Energy Central EnergyPulse Home
Home Subscribe Login Contribute to Energy Pulse Advertise on Energy Pulse About Energy Pulse Feedback to Energy Pulse
Search Articles:   
  You are here: Home > International > Article Display


Free Newsletter
Sign up today for your free subscription to the EnergyPulse Weekly Update - delivered directly to your e-mail box.
e-mail:


 

Biofuels: The Promise of the Next Generations

Feb 10 2010 - 1:00 PM Eastern - Your location

The second wave of biofuels such as cellulosic ethanol, algae and others bypass the food vs. fuel controversy and are on the cusp of commercialization. This webinar will review the latest developments in the advanced biofuel space with leading companies more...

Conducting a distributed chorus

Feb 17 2010 - 12:00 Eastern - Your City

Join Intelligent Utility managing editor Kate Rowland, along with a panel from PHI including Rob Stewart, manager of technology evaluation and implementation, and Todd McGregor, AMI director, for an interactive discussion about this company's work to build a more intelligent more...

21st Century T&D: Building the Transmission Piece of Smart Grid

Feb 18 2010 - 12:00 Eastern - Your City

Join industry leaders and Marty Rosenberg, Editor-in-Chief of EnergyBiz magazine, for an interactive discussion about the critical relationship between transmission and distribution (T&D) investment and smart grid success. As the energy enterprise gets smarter toward the consumer end with smart more...

Transforming the Electrical Grid: Addressing Transformation Strategies to Implementing A Smart Grid

Feb 25 2010 - 3:00-4:00pm Eastern - Your City

This webcast should be attended by those individuals that are responsible for identifying, planning and evaluating Smart Grid solutions, including those that empower and engage consumers and are easily assimilated with existing or new technology and business processes. more...

AESP's 20th National Conference

Feb 8 2010 - Feb 12 2010 - Tucson, AZ - USA

AESP's National Conference & Expo is the premier energy industry conference that unites renowned energy experts, stimulating educational sessions, and valuable networking opportunities into one convenient location. You will discover new ideas for your marketing and energy efficiency programs; learn more...

Smart Grid Revolution

Feb 18 2010 - Feb 19 2010 - AUSTIN, TX - USA

ACI's Smart Grid Revolution February 18-19, 2010 A two day strategic event bringing together utility professionals, government & state officials & consultants involved in deployment of the smart grid. To learn strategies which will improve energy efficiency programs & operations, more...

EnergyBiz Leadership Forum 2010: Energy's Emerging Architecture

Feb 28 2010 - Mar 2 2010 - Washington, DC

In 2009, a global economic meltdown collided with an energy crisis to turn the world on its ear. In the United States we've witnessed an unprecedented spending on energy resource development and infrastructure. As a result, a new energy architecture more...

CERAWeek 2010

Mar 8 2010 - Mar 12 2010 - Houston, TX - USA

CERAWeek, IHS CERA's 29th Executive Conference, is recognized as a leading forum offering insight into the energy future. Each year senior policymakers, energy and power executives, and financial and technology leaders from over 55 countries engage with CERA experts in more...

2nd Annual Thin Film Solar Summit Europe

Mar 17 2010 - Mar 18 2010 - Berlin Germany

The conference will provide a comprehensive analysis of the thin film industry and its key challenges in an interactive manner. Leading companies will share their experiences through panel debates and high-level presentations. A great opportunity to network with the whole more...

Gas and Electric Business Understanding Seminar

Feb 24 2010 - Feb 25 2010 - New York, NY - USA

Gas and Electric Business Understanding provides a comprehensive overview of the natural gas and electric industries. Position yourself for career success by gaining a solid understanding of how each business works, including key physical, market and regulatory aspects, as well more...

Gas Business Understanding Seminar

Mar 1 2010 - Mar 2 2010 - Houston, TX - USA

Gas Business Understanding provides a comprehensive overview of the natural gas industry. Position yourself for career advancement by gaining a solid understanding of how the gas business works including key physical, market, and regulatory aspects and how market participants navigate more...

Electric Business Understanding Seminar

Mar 3 2010 - Mar 4 2010 - Houston, TX - USA

Electric Business Understanding provides a comprehensive overview of the electric industry. Position yourself for career advancement by gaining a solid understanding of how the electric business works including key physical, market, and regulatory aspects and how market participants navigate this more...

Gas Market Dynamics Seminar

Mar 3 2010 - Mar 4 2010 - Houston, TX - USA

Gas Market Dynamics offers participants an in-depth understanding of North American natural gas markets and how they function. Enhance your career by furthering your knowledge of market structure, supply and demand, services offered in gas markets, and how various participants more...

Energy Central
Power Network




International


We know you have something to say!
There is an immediate need for articles on the hot topics in the Power Industry! EnergyPulse, like no other publication, also provides a means for our readers to immediately interact with experts like you.
 
Contribute Today!
Please view our Author Guidelines and send submissions to the editor.

