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Addressing the impacts of Brazilian drought in hydropower generation

Introduction

Brazil has 218 hydropower plants now operating1, for a total capacity of 101,883MW, representing the source of 60% of the country's energy2. In addition, another six hydropower plants, with a total capacity of 1,254MW, are under construction.

In the past years Brazil has been suffering from scarcity of water, resulting in a substantial reduction of some of its main rivers' flow rate and significantly impacting hydropower energy generation, which is a water-intensive form of power and is extremely vulnerable to droughts. Due to the crisis, the São Francisco River Basin, an important basin for the Brazilian economy, had to reduce the flow rate of its main hydropower plants (Sobradinho and Xingó) from an average of 1,300m³/s to a daily average of 600m³/s.3 If those measures had not been adopted, the Sobradinho reservoir would have exhausted its usable storage volume by November 2014. In 2016, a severe drought also affected the Itaipu Dam, forcing the country to increase the use of thermoelectric plants.4

Water scarcity is not due only to higher temperature and lower precipitation, but also because of mismanagement of water resources that sometimes fails to balance all the different kinds of water uses. For these reasons, hydropower plants have been forced to adapt their water needs, resulting in unforeseen additional expense and legal uncertainty. Although rules to control availability of water to hydropower plants are already in place, Brazil is reviewing new regulatory measures to guarantee harmonic coexistence of different uses of water, as will be discussed in this article.

Current rules on water management

The Brazilian National Policy on Water Resources was established by Federal Law 9,433/1997. Under the national policy, the Water Resources Plan and Water Grants are treated as essential instruments for sustainable coexistence of water uses. The former establishes priority water uses for issuance of the water grants, while the latter controls the offer of water for multiple uses.

Once a certain new water use is included as a priority under the Water Resources Plan, before issuing the Water Grant, the competent agency analyzes its impacts in the basin, water availability and potential conflicts with existing users (Federal Law 9,433/1997, article 13). In general, this procedure aims to preserve multiple water uses and reduce conflicts among users.

When it comes to hydropower plants of more than 1MW capacity, prior to the bidding procedure, ANEEL5 must obtain from the competent agency a statement of hydraulic availability6 7 to ensure water availability for energy generation while the plant is designed and implemented. Before issuing the statement, the agency analyzes current and planned water uses for the river basin, as well as the hydropower benefits (ANA8 Resolution 131/2003). Once the concession agreement for the new hydropower plant is signed, the statement is converted into a water grant.

Although government control by means of a hydraulic availability statement and water grant should in theory avoid conflict and ensure the project's hydraulic viability, they do not guarantee that reservoirs have enough water to produce the amount of energy provided by contract and that water grants will not be suspended due to scarcity issues. That is precisely what happened, for instance, in the Paraíba do Sul River Basin where, due to the drought and in order to enable other water uses, the ANA passed a number of resolutions reducing the flow rate of Santa Cecilia hydropower plant from 190m³/s (in 2014) to 110m³/s (in 2015).9 This conflict had to be solved by the Brazilian Superior Court of Justice, where an agreement was signed among the parties involved.10

To address the impact of droughts on hydropower generation, Federal Law 13,203/2015 provides that hydropower plants may renegotiate their hydraulic risks, as long as ANEEL agrees. Criteria and guidelines for renegotiating such risks were established by ANEEL Resolution 684/2015.

Even with the possibility of renegotiating the hydraulic risks, hydropower plants still face legal uncertainty, which has an impact on energy pricing and results in the need to implement new measures to reduce scarcity due to mismanagement, such as the ones discussed below.

Regulatory measures to improve water management under discussion

Apart from water grants, there is much debate over measures to allocate water resources for multiple uses, such as implementing a water market. Inspired in legislation adopted in the USA, Australia, Chile and Spain, the Brazilian Congress is currently debating Bill 495/2017, which establishes a water market to improve allocation of water resources, especially in cases of water conflicts. Within the water market, water rights under water grants could be bought and sold between users of the same river basin. The market aims at efficient allocation of water resources by offering economic benefits to users who are using less water than they are allowed to, and creating a useful tool for new users and for dealing with water scarcity.

The Explanatory Notes to the Bill mention that hydropower generation may benefit from negotiation rules by which, for instance, a group of users could negotiate with the plant to increase or reduce its discharge flow in order to address their need of water. However, if the opposite occurs (hydropower plants need more water for their reservoirs), it is not clear whether the plants would benefit from the Bill, since they would have to negotiate with several water users in order to obtain an effective increase in their reservoir level.

Apart from the Bill, the CNRH is currently reviewing a draft resolution that establishes guidelines and criteria to be included in the Water Resources Plan in order to determine priority uses in scarcity situations. Like the water market, the draft resolution prioritizes collective agreements among users, enabling them to negotiate their water rights in scarcity situations.

