march /2006 jerson kelman director-general aneel electric sector framework platts 10th brazil energy...
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March /2006
Jerson KelmanDirector-GeneralANEEL
ELECTRIC SECTOR FRAMEWORK
ELECTRIC SECTOR FRAMEWORK
Platts 10th Brazil Energy Conference
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João Pessoa
Jacui
Porto Alegre
Florianópolis
Curitiba
São Paulo
Rio de Janeiro
Paraíbado Sul
Uruguai
Vitória
BeloHorizonte
Itaipu
Grande
Paranaíba
Paraná/Tietê
Campo Grande
Iguaçu
Tocantins
Belém
São Francisco
Parnaíba
São Luís
Teresina
Fortaleza
Natal
Recife
Maceió
Aracajú
SalvadorCuiabá
Goiânia
Brasília
Paranapanema
Argentina
Installed Cap. = 92,865 MW• Hydroelectric = 71,060 MW - 76.5 %• Thermal = 19,798 MW - 21.3 %• Nuclear = 2,007 MW - 2.2 %
Consumption Units = 56.3 million Energy Production = 335,4 TWh/y (55% of South America) Peak Load = 60,910 MW (United Kingdom or Italy)
HV Transmission Lines = 84,512 km
Source: MME/ANEEL (Jan 2006)
Generation: 2000 plants 10 largest companies account for 70% of the installed capacity; 3 of them are private Altogether, of the installed capacity…
15% private Transmission: 26 utilities
60% private Distribution: 64 utilities
80% private
Brazilian Electricity SystemBrazilian Electricity System
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Brazilian Electricity Mix (TWh) 2005
Source: MME / BEN 2005 / EPE
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Percentage of potential hydroelectric in operation
100
83
64 61 6055
4537
21 18 1611 6 4 1
24
0
10
20
30
40
50
60
70
80
90
100
France
Ger
man
y
Japan
Norway
USA
Switzla
ndIta
ly
Canad
a
BRAZILIn
dia
Colom
bia
China
Russia
Peru
Indon
esia
Congo
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Short term marginal cost – spot price (US$ / MWh)
0
50
100
150
200
250
300
350
ago/
95
nov/9
5
fev/9
6
mai/
96
ago/
96
nov/9
6
fev/9
7
mai/
97
ago/
97
nov/9
7
fev/9
8
mai/
98
ago/
98
nov/9
8
fev/9
9
mai/
99
ago/
99
nov/9
9
fev/0
0
mai/
00
ago/
00
nov/0
0
fev/0
1
mai/
01
ago/
01
nov/0
1
fev/0
2
US
$/M
Wh
In a predominantly hydro system, spot prices are usually low; when they rise, because of the drawdown of the reservoirs, it is too late for new investments
In a predominantly hydro system, spot prices are usually low; when they rise, because of the drawdown of the reservoirs, it is too late for new investments
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2004 Power Sector Model• Motivation
– Skyrocketing energy costs
– Severe rationing in 2001-2002 (20% of the country’s energy consumption)
– 12 million people without access to electricity
• Main Features
– Introduce efficient contracting mechanisms for captive consumers
– Ensure reliable supply for all consumers (Government planning & environmental license)
– Universal access, with special tariffs for low-income consumers
– End of dealing between generators and distributors, including self-dealing; generators now bid to meet de aggregated demand of a pool of distributors
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Existing generation
2005 2006 2007 2008 2009 2010 2011 2012
Existing PPA’s
Demand
Old Energy
New energy(expansion projects)
Old and New Energy
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Results of the Energy Auctions
100% 100% 100% 98,8% 94,3% 94,7%
0%10%
20%30%40%
50%60%70%80%
90%100%
2005 2006 2007 2008 2009 2010
Percentage of demand covered by
PPA’s
PPA’s Old energy: US$ 39.0 bi New energy: US$ 29.6 bi Total: US$ 68.7 bi
Average Price (US$/MWh)
41.27 36.14
32.81 29.27 25.00
50.92 55.55 55.28
-
10
20
30
40
50
60
2005 2006 2007 2008 2009 2010
Beginning of Supply
US$
/MW
h
Old Energy New Energy
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Generation
Free Consumers
Captive Consumers
Free Consumers
DistributionTransmission
Distribution Distribution Tariff Tariff
Financial flux
TUSTTUST TUSD TUSD
TUSD - TUSD - Distribution network charge + taxes
TUST – Distribution network charge + taxesDistribution Tariff = Energy + TUSDDistribution Tariff = Energy + TUSD
PPA – Power Purchase Agreement
TUSTTUST
TUSTTUST
PPA (energy)
PPA (energy)
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Distribution tariffs (1/6)
Who pays?