Click For More Articles on International
 
10 Changes That Are Transforming The Energy Markets For Industrial and Commercial Energy Users In Brazil
4.20.09   Rafael Herzberg, Partner, Interact Ltd., Energy Consulting

Article Viewed 2720 Times
8 Comments
E-mail Article Printer Friendly
 
  • Email This Author
  • Comment On Article
  • About The Author
  • More Articles By This Author

    In just a few months the power markets changed substantially in Brazil. Energy contracting is a brand new business!

    1. Relative prices have changed

    Up until recently, power prices and rates (as established by the regulator) kept the same relative position. Therefore, decision-making for corporate energy users might not have changed for many years. Important new issues occurred:

    • The Bolivian natural gas supply, which accounts for about half of the country's demand, is now much more expensive. Other energy sources such as biomass and fuel oil became more attractive than natural gas, in many cases.
    • Deregulated energy prices out of traditional suppliers dropped significantly for 2009 and 2010.
    • Deregulated energy prices out of subsidized (up to 30 MW renewable power plants) are not so competitive anymore when compared to traditional resources.
    • Regulated rates have in many cases become cheaper than deregulated, reversing a long tradition in the market.
    2. Decision-makers are demanding new evaluation criteria

    Until recently, decisions about energy contracting were associated with finding the lowest cost alternative. Now that relative prices are changing all the time, a new approach is becoming required: risk management. A "basket" of energy prices is now far more attractive because it offers a better chance to achieve a sustainable, safer and acceptable end result as opposed to just selecting one that is cheaper on a specific week or month.

    3. High volatility of the SPOT markets

    For many years the SPOT was well below the long term firm energy prices. Accordingly, it was a tool to reduce costs for many industrial and commercial energy users who contracted a substantial fraction of their energy needs at the SPOT. About a year and a half ago, the SPOT started to show a huge volatility. Prices oscillated from R$20/MWh to R$500/MWh (1 USD = R$2.3). Now the SPOT has become a very risky option.

    4. Regulatory changes

    Deregulated energy users must register their contracts at the Câmara de Comercializaçao de Energia Elétrica (CCEE). If the contracted volumes registered are below the expected energy consumption, then the client must deposit a financial guarantee to cover for the difference valued at the SPOT. These new regulations make the SPOT a lot less attractive.

    5. Physical projects have become very interesting

    Energy management systems, retrofitting, on-peak generation, and load base cogeneration are alternatives that offer a wide variety of investment options (from low-cost-or-no-cost to capital intensive) for almost every pocket size. Given the increasing power costs in Brazil these physical projects have become more attractive than ever!

    6. Energy quality is a major factor these days

    A systemic deterioration of the energy supply chain (generation, transmission and distribution) is now perceived by most corporate energy users. Voltage fluctuations and unplanned interruptions are now relevant and influencing production costs. Dealing with this matter is very tricky but necessary, given the added costs involved. Utility companies have a natural tendency to deny these problems and since they have very heavy lobbies working on their behalf before the regulator, it becomes quite difficult to negotiate compensation.

    7. An important change in Brazil's energy matrix

    In the past few years, the thermal component in Brazil's matrix is getting a higher significance (in a country which, until recently, was all hydro). Thermal plants are more expensive to operate because of the fuel. This is significantly changing the average weighted cost of each MWh produced and delivered.

    8. Brazilian energy for industrial and commercial energy users is among the most expensive in the world

    Supply and demand are balanced at the supply's limit. Because of this fact there is a natural tendency in the recent years to build the fastest power plants (thermal) as opposed to ones that offer minimum costs (hydro). As a consequence the energy costs keep escalating, leveraged by one of the heaviest energy (VAT type) taxes in the world.

    9. Regulated rates escalation is unpredictable

    The regulator must use a very complicated model to simulate a theoretical utility company with an actual one to determine the escalation every year for each utility company. Very few people in the country know how the model works, so the escalation is always a surprise. In this decade escalation has been way above inflation for years. Surprisingly, though, in the past few years it was below inflation and/or even negative. This is seen as a mixed signal.

    10. New role for energy consulting companies

    In this more complex and sophisticated environment, energy consultancy has become, in a matter of a few months, a different animal. Clients now demand risk management as opposed to just finding the lowest instant energy cost. They expect structured solutions Therefore, the consultancy, as never before, will be engaged as a business intelligence partner who is supposed to show the client the alternatives, advantages and disadvantages, and the associated risks so that well-informed decisions are made. It is a whole new world.

    For information on purchasing reprints of this article, contact Tim Tobeck ttobeck@energycentral.com.
    Copyright 2010 CyberTech, Inc.
     
    Contact The Author
    Email the author
    E-mail Article Printer Friendly
     
  • Click Here For More Articles on International


  • Click Here For More Articles By Rafael Herzberg
  • Do you agree or disagree with this article? Send in your own article.

     

    Readers Comments

    Date Comment
    Ferdinand E. Banks
    4.21.09
    "Regulated rates have in many cases become cheaper than deregulated....."

    That statement made my day, because the curse of deregulation is still popular with some of the half-educated academic economists with whom I occasionally come into contact. You see, according to the economics that I study and teach, electric deregulation is a lost cause, and the same is almost certainly true about the deregulation of natural gas pipeline that the EU Energy Directorate wants to usher in.

