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Escolhas and PSR launch study on water pricing for the electricity sector in a scarcity scenario

Water disputes and shortcomings in water management can generate billionaire losses for the sector, according to data released on Thursday (28)

The fragility of the water resources management system in the country emerged as one of the central themes of the seminar “Water use dispute and its pricing for the Electric Sector”, held this Thursday (11/28) at the auditorium of newspaper Folha de S. Paulo. In a context where climate change and increased water consumption – mainly because of irrigation – will make water resources increasingly scarce, and therefore disputed, the debate pointed to ways for the country not to enter a permanent crisis.

“The use of a common good, such as water, must have the state present to carry out regulation. As to what regards allocating scarce common goods, as is the case, if regulators give up their powers, barbarism will prevail, ”said Dilma Pena, former president of Sabesp and former director of the National Water Agency (ANA), during the “Energy and Food: solutions for coexistence in a water scarcity scenario table.”

The importance of strengthening Brazilian water governance is one of the main suggestions of the study “Electric Sector: how to price water in a scarcity scenario” launched by the Choices Institute during the event. One of the great contributions of the work, according to Sergio Leitão, executive director of Instituto Escolhas, is exactly to overturn some paradigms. “The notion that the country is abundant in water is one of the most dangerous myths. We do not have plenty of water because this misconception that society has is eroded by poor or non-existent management of water resources”, he says.

The research conceived by Escolhas and prepared by PSR Consultoria e Soluções em Energia shows that water should be treated as an input and, therefore, it needs to be priced. The definition of economic criteria and priorities for decision making, according to Leitão, must anticipate the crisis. In his opinion, “Brazil only operates in the crisis and when this occurs many times the decisions taken end up resulting in losses that are paid by society.”

As a way to help the national debate about water resources, the research evaluated three case studies, the São Francisco and Jaguaribe river basins and the relationship between the Xingu River and the Belo Monte Dam, in Pará. In the first two cases, the dispute for water essentially takes place between energy production and food production.

“Our results show that water is far from being an infinite resource. We are beginning to realize the importance of water stress” says engineer Rafael Kelman, one of the research authors. According to the researcher, in the last 30 years, the use of water for irrigation in agriculture has risen around 600%.

The real case of the water crisis in Ceará, addressed in the research, shows precisely the water management dilemmas that will be increasingly present in Brazilian daily life. Due to water scarcity, in the recent crisis, the state government of the northeastern state created, in 2016, the Emergency Water Charge, measure that increased the price of water for Pecém thermoelectric plants (UTE), supplied by Castanhão, located in the Jaguaribe river.

To avoid energy supply interruption, the plants paid the water bill for the increase of the EHE value and asked the National Electric Energy Agency (Aneel) to pass this additional amount on the energy tariff. Following a request for review denied by Aneel, the plants won in court the right to receive, from September 2016 to August 2019, the amount of R$148 million, through an adjustment made to the electricity bill of all consumers of the country. As a contribution to the construction of more robust public policies, the work recently launched by Escolhas suggests water pricing by level of water stress criticality. The more critical the water situation in the Jaguaribe basin is, the more expensive the cubic meter price will be.

The case studies carried out in the São Francisco and Xingu river basins, in addition to showing exemplary conflicts regarding water, projected a loss of R$4.5 billion per year for the Electric Sector.

Water scarcity in the São Francisco River basin would mean average energy loss for power plants of 1,900 MW (megawatt). Loss that would result in an annual deficit to generators of up to R$2.5 billion.

The researchers also priced water by criticality level for the San Francisco river. As well as they calculated the variation in the opportunity cost of water for the basin. Value that shows in which situations it is most economically indicated to use water to produce food or energy.

The conflict over water in the Xingu Basin has the potential to generate another R$2 billion in damage to Belo Monte plant operators, according to research simulations.

The plant was built in the area called Volta Grande of the Xingu River, where a diversion was built to take advantage of a drop of less than 90 meters. During planning of the work, so that the water used in the energy production does not generate conflicts with the riverside populations that also use the water resources, a Consensus Hydrogram was proposed, defining the monthly flows that should be maintained during operation of the turbines. Scenario A, which is more favorable for power generation, should be used in wet or normal years. Hydrogram B, which is less favorable for generation, would only be applied if there were two dry years. There could be alternation between the two options.

The Federal Public Ministry recently determined that alternative B be adopted, alleging that the application of hydrogram A would interfere with the habitat of rare fish species and harm indigenous and riverine communities. The simulations for the scenario indicated by the MPF show a reduction of approximately 1.5 GW average in the plants’ steady energy. The energy loss, in addition to the billionaire loss, could have an impact on the Belo Monte Physical Guarantee.

In contrast, the adoption of hydrogram A may result in major damage to local populations downstream of the Belo Monte plant.

“There are several problems to be properly analyzed systematically in relation to the Brazilian electricity sector and this study gives another small and modest contribution to the beginning of the debate”, says Leitão, from Escolhas.