With an improvement in the hydrological framework, regulatory adjustments and energy auctions, SHPs want their space between wind and solar

[02.12.2016] 8:00 pm / By Fabio Couto – Revista Brasil Energia

After years of waiting, the market for small hydroelectric plants (PCHs) is beginning to recover a certain optimism about the future. With recent regulatory changes, more attractive prices and greater demand for renewable generation, SHPs are once again being watched carefully by the market, bringing hope to a production chain that has not been seeing clearer horizons for traditional hydroelectric generation.

It does not mean that the era of larger hydroelectric plants is over, but the large Amazon projects of Santo Antônio, Jirau and Teles Pires are at the end of the works (Belo Monte still has a considerable front, but it has already bought all the project's turbines) and the Possible projects that could be explored face environmental problems that impede their feasibility – just the Santa Isabel, São Luiz do Tapajós, Jatobá and Marabá plants, for example, add up to around 13,500 MW of installed capacity. But there is no inventory of projects capable of keeping the activity high.

But the signals emitted by the small power stations indicate that Franciscan times are over for the hydroelectric market. The order is to grow.

The recent result of the reserve auction confirms the upward trajectory of this sector, although the result was not as expected (read issue 432, of November 2016). From the auctions held in 2013 to the reserve auction in September, 93 small plants were contracted for the long term, corresponding to an installed capacity of 1,441 MW (see graph).

The situation excites manufacturers and service providers. This is the case of Cotesa, which specializes in operation and maintenance for the segment. The Santa Catarina also owns three PCHs, is trying a fourth plant and does not rule out investing in new units. According to the vice president of Cotesa, Diomar Wechi, the SHP market is starting to resume activities, but the segment still depends on adjustments to improve its attractiveness. One of the challenges is to reduce bureaucracy for small projects, treated in the same way as a larger hydroelectric plant.

Cotesa felt the difficulty firsthand, as it was unable to qualify the SHP Nova Trento due to the lack of a document required by the notice, even having made the request a year before the established deadline.

Better regulation, more investments

Even with obstacles, however, the situation is already better, given the changes made by Aneel in the analysis of SHP projects. Cotesa itself intends to compete in other auctions, as well as offering its services to entrepreneurs in the segment. João Junklaus, president of the company, informed that a few years ago Cotesa saw the need to work in generation, especially in SHPs, after 20 years operating in the O&M area in transmission systems.

The waiver of the basic project, which was replaced by the executive summary of the studies developed as the main analysis document, in addition to the resetting of the deadlines for granting plants with delays in implementation due to acts of the government, encouraged the sector.

To give you an idea, before 2015, the analysis time for a SHP process took at least three years, until it was released. After resolution 673/2015, which modified the procedures for analyzing the plants, the average term was 143 days in the same year of 2015, rising to 62 days in 2016.

And the outlook is even more optimistic for the market, which is now focusing its attention on the next A-5 new energy auction. The segment expects the bidding to take place in the first quarter of 2017, with an eye on the recovery of the country's economy, which is still stagnant but may have a higher pace in 2022, when the projects are in commercial operation, says Leonardo Sant 'anna, president of the Brazilian Association of Clean Energy Generation (Abragel).

Currently, the country has 445 SHPs and 565 CGHs in operation, which total installed capacity of, respectively, 4,875 MW and 453.5MW - in all, the two together totaled 3.3% of the total installed capacity on November 2, 2016, according to data from Aneel.

CGHs are plants that have an installed capacity of up to 3 MW, with a drop height of up to 100 m, while SHPs have between 3 MW and 30 MW (when destined for concession). Plants aimed at independent production and self-production can have up to 50 MW of installed capacity. The height of fall of the dams varies between 25 m and 130 m.

On that date, the agency recorded 34 plants under construction, including SHPs and CGHs, totaling 449.3 MW, and another 160 undertakings whose construction has not yet started, with a total power of 1,761.9 MW (see table).