Service Revenue
B3B3
Taxes
TETE
((energy)energy)
Infrastructure
Distribution network Distribution network chargecharge
B2B2 B4B4B1B1A4A4A3A3A2A2
captive consumerscaptive consumers
A3A3
Distribution network Distribution network chargecharge
A4A4A2A2
Free consumersFree consumers
TaxesInfrastructure
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Annual adjustmentAnnual adjustmentof the tariffsof the tariffs
Periodic revision Periodic revision of the tariffsof the tariffs
Signature Signature of the contractof the contract
Distribution tariffs (2/6)
Annual Adjustment & Periodic Revision
1999 2000 2001 2002 20042003
Extraordinary revision Extraordinary revision of the tariffsof the tariffs
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RS = Pass-through Costs + Controllable Costs
Distribution tariffs (3/6)
Composition
Energy Purchase
+
Transmission Cost
+
Public Charges
O&M+
Investors’ Payment+
Assets Depreciation
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Controllable CostsControllable Costs
x
Investors´ Payment ($)Reintegration of depreciation
Expenses ($)+
Net Asset-baseNet Asset-base valuevalue
Net Asset-baseNet Asset-base valuevalue
Rate ofRate ofreturnreturn
Rate ofRate ofreturnreturn
O&M Costs ($)+
xGrossGross
Asset-baseAsset-baseValueValue
GrossGrossAsset-baseAsset-base
ValueValue
DepreciationDepreciationRateRate
DepreciationDepreciationRateRate
ReferenceReferenceFirm Firm
ReferenceReferenceFirm Firm
Distribution tariffs (4/6)
Controllable costs
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Distribution tariffs (5/6)
Gross Asset Value
0%
20%
40%
60%
80%
100%
120%
140%
% Gross/IPCA Medium IPCA = 103.24% % Gross/IGPM Medium IGPM = 79.86%
Brazilian Index: IGP-M = General Market Price Index IPCA = Broad Consumer Price Index
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Distribution tariffs (6/6)
Net Asset Value
0%
20%
40%
60%
80%
100%
120%
140%
%Net/IPCA s/ ADM Medium IPCA = 89.13% %Net/IGPM s/ ADM Medium IGPM = 68.07%
Brazilian Index: IGP-M = General Market Price Index IPCA = Broad Consumer Price Index
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Generation
Distribution 26,43%
Public Charges & Taxes
34,00%
Transmission 7,80%
Electricity Rate Composition
31,77%
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0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
Tariff of domestic consumersR
$/M
Wh
November 29, 2005
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Which institution is in charge? (1/2)
Policy
• Congress• National Council of Energy Policy – CNPE
Long Term Planning (supply and demand balance)
• Ministry of Mines and Energy – MME
• Energy Research Company – EPE
Regulation
• Brazilian Electricity Regulatory Agency – ANEEL
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Which institution is in charge? (2/2)
System Operation
• National Operator of the Power System – ONS
Monitoring and coordination
• Electric Sector Monitoring Committee – CMSE
Accounting and clearing• Chamber of Commercialization of Electric Power
– CCEE
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• Independent decision-making by the Board in public meetings
• Administrative autonomy
• Board members are approved by the Senate and have mandates
• Responsibilities:
Legislative: regulation (rules)
Judiciary: settling disputes
Executive: technical and economical auditing, authorizations &
auctions (by delegation)
ANEEL
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ANEEL’s equilibrium
ANEELANEEL
• Reasonable tariffs • Quality of service• Guarantee of rights
• Reasonable tariffs • Quality of service• Guarantee of rights
• Adequate remuneration• Contracts honored• Predictable and clear rules
• Adequate remuneration• Contracts honored• Predictable and clear rules
• Access to all• Inflation control• Access to all• Inflation control
Consumers
Government Agents
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ANNEL’s challenges
• Achieve administrative autonomy
• Maintain technically capable staff (presently underpaid)
• Improve regulation methodology based on the
first cycle of tariff reviews
• Establish a better connection between quality
of service and cost
(consumer’s desire X ability to pay)
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• Legal, institutional and macroeconomic stability
• Environmental Licensing
• Regulatory stability
Remaining risks of investments in infrastructure