    I can also mention that there is some interesting thinking about deregulation beginning to take shape in Russia, according to a new book that I have been asked to review.

    Len Gould
    4.21.09
    I find it confusing to see the following two sentences in the same paragraph. Why is it that, with an increasing use of more expensive Natural Gas for generation, both regulated and de-regulated rates are dropping? Could you provide some explanation?

    [QUOTE] Deregulated energy prices out of traditional suppliers dropped significantly for 2009 and 2010. ........

    Regulated rates have in many cases become cheaper than deregulated, reversing a long tradition in the market. [/QUOTE]

    Rafael Herzberg
    4.27.09
    LEN,

    Deregulated energy here in Brazil means that prices are negotiated as opposed to regulated. Since supply is above demand deregulated prices dropped. It is the supply x demand fucntioning!

    Natural gas will - in the long riun - ncrease regulated and deregulated prices since more thermal power plants are being built. As of now though, since hydro is about 80% of the total electric energy generation, the impact is "modest".

    You should be confused anyway, because mixed signals are being received by the end users (commercial, industrial and institutional). The power markets in Brazil have become really messy.

    That's why I see this change in our makets: as opposed to finidng the lowest cost at any given time the real challenge is shapping a consistent energy package considering a risk managemnet approach.

    Xisto Vieira Filho
    4.30.09
    A few comments about some issues raised in this interesting paper: (1) spot prices in the brazilian system strongly depends on the hydrological behaviour that covers the main rivers.But,as the load increases,and the most recent hydro plants added to the system have small storage capacities,the "equivalent reservoir capacity" is smaller.If we consider this fact,together with the methodology for determining spot prices(in the brazilian system a program estimates future operational marginal costs) the current volatility for such spot prices are explained. (2) taking into account the generation composition of this system,spot prices continue to be strongly dependent on the rain levels.Whenever the rain level is equal to or above the Long Term Average,spot prices will,most probably, be low. (3) the problem of building new hydro plants has to do with the difficulties for environmental licenses.Most of the potential for new hydros is in the amazon region,and that explains those difficulties,mainly for reservoir plants. (4) the need for thermal generation is explained by the need for minimizing the risk of energy deficits.By the current planning methodology,this risk must be lower than 5%,and this determines the thermal generation requirements.

    Rafael Herzberg
    4.30.09
    XISTO,

    Consultants and experts in the energy business know these very well pointed out reasons as you explained in the above comment.

    The challenge - from the end user's prospective - is how t deal with all these factors, which combined establish a pretty complex scenario.

    I guess we both agree that there is a new situation which calls for risk management as opoosed to the old "fixed" way of looking at the energy business.

    Ferdinand E. Banks
    5.11.09
    I don't know how much rain there is in Brazil, although about ten years ago I seem to remember someone in the government suggesting that there wasn't enough, and a few prayers might come in handy, however the the comment by Xisto is interesting.

    In Sweden hydro and nuclear supply most of the power, although the ignoramuses want more gas and renewables. (I can accept more renewables, but definitely not more gas). In any event, before the massacre of two nuclear reactors, Sweden had the lowest electricity price in Europe (together with Norway, which gets more than 90 percent of its electricity from hydro). Moreover, after the demise of those two reactors, the remaining installations were upgraded to a point where the price remained comparatively low.

    Brazil is much larger than Sweden, but with the availability of 'some' oil, 'some' gas, ethanol, and apparently a favorable attitude toward nuclear by the voters, I get the impression that Brazil is a very lucky country, because we are moving toward a period where readily available energy is going to be a key factor in determining such things as security and prosperity.

    Rafael Herzberg
    5.21.09
    I guess we all agree about what is heppanening in Brazil. The new "animal" from the end user's prsopsctive is the need to choose - there are so many new factors that do have an influence in energy contracting prices.

    Secuirity and prosperity in this new scenario depend on how each energy manager considers risks. - short. medium and long term.

    It is a fascinating new world!

    Victor Humphrey
    11.23.09
    A very interesting analysis of many factors involved in effective risk management in the energy markets. The markets have changed a great deal since the Gulf War days, when everything in the hydrocarbon market was influx. The SPOT market began to do crazy in the ensuing decade. Brazil has an interesting mix of energy resources, and it will be interesting to see how the nation deals with its energy challenges and how it implements smart grid solutions over the next decade.

    I would point out that Brazil would be a good nation to see whether the plight of both the worker populations and the environment might be studied by growing industrial hemp for use in biodiesel and biofuels applications. There is plenty of marginal land, plenty of labor, and plenty of sun, with mostly adequate rain fall. Given the right regulatory and legal framework and a hemp farmer infrastructure properly financed, Brazil could possibly lead the world in biomass developments in a decade or so.

    Add your comments:
    Please log in to leave a comment!

    Top

        Home | Register | Subscribe | Contribute | Advertise | About Us | Feedback
       Copyright © 2002-2010, CyberTech, Inc. - All rights reserved. Read our Terms of Service.