1. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The liberalization of the Brazilian electricity system and its effects on the environment Ivan Dionysio Aronne – aroneid@cdtn.br Vanusa Maria Feliciano Jacomino – vmfj@cdtn.brvmfj@cdtn.br Comissão Nacional de Energia Nuclear - CNEN Centro de Desenvolvimento da Tecnologia Nuclear - CDTN Belo Horizonte, MG Brazil

2. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Generation in Brazil Option for the Hydro

3. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Generation in Brazil Hydro Electric Capacity Installed in Brazil

4. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Generation in Brazil Hydro Electric Potential in Brazil 1999 2004 2009 For considerable part of the projects the cost of electricity is cheaper than those of other options.

5. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Generation in Brazil Hydro Electric Potential in Brazil For considerable part of the projects the cost of electricity is cheaper than those of other options.

6. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Generation in Brazil The Hydro and the Electric Systems

7. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Generation in Brazil The Hydro Conditions The system was planned to go through 5 dry years

8. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Generation in Brazil If we consider just the interconnected system this effect is even more explicit. The share of energy generated by the thermal PP is lower than their capacity share. Thermal Power has played a complementary role.

9. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Sector Organization before Liberalization MINES AND ENERGY MINISTRY: formulated the national energetic polices NATIONAL DEPARTMENT OF WATER AND ELECTRIC POWER (DNAEE): acted as regulator of the sectorial activities ELETROBRÁS-Centrais Elétricas Brasileiras S.A: a Federal Holding company. It was responsible for the execution of the electric energy government policies ELETROBRÁS, as holding of federal companies and utilities, actuated together with state companies through several committees and polices -Manual of studies of environmental effects of the electric systems -Plan for protection and improvement of the environment in the works and services of the electric sector (i PDMA): -Advisory committee of environment of ELETROBRÁS (CCMA): -Coordinating committee environment activities of the electric sector (COMASE)

10. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Sector Organization before Liberalization BUNDLED SYSTEM (Generation – Transmission - Distribution) ELETROBRÁS AS HOLDING OF FEDERAL COMPANIES AND UTILITIES ACTUATED TOGETHER WITH STATE COMPANIES IN PLANNING FINANCING CONSTRUCTION OPERATION

11. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Sector Organization before Liberalization

12. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Liberalization  This restructuring was undertaken with the following objectives: to increase the competition; to guarantee the efficiency of the system; to motivate new investments, above all private; to assure the improvement of the quality of the services; to provide fairer prices to the consumer; to implement the diversification of the electricity generating matrix, as well as, · to privatize the generating (15%) and distributing companies of electricity (75%); · to reduce the State participation in the electricity market, and · to produce a cash flow for the government.

13. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Liberalization - Dismembering large and bundled state power companies; - Privatization of the electric power sector; -The introduction of a competitive market; -The introduction of large-scale thermal generation into a hydro-dominated matrix; -Incentives for cogeneration programs, small hydro stations, distributed generation and alternative energy; -The gradual opening of the gas and petroleum sectors to competition;

14. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Electricity Sector Organization after Liberalization

15. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Environmental Legislation in Brazil

16. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 The Environmental Legislation in Brazil AREASTOTAL PARTICULATE CALORIMETRIC DENSITY, % SULFUR DIOXIDE g/10 6 kcal g/kWhg/10 6 kcal g/kWh Areas Class II and Class III 120 for fuel oil 800 for mineral coal 0.103 for fuel oil 0.69 for minera l coal max. 202,0001.72 Areas Class IInstallation of new stationary sources of this size not allowed

17. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 Environmental Impacts of Fossil PP in Brazil

18. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 Status and Immediate Consequences of Liberalization in Brazil u Privatization: 15% of Generators and 75% of Distribution u Organizations already defined but regulamentation still needs improvements and changes u Investors have spent most financial resources in privatization instead of in expansion u This evolution associated with a drought lead to a electricity supply crises where it was established a goal of 20% reduction in the consumption.

19. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 Status and Immediate Consequences of Liberalization in Brazil

20. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 Liberalization and Environment in Brazil u The liberalization of the electricity sector was not accompanied by big changes in the related environmental polices and legislation, except by the new regulation concerning the use of water, which introduced the following main ideas impacting the hydroelectricity generation: payer-polluter, watershed management with local committees, pay for the use of the water. COGENERATION

21. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 Liberalization and Environment in Brazil u 1. ECONOMY X FINANCE: The private investor is risk averse,. The immediate consequence of this change is that the hydro and nuclear projects are not competitive with the gas option under this criterion. In relation to the environment the impacts will change their nature from a no significant atmospheric emission scenario to one with Greenhouse gases (CO 2 and CH 4 ) and NOx x emissions. u 2. STATE X PRIVATE COMPANIES: The former agents of the electricity system were government companies which were subjected to the political and social pressures leading to a higher commitment with the social environment issues, going in some cases beyond the raw limits of the legislation. On the other hand the private companies are committed with the profitability to the shareholders and limit their actions in the environment protection to attend the legislation.

22. ELECTRICITY LIBERALIZATION IN BRAZIL & ENVIRONMENT GRENELEM PROJECT - WP 1 Santiago de Chile, 10-11th September 2001 Liberalization and Environment in Brazil Brazil is moving from a green electricity country to an atmospheric pollutant electricity one