- A worsening drought across Brazil, which has stoked record wildfires and withered crops, now threatens the country’s power supply.
- The Ministry of Mines and Energy said in a statement that the government is also in talks with Paraguay to temporarily raise the water level at the Itaipu Dam.
A worsening drought across Brazil, which has stoked record wildfires and withered crops, now threatens the country’s power supply, raising the risk of higher prices and blackouts in South America’s largest economy.
Hydroelectric plants supply more than half of Brazil’s power, typically at low cost. But the reservoirs that feed those plants are shrinking in the drought. Dams in Brazil’s Southeast-Midwest region are at an average of 57 per cent of total capacity, according to the country’s power grid operator, known as ONS. That’s down from 68 per cent in June. A year ago, they were above 78 per cent.
“The situation is serious,” said Ana Paula Ferme, head of utilities at Thymos Energia, an energy consultancy in Sao Paulo. “The impacts range from energy supply risks to inflation, requiring coordinated actions to mitigate consequences.”
To prevent shortages, the country may need to rely on power plants that burn coal, natural gas, diesel, and biomass. However, these plants’ electricity is more expensive than hydropower, potentially hurting Brazil’s economy, said Juliana Inhasz, an economics professor at the Insper Institute of Education and Research.
The environmental damage has been even more alarming. A record number of fires have struck Sao Paulo, Brazil’s wealthiest state, while other blazes have scorched portions of the Amazon rainforest and the Pantanal wetland. The cities of Bauru and Piracicaba face water rationing.
Since July, all fossil-fuel power plants in Brazil have been notified to prepare for more intense use in the second half of the year. The Ministry of Mines and Energy said in a statement that the government is also in talks with Paraguay to temporarily raise the water level at the Itaipu Dam on the border between the two countries to increase its electric output.
According to Victor Iocca, director at Abrace, an association representing large energy consumers, the government is paying industries to reduce electricity use during peak hours through auctions organised by ONS. Companies offer to cut their consumption at a specific time for a certain price, and ONS decides the best option between the companies’ bids and the use of thermal power plants.
Either way, Brazil’s energy prices are set to increase this year, adding to inflation in an economy reliant on cheap hydroelectricity. Caio Megale, chief economist at investment management firm XP Inc., said in an interview that his company’s current inflation estimate for the year — 4.4 per cent — could climb to 4.5 per cent as power prices rise.
“ONS’s outlook indicates the possibility of critical levels in some reservoirs if the drought persists and the rainfall pattern does not improve significantly in the coming months,” said Thymos’ Ferme.