January 11, 2013

Low Reservoir Levels in Brazil Could Impact Electrical Generation

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The dryer than normal weather across much of Brazil this growing season is not only worrying farmers, it has also led to very low water levels in the nation's reservoirs. So low in fact, that there is speculation that electricity may have to be rationed if water levels do not improve. In response to inquiries concerning the rationing of electricity, the Brazilian Minister of Mines and Energy, Edison Lobao, reaffirmed on January 9th that in spite of low water levels, there are no plans for electricity rationing and that even though there are concerns about low water levels, he feel the situation will improve going forward.

Concerns over water levels started a year ago when southern Brazil endured a severe drought during the 2011/12 growing season. Although the rainfall deficit this year has not been nearly as critical as last year, the rainfall thus far this summer has not been enough to start refilling the reservoirs. The reservoirs in the southeastern and center-west regions of Brazil account for 70% of Brazil electrical generation, yet these reservoirs currently contain just 30% of their capacity. The current water levels are slightly less than they were in 2001, which was the last time Brazil had to ration electricity.

The Minister stated that the difference between now and 2001 is that Brazil has doubled the number of electrical generators that do not rely on hydropower. These fuel-based generators have been running at capacity since October, but that has not been enough to prevent the reservoirs from falling to these critical low levels. Electricity from these fuel-based generators is more expensive than from hydroelectric dams and for each month of operation, consumer electrical bills are expected to increase 1%.

The rainfall is expected to be better during the first trimester of 2013 than it was during the last trimester of 2012, but the summer rainy season in Brazil is nearly half over with no improvement in the water levels. According to the National Electrical Operating System (ONS), the current water levels in Brazil's reservoirs have not been this low in January since 2001.

Many meteorologists in Brazil are forecasting that the rainfall during the remainder of the summer rainy season will continue to be below normal and that there is little chance that the water levels will improve before the end of the rainy season in March or April. If their forecast turns out to be correct, there would be little chance that the water levels in these reservoirs would improve before October or November of 2013.