The biggest problem, in this case, is that there are at least 27 mills with a low probability of exiting the paper within the period foreseen by Aneel. In fact, there is no forecast of when this will happen, as is the case of the 23 MW Água Limpa Multifase SHP, which would be built on the Goio-Erê river, in the state of Paraná, and should enter into commercial operation in December 2010 – six years later, the plant has still not come off the ground due to environmental impasses that prevent the granting of the prior license.

The environmental issue is seen as one of the problems that have been preventing plants from entering auctions more quickly. In the view of Wechi, from Cotesa, one of the necessary adjustments is the qualification of environmental analysts, who do not know the particularities of generation projects, establishing bureaucracies that delay the granting of licenses.

In addition, according to Adriana Coli, partner at the law firm Coli & Lafuente Advocacia, specialized in infrastructure and the environment, another factor is the civil and criminal liability of environmental agencies in licensing processes, rather than on the licensing agency.

For her, there is already the formation of a culture of elaborating good projects and governments could review issues related to procedures that could facilitate the implementation of the plants. “[Making good projects] is already something that is internalized in the good entrepreneur, there is already an awareness”, she evaluates. Adriana emphasizes that simplifying does not mean establishing “simplism” in the granting of licenses.

For the president of Voith, Marcos Blumer, SHPs still face a process almost as complex as that of a large plant, even taking into account the lesser interference in the environment and social environment. “All these issues, taken together, make it difficult to develop one of the best energy generation options that the Brazilian electricity matrix has”, highlighted the executive.

New names and old acquaintances. Obviously, the market is keeping an eye on what the government is preparing for the source, especially in times of tariff and regulatory realism.

The entry into force of law 13.360/2016, in November, also brought some setbacks for the source. For those who have not yet linked "the name to the person", the law is the conversion of Provisional Measure 735.

And one of the articles establishes the end of the exemption of SHPs in the payment of the Financial Compensation for the Use of Water Resources (CFURH) at the time of renewal of the grant (in this case, authorization) of the enterprise, starting to pay 50% of the charge, in addition to the Use of Public Good, and having part of this revenue redirected to the CDE (Energy Development Account).

Even so, however, the bet on SHPs is being supported only by companies that are not traditional investors in energy, but already have experience in smaller generation and less exposure.

One of them is Mauê, controlled by rural cooperatives, including dairy and animal products producers Aurora and Auriverde. Located in Santa Catarina, Mauê already has two plants: Flor do Sertão, with 16.5 MW, which traded energy through Proinfa (“the best price on the market today”, according to him), and São Jorge, with 8 .7 MW, whose implementation was financed by Aurora, one of the partners.

In the reserve auction held in September, the company contracted two more SHPs: Barrinha (3.3 MW) and Lambari (4 MW). According to the technical director at Mauê, João Carlos Sloss, the company had already been developing the two new PCHs since 2008, aiming at the free market, but could only make them viable in this auction, given the more attractive price for the projects. “It was one of the opportunities to make it possible. If it wasn't for the price improvement, we wouldn't build it,” said Sloss. Mauê also has another project, of 4 MW, under analysis by Aneel, which still depends on an environmental license by the state agency, in Santa Catarina (Fatma), which will be available for auction in the coming years.

In addition to Mauê, traditional entrepreneurs from other markets in the electricity sector also turn to the source. Enel, for example, announced its plan to invest in SHPs, after implementing its first ventures from the source in the country through its subsidiary Enel Green Power. “We want to continue growing in Brazil with similar, medium-sized plants”, loves Carlo Zorzoli, president of Enel. The Italian purchased the projects of the Cabeça de Boi (30 MW) and Fazenda (27 MW) and the Salto Apiacás (45 MW) SHPs from Bertin and modified them to make them more competitive.

Along the same lines, one of the oldest energy traders in the country, which participated in the first free market contract, Tradener entered the business by selling 6.68 average MW of the Tamboril SHP (15.8 MW), located in Goiás , at a selling price of R$232.50/MWh.

With an investment of R$110 million, the plant will be part of a block of renewable generation projects. “We are investing in wind farms and SHPs, as well as high-performance organic photovoltaic cells,” said Walfrido Avila, president of Tradener.

