BNDES Predicts Accelerated Investment Rate in Brazilian Electricity Sector

BNDES' Positive Outlook for Investment in Electricity

Brazil's National Development Bank (BNDES) on 17 November published some of the findings of a study it carried out this year into infrastructure investment trends in Brazil. Of the five sectors it analysed in its latest report (electricity, telecommunications; sanitation, ports, and railways), electricity is expected to receive the largest share of future investment.

BNDES predicts that investment in the electricity sector will total 88.2 billion reais (US$40.867 billion) between 2007 and 2010, compared with actual investment of 40.8 billion reais between 2002 and 2005. Of the total investments expected in the coming years, 48 billion reais will be spent on generation, 16billion reais on transmission, and 24 billion reais on distribution. Projected infrastructure investment across electricity, telecommunications, sanitation, ports, and railways is expected to total 197.9 billion reais

BNDES said that planned investment in generation was sufficient to meet anticipated demand up to 2010, but that the start up of projects in Rio Madeira would be necessary to guarantee sufficient supplies in subsequent years. The government hopes to hold a tender for the 6,450MW Rio Madeira hydroelectric complex by May 2007. Despite its positive outlook, BNDES also provided a warning that investment in electricity was dependent on the resolution of environmental issues.

Outlook and Implications

The size of Brazil's market means that generating capacity needs to expand at a faster rate per year than other countries in the region in order to keep up with demand. Brazil currently has sufficient generating capacity to cover demand, but the expansion of the country's installed generating capacity has slowed in recent years, and greater investment is needed in new plants to meet projected demand and avert another supply crunch in the future.

According to the government's 2006-15 Energy Plan an additional 2,400-3,300MW of generating capacity is needed per year to cover projected demand over the period. The new power-sector model implemented by the incumbent government was intended to address some of the regulatory concerns that had discouraged greater investment in expanding the country's power-generation capacity and transmission lines, and, although the proposals are not exactly what foreign investors might have liked, the establishment of clearer rules has helped to increase stability. A series of auctions of old and new power held under the rules of the new power-sector model means that power supplies have been contracted by distributors up to 2011. However, excessive bureaucracy means that the processing of environmental permit applications remains slow, threatening to delay further the start up of new plants.

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