If properly implemented, the above measures should help reduce the legal uncertainties of hydropower generation, since the plants will be able to negotiate water allocation with other users in case of droughts.

Conclusion

The Brazilian water crisis is due to lower precipitation levels, but also to mismanagement of multiple uses of water. Hydropower plants are water-intensive and their energy production has been negatively impacted by water scarcity, resulting in failure to meet contractual power generation targets, legal uncertainty, and higher energy prices. In order to address these issues and support sustainable water management, the Brazilian government is currently discussing regulatory measures, including the implementation of a water market, which will reallocate water use, and prioritize collective agreement among water users.

However, as with any complex issue, water conflicts will hardly be resolved by a single measure – a series of integrated actions will be required. According to the World Bank, by 2035 the world's energy consumption will increase by 35 percent, while water consumption will increase by 85 percent. Thus, although Brazil is moving in the right direction to enhance legal certainty for hydropower plants, it needs to move faster to approve and implement the new measures.

References

Ana estabelece novas condições para operação de reservatórios da Bacia do São Francisco, Agência Nacional de Águas, (Dec. 12, 2017), http://www3.ana.gov.br/portal/ANA/noticias/ana-estabelece-novas-condicoes-para-operacao-de-reservatorios-da-bacia-do-sao-francisco (last visit March 14, 2018).

Banco de Informações de Geração, National Electric Energy Agency (Agência Nacional de Energia Elétrica – ANEEL). http://www2.aneel.gov.br/aplicacoes/capacidadebrasil/capacidadebrasil.cfm (last visit March 14th, 2018).

BRAZIL. Federal Law 9.433/1997.

BRAZIL. National Water Agency (Agência Nacional de Águas – ANA). Resolution 742/2017.

BRAZIL. National Water Resources Council (Conselho Nacional de Recursos Hídricos – CNRH), Resolution 16/2001.

BRAZIL. National Water Agency (Agência Nacional de Águas – ANA), Resolution 145/2015.

Brazilian Superior Court of Justice (Supremo Tribunal Federal – STF), Luiz Fux, Ação Civil Originária 2550 (2015).

Declaração de Reserva de Disponibilidade Hídrica – DRDH, National Water Agency (Agência Nacional de Águas – ANA), http://www2.ana.gov.br/Paginas/servicos/outorgaefiscalizacao/drdh.aspx (last visit March 14th, 2018).

Jiao Wang, et al., No Water, No Power. World Resources Institute (Jun. 29, 2017), http://www.wri.org/blog/2017/06/no-water-no-power (last visit March 14th, 2018).

Outorga de Direito de Uso de Recursos Hídricos. Cadernos de Capacitação em Recursos Hídricos, Volume 6, Agência Nacional de Águas (2011), www.ana.gov.br (last visit March 14, 2018).

Water Shortages Slow Energy Production Worldwide, Worldbank (Jan. 20, 2014), http://www.worldbank.org/en/news/press-release/2014/01/20/water-shortages-energy-production-worldwide (last visit March 14, 2018).


  1. Not including small hydropower plants.
  2. Banco de Informações de Geração, National Electric Energy Agency (Agência Nacional de Energia Elétrica – ANEEL). http://www2.aneel.gov.br/aplicacoes/capacidadebrasil/capacidadebrasil.cfm (last visit March 14th, 2018).
  3. BRAZIL. National Water Agency (Agência Nacional de Águas - ANA). Resolution 742/2017.
  4. Jiao Wang, et al., No Water, No Power. World Resources Institute (Jun. 29, 2017), http://www.wri.org/blog/2017/06/no-water-no-power (last visit March 14th, 2018).
  5. National Electric Energy Agency (Agência Nacional de Energia Elétrica – ANEEL)
  6. Declaração de Reserva de Disponibilidade Hídrica – DRDH, National Water Agency (Agência Nacional de Águas – ANA), http://www2.ana.gov.br/Paginas/servicos/outorgaefiscalizacao/drdh.aspx (last visit March 14th, 2018).
  7. BRAZIL. National Water Resources Council (Conselho Nacional de Recursos Hídricos – CNRH), Resolution 16/2001, article 11.
  8. National Water Agency (Agência Nacional de Águas - ANA)
  9. BRAZIL. National Water Agency (Agência Nacional de Águas – ANA), Resolution 145/2015.
  10. Brazilian Superior Court of Justice (Supremo Tribunal Federal – STF), Luiz Fux, Ação Civil Originária 2550 (2015).
  11. National Water Resources Council (Conselho Nacional de Recursos Hídricos – CNRH)
  12. Water Shortages Slow Energy Production Worldwide, Worldbank (Jan. 20, 2014), http://www.worldbank.org/en/news/press-release/2014/01/20/water-shortages-energy-production-worldwide (last visit March 14th, 2018).