Tradener's plan is to have, in the near future, around 50% of the trading portfolio with renewable energy generation projects. For that, according to Avila, the company depends on the government to decide how the financing of projects in the sector should be. “We are waiting for the new government to untie the financing knot by BNDES for generation projects for the free market”, he added.

In the view of Paulo Arbex, president of AbraPCH, one of the points that would need to be revised is the condition offered by the BNDES for SHPs, of financing up to 70% of the investment, against 80% for wind and solar plants - considering that hydroelectric plants have a 100% national industry, while other sources still rely on imported components.

With the arrival of more entrepreneurs, suppliers and service providers are also moving to resume business. This is the case of GE Hydro, which formed a task force to update products that follow a concept of worldwide standardization, which brings advantages in terms of cost and implementation time. Maintenance and operation can also be included in the package, depending on investors' plans. Roberto Miranda, GE Hydro's commercial manager for Brazil, recalls that since 2008 auctions have not been held as has been taking place in the country.

Andritz's strategy is to work projects in a turnkey scheme, including construction in the package. The idea, reveals the president of Andritz, Sergio Parada, is to start working in Brazil with CGHs, but in distributed generation, as the company largely does in Europe.

In Voith's view of Blumer, SHPs help to utilize part of the available capacity of the electromechanical components industry. The industrial park installed in Brazil is dimensioned to serve various segments of hydraulic generation, from large to SHPs. "The industry will only resume its fullness with combined projects of small, medium and large plants," said Blumer.

The energy source is also considered with great attention by Ciel & Terre Brasil, a joint venture between the French company of the same name and the Brazilian Sunlution, to manufacture solar floats. In a market where hydraulic generation predominates, selling floating solar generation presents high business potential. The question is to convince entrepreneurs that solar panels resting on reservoirs, even if they are run-of-river, are economically advantageous for the plant, according to the director of Ciel & Terre Brasil, Orestes Gonçalves.

“We are breaking the stage of innovation and knowledge of floating solar generation”, assesses Orestes. The business model is flexible, with development by the SHP entrepreneur himself or in partnership with Ciel & Terre, with room to increase generation revenue without major investments. “The entrepreneur can keep the SHP in the SIN [interconnected system] and the solar in the distributed generation”, he said.

In addition, the environmental issue tends to be less complex because it is an area already anthropized (with human interference) before. And solar panels are more productive on the water mirrors, because of the lower temperature, which translates into better performance, he added.

Orestes said that the company is even offering contract models that guarantee financing with development banks, such as BNDES (via Finame), BNB or Desenvolvimento São Paulo, among others.

Cotesa itself is eyeing the entry of new names in the SHP market. The company has been identifying growth in the demand for O&M contracts, given the entry of new players in the market that do not have traditional operations in the electricity sector, such as basic industries and pension funds, which have started to invest in renewable generation, especially in wind farms .

Looking for more space. In fact, the fountain tries to gain a space that could have been hers longer ago. Among renewables, SHPs lost to biomass and wind farms, which already account for their first 10 GW, with another 8 GW contracted in auctions. Solar plants do not yet have a very large installed capacity, but at auctions there are about 2.6 GW contracted.

In 2015, the installed capacity of SHPs was 5,671 MW, with the perspective of reaching 2020 with 6,619 MW of power, an average annual evolution of around 3.1%, according to data from Abragel itself.

“The entry of stronger wind power generation brought an impulse to SHPs,” said Adriana, from Coli & Lafuente Advocacia.

Sant’anna, from Abragel, highlights the advantages of generation by SHPs compared to wind and solar. Among them, the fact that a SHP has a useful life of over 100 years, compared to about 25 years for wind and solar power. Arbex, from AbraPCH, also recalls that SHPs, together with wind farms, biomass and solar photovoltaic plants, can displace thermal generation that may eventually be contracted in auctions, within the energy matrix decarbonization plan, within the scope of the Agreement of Paris (COP-21). But for this, improvement in auction conditions, such as a ceiling price and regulatory adjustments to provide the same conditions for competition, may facilitate the work of SHPs, according to Arbex.