World Energy Outlook 2006

Box 16.5: Prospects for Renewable Energy-Based Generation
The Brazilian Alternative Energy Sources Incentive Programme
(Programa de Incentivo às Fontes Alternativas de Energia Elétrica –
“PROINFA”), launched in 2004, provides incentives to stimulate the use
of alternative sources of energy. PROINFA’s long-term goal is to increase
the share of wind, biomass, and small and medium-sized hydroelectric
facilities to 10% of electricity generation by 2020. The Brazilian
government has designated Eletrobrás as the primary buyer of electricity
generated by PROINFA projects, entering into long-term power
purchase agreements at a guaranteed price. The guaranteed price for wind
is 90% of the average supply tariff, for small hydro it is 70% and for
biomass 50%. Several of the Eletrobrás Group’s regional electricity
companies are minority shareholders (up to 49%) in special purpose
entities which own and operate PROINFA projects. Brazil’s national
development bank (BNDES) agreed to provide 70% of the financing for
the projects and the Brazilian Energy Fund, launched in December 2004,
should assist in funding the remaining 30%.
PROINFA is being implemented in two phases. In Phase 1, Eletrobrás had
a target for 3 300 MW of renewable capacity by 2006. As of September
2006, 1 191 MW of small hydro, 1 423 MW of wind and 701 MW of
biomass capacity had been accepted for PROINFA. 11 In Phase 2, Eletrobrás
will be expected to lead the way to the fulfilment of PROINFA’s 10% goal
of electricity generation from renewables.
At 17% of total domestic supply in 2004, transmission and distribution losses
in Brazil are among the highest in the world. They average only about 7% in
OECD countries. Losses are high in Brazil because of the long distances over
which power is transmitted, the old and poorly maintained systems with high
losses and power theft. Insufficient investment in transmission and distribution
facilities was one of the causes of the electricity crisis in 2001 and will be one
of the major challenges over the Outlook period (see below).
In March 2004, the Brazilian government approved a new power-sector model.
It is intended to address some of the regulatory concerns that had discouraged
greater investment in expanding the country’s power-generating and
transmission capacity. Under the new regulations, two trading mechanisms will
be established. The first is an electricity pool in which all distributors will be
11. See “Acompanhamento das Centrais Geradoras do PROINFA - Versão Agosto de 2006 at
http://www.aneel.gov.br/37.htm.
482 World Energy Outlook 2006 - FOCUS ON KEY TOPICS