on the idea of creating an international market for ethanol, after initially encouraging consumption and production of the biofuel made from sugarcane. Former president Luiz Inacio Lula da Silva (2003-2010) was very active in this campaign, unlike his successor Rousseff.
Another decisive factor in achieving a more renewables-heavy energy mix is the predominance of hydroelectricity in the generation of electric power. In recent years, wind power has grown fast, and the use of biomass from sugarcane bagasse has also expanded, although to a lesser extent.
But the construction of giant hydropower dams in the Amazon jungle, such as Belo Monte on the Xingú River, has drawn strong opposition from indigenous communities and environmentalists, which, along with legal action by the public prosecutor’s office, has brought work on Belo Monte to a halt dozens of times.
As a result, work on the dam has been delayed by over a year. One of the latest legal rulings suspended the plant’s operating permit, and could block the filling of the reservoirs, which was to start in March this year.
When the plant comes fully onstream in 2019, Belo Monte will have an installed capacity of 11,233 MW. But during the dry season, when water levels in the river are low, it will generate almost no electric power. The flow of water in the Xingú River varies drastically, and the reservoir will not store up enough water to fuel the turbines during the dry months.
The dam has come under harsh criticism, even from advocates of hydropower, such as physicist José Goldemberg, a world-renowned expert on energy.
The controversy surrounding Belo Monte threatens the government’s plans for the Tapajós River, to the west of the Xingú River – the new hydroelectric frontier in the Amazon. For the last two years, the Rousseff administration has been trying to find investors to build and operate the São Luiz del Tapajós dam, which would generate 8,040 MW of electricity.
The presence of the Munduruku indigenous community along that stretch of the river and in the area of the São Luiz dam has stood in the way of the environmental licensing process.
The diversity of sources in Brazil’s energy mix, lessons learned from earlier negative experiences, and the complexity of the integrated national grid make decisions on energy almost a game of chance in this country.
Hydroelectric dams built in the Amazon rainforest in the 1980s, like Tucuruí and Balbina, caused environmental and social disasters that tarnished the reputation of hydropower. Belo Monte later threw up new hurdles to the development of this source of energy.
Another alternative source, nuclear energy, also brought negative experiences. Completion of the country’s second nuclear plant, still under construction in Angra dos Reis, 170 km from Rio de Janeiro, has long been delayed.
It formed part of a series of eight nuclear power plants that the military decided to build, during the 1964-1985 dictatorship, signing an agreement in 1975 with Germany, which was to provide technology and equipment.
Economic crisis brought the programme to a halt in the 1980s. One of the plants was completed in 2000 and the other is still being built, because the equipment had already been imported over 30 years ago. The final cost overruns will be enormous.
For the government and the different sectors involved in policy-making in the energy industry, giving up hydropower is unthinkable.
But the advances made in wind power, new energy storage technologies, and especially the reduction of costs in the production of solar power increase the risk of making large hydropower dams, which are built to operate for over a hundred years, obsolete.
Edited by Estrella Gutiérrez/Translated by Stephanie Wildes