1. Hydrology Days 2004 Applied Stochastic Hydrology Lessons Learned from the Brazilian Electric Energy Crisis of 2001 Jerson Kelman President of ANA (Brazilian Water Resources Agency)

2. Area: 8,574,761 km 2 Average Temperature: over 20ºC Federative Republic: - 26 States + 01 Federal District - 5,561 Municipalities 13 River basins BRAZIL

3. Hydroelectric power accounts for more than 90% of the total electric energy produced in Brazil

4. BRAZILIAN ELECTRIC SYSTEM

5. MAIN CONSTRUCTIVE SYSTEMS USED  Compacted rock fill with concrete face  Compacted rock fill with impervious core  Earth fill  Conventional concrete  Rolled compacted concrete (RCC)

6. SEGREDO HYDRO PLANT A compacted rock fill structure with an upstream concrete face

7. SALTO SANTIAGO HYDRO PLANT Rock fill dam with impervious clay core

8. FURNAS HYDRO PLANT A construction of zoned earth and rock fill dam

9. SOBRADINHO HYDRO PLANT The typical section is a zoned embankment type, comprising a clay central impervious core

10. SALTO CAXIAS HYDRO PLANT Rolled Compacted Concrete (RCC)

11. ITAIPU HYDRO PLANT A buttress concrete structure

12. Vast territorial extension and hydrological variability  Country Wide Integrated Electric System BRAZILIAN ELECTRIC SYSTEM

13. INTEGRATED ELECTRIC SYSTEM  Installed Capacity = 72,299 MW  96 Hydropower plants > 30 MW  57 Regulating reservoirs  Country is interconnected by 44,000 miles of high-voltage lines

14. INTEGRATED ELECTRIC SYSTEM  Up to 1996, new hydroelectric power plants were built almost exclusively by the Federal and State Governments  Expansion planning was based on reliability criteria: probability of any energy shortage along a year would be 5%

15. INTEGRATED ELECTRIC SYSTEM  All power plants, hydro and thermal, were centrally dispatched, taking advantage of the hydrological complementarities among river basins  Stochastic Dynamic Stochastic Programming was used to decide how to split energy production between hydro and thermal sources

16. When the use a mathematical model to dispatch power plants is necessary? If the system is thermal, it isn’t. Example: Suppose demand = 20 and three generators The dispatch would be G1=10; G2=5; G3 = 5 Marginal cost = spot price = 15 GeneratorCost ($/energy unit) Capacity G1810 G2125 G31520

17. When the use a mathematical model to dispatch power plants is necessary? If the system is hydro, it is.

18. When the use a mathematical model to dispatch power plants is necessary? If the system is hydro, it is. Z = Max E [ immediate cost + future cost ] Marginal cost = spot price =  Z/  demand

19. THE POWER SECTOR REFORM The reform process started in 1996 Rationale: –Public sector has no $ to invest –To promote economical efficiency Guidelines: –Private investment and competition in energy generation and retailing –Transmission and distribution to remain regulated, with provisions for open access

20. Reforms based on the same principles had worked in countries based on thermal production. Would it work in a country like Brazil, based on hydro? THE POWER SECTOR REFORM

21. Reservoirs are full most of the time

22. Storage variability

23. SOUTH-SE System Energy Wholesale Market Prices (US$ / MWh)

24. Sampling probability distribution of spot price (R$/MWh)

25. EVOLUTION OF THE STORED ENERGY IN THE EQUIVALENT RESERVOIR OF THE NORTHEAST REGION ENERGIA ARMAZENADA (% DO VALOR MÁXIMO)

26. THE ENERGY CRISIS OF 2001 There was a market failure  As a consequence… 20% of the energy demand had to be curtailed in 2001 Population reacted better than expected: consumption reduction remains until now

27. THE ENERGY CRISIS OF 2001 How to prevent market failures? Brazilian Government restored centralized expansion planning for new plants and transmission lines Reliability criteria is being modified. For example: P (Curtailment < 0.05 Demand) < 0.1 P (Curtailment > 0.20 Demand) < 0.001 P (Curtailment | occurrence of worst drought) = 0

28. THE ENERGY CRISIS OF 2001 How to prevent market failures? Owner of a new hydroelectric plant will get, before construction, a long term contract with a pool of distribution companies (equivalent to an annual “rent”) All power plants will operate according to rules set by central dispatch, based on a multiple reservoirs Stochastic Dual Dynamic Programming Model (SDDP)

29. Should hydro be abandoned? Cost of new energy (US$/MWh) Hydro30 Thermal40 Alternative50

31. Amazon Region

33. CHE Belo Monte Rio Xingu Localization Total Capacity (MW) Energy (MW méd) Xingu River(PA) 11.182 4.796 Reservoir Area (10 3 acres) 110 Belo Monte

34. Conclusions The energy crisis of 2001 has shown that the electric energy business based on hydro requires more than regulation  it requires Government planning When the crisis occurs, planning criteria based on the probability concepts are difficult to understand. The concept of trade off between reliability and cost was ill perceived by the population  the old concept of firm energy is better accepted

35. Conclusions Brazil needs to ensure a sustainable growth of energy supply Hydroelectricity cannot be spared The strategy is to select, from the numerous sites technically and economically feasible for hydroelectric power plants, a subset that would cause minimum environmental and social impacts However, we are not seeking for a subset that would cause no impact