Hydroelectric, Renewables

Mexico, Brazil Hottest Spots for Power Growth

Issue 4 and Volume 104.

This is Looking to be a Busy Year for the Power Industry in Latin America. The Region Had Been in a slump due to currency problems and the effects of the Asian crisis. Gross domestic product (GDP) figures are coming back from the doldrums of recent years, however, and power demand growth is jumping. Investors are once again eyeing this market with relish. Although the region as a whole should benefit from these trends, Mexico and Brazil look to be the big winners.

Focus on Mexico


Latin American countries are working to diversify their generation bases, with natural gas claiming much of the spoils. Shown is the 300 MW Ventanilla gas turbine facility in Peru. Photo courtesy Siemens Westinghouse.
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Mexico’s Federal Electricity Commission (CFE) has stated that the country needs $50.8 billion to increase capacity by 13,000 MW through 2007. Gerardo Ruiz, CFE administrative director, said the country’s reserve margin needs to be boosted back to 40 percent from its current 27 percent, to cover outages from natural disasters or plant maintenance. The current 27 percent reserve margin falls to only 6 percent at peak use. Ruiz noted that the additional capacity could come from the private sector to allow the government to use its resources in other priority sectors such as health and education. The country’s 2000 budget shows $4.8 billion for investment in the state-owned electricity sector.

The government has been working to privatize the electricity sector and to draw outside capital for transmission and generation needs, but thus far the effort has not been successful. The issue is considered moot until next year, following presidential elections this summer.

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Electricity demand has been jumping by 10 percent annually in some regions and analysts predict that the country needs to add 15,000 MW to its generating base to meet coming demand increases. The country’s current installed capacity is approximately 38,000 MW, with oil the primary fuel. (Table 1)

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CFE has announced plans to build 32 plants, adding 22,248 MW of capacity over the next nine years. Four of the planned facilities are hydroelectric, two are geothermal, and the remaining 26 are fossil fuel. Many of the planned facilities are scheduled to begin generating in 2004. A number of the plants are to be built under agreements for private companies to build them and then lease or transfer them to the government. (Table 2) CFE is building six plants with its own resources. Almost half of the private investment in these planned facilities is coming from Mexican companies.

Interconnecting

Mexico has a national power grid that is divided into four regional divisions: Northern, North Baja, South Baja and Southern, which is the largest. In 1999, the country licensed 11 transmission lines and four new connections with the U.S. grid, aimed primarily at boosting power availability in the rapidly industrializing Mexican side of the national border. There are currently only four connections between the U.S. and Mexican grids – two in California and two in Texas.

Mexico has been considering proposals to liberalize the grid and increase imports. Since the 1998 FERC decision requiring utilities to open their transmission lines to competing power firms, the DOE says it has received an increasing number of applications for electricity export licenses. There have been discussions between U.S. and Mexican officials considering ways of strengthening the transmission interconnection. The CFE sees imports as a way to help its country meet growing power needs without building as much new infrastructure.

Currently, only about 900 MW can be imported, representing just 2.5 percent of domestic consumption, which means that any significant jump in import levels would require hefty investments in lines and equipment.

Mexico, with a rapidly growing GDP and rapidly growing power demand, is seen as a lucrative power marketing opportunity. CFE has been invited to joint ERCOT, which could eventually lead to increased electricity trade. Energy Minister Luiz Tellez Keunzler has said he would like to connect to the Texas and Arizona grids and to help CFE enter into agreements with U.S. utilities for power imports.

Gas Infrastructure

Natural gas is gaining importance in Mexico, as the government pushes to shift more generation away from oil to gas. The Energy Regulatory Commission (CRE) expects natural gas demand in the country to double over the next decade, with half of that increase used to generate electricity. The main constraint on gas development has been the lack of investment in long distance pipelines, but that is changing with the fuel’s new role in the energy mix. Most gas production in Mexico is offshore or in southern regions, while the population is concentrated inland and in the north, making gas transportation an important issue.

Pemex, the national oil company, is working to increase production at the Burgos gas field, the country’s largest non-associated gas field, through 3D seismic technology and new drilling techniques. The Burgos field is in the northeastern part of the country with the potential to export gas to the U.S. if there is excess production. Pemex hopes to use extra Burgos production to supply the growing industrial market in northeastern Mexico, which is also being eyed by U.S. gas producers.

The Mayakan pipeline began transporting natural gas from Pemex’s Cuidad field in Tabasco to points along the Yucatan Peninsula last fall. It supplies gas for four new power plants there including the recently completed 484 MW Merida III, which was one of the first IPPs awarded in Mexico.

Also in the fall of 1999, a new lateral pipeline between Pemex facilities in Reynosa and Tennessee Gas Pipeline, an El Paso Energy subsidiary, began operation. The $10 million, 9.5-mile, 24-inch pipeline carries up to 220 MMcf/day. Pemex has a 10-year contract for 185 MMcf/day. This is the third El Paso-to-Pemex pipeline link. Several more are planned, including one in Willcox, Ariz., to bring 130 MMcf/d into the U.S., scheduled for operation in spring 2001. KN Energy is planning a 108-mile pipeline linking the MidCon gas network in Texas to Monterrey, scheduled for operation late this year.

Sempra is constructing a 23-mile pipeline in Baja California to supply a power plant.

Tejas Energy is also in the fray, building a $40 million, 97-mile, 300 MMcf/day pipeline from southeast Texas to connect with an existing pipeline near Arguelles, Mexico.

Earlier this year, Penn Octane finished its 21-mile, 50 million gallon-per-month LPG pipeline, running from Brownsville, Texas, to Matamoros, Mexico.

A group of companies headed by Texas Utilities is investing $124 million in a 1,242-mile pipeline into Mexico, to be completed in 2003.

Focus on Brazil

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Brazil has been, and will continue to be, a very busy country in terms of its energy industries. Only slightly smaller than the U.S., Brazil’s borders touch every non-island country in South America except for Chile and Ecuador. Like Mexico, Brazil is working to privatize its energy industries, but the similarities stop there. Brazil is the largest producer of hydroelectricity in the world, and still has enormous untapped hydro potential, although recent droughts have pushed the nation toward diversification. (See Table 3)

Brazil has survived devaluation of its currency and the Asian crisis, with signs of bouncing back. Although GDP was flat in 1999, the nation drew close to $30 billion in direct foreign investment. GDP is expected to climb by approximately 3 percent this year as power demand jumps more than 7 percent. Power demand is expected to climb by more than 6 percent annually over the next decade.

Privatization of the country’s electric utilities is ongoing, although currency problems have caused delays and other problems. In January, Brazil’s development bank (BNDES) offered its 23.1 percent stake in Light and its 59 percent share in Eletropaulo Metropolitana. Electricite de France boosted its stake in Light from 11.46 percent to 31.64 percent during the sale. AES picked up a 35 percent stake in Eletropaulo.

Also during January, Alliant Energy paid $347 million for a 49.2 percent stake in CFLCL, a Minas Gerais electricity distributor, from CMS Energy.

Duke increased its stake in Sao Paulo-based generator Paranapanema from 44 percent to 95 percent through a Sao Paulo stock exchange tender offer.

Projects

El Paso Energy International signed a 10-year power supply agreement with Eletronorte earlier this year. Under the agreement, El Paso will supply 64 MW of power to the city of Porto Venho, Rondonia. El Paso has a 40 percent stake in the $60 million project, which is under construction with plans to begin generating in July.

This is the first of two phases in the project, planned to supply electrical power to the region. The second phase will add more than 200 MW of gas turbine-powered capacity. El Paso has announced plans to participate in phase II as well.

A consortium including El Paso and CS Participacoes submitted the only bid for construction of a 340 MW thermoelectric plant in Porto Velho. The natural gas facility will require construction of a 340 mile gas pipeline between Urucu and Porto Velho. Eletrobras will build a transmission line from the facility to Rio Branco. The plant is expected to start operating with 74 MW in September 2001, 178.7 MW by July 2002, and 340 MW by July 2003.

El Paso is an active participant in Brazil with more than 400 MW of generating capacity in Amazonas. The company is also an investor in the Boliva-Brazil natural gas pipeline.

El Paso recently signed a power supply agreement for a 480 MW project in southern Brazil and formed a joint venture with General Electric to develop, build, own and operation 2,000 MW of capacity in the southern states.

EDP, Portugal’s state-owned electric company, and the Gas Brasiliano consortium have announced plans to build a 500 MW gas-fired plant by 2003 in Araraquara, Brazil. It will be fueled through a branch of the Bolivia-Brazil pipeline.

VBC Energia is working with Shell and Intergen in negotiating an agreement for the construction of the natural gas-fired Carioba plant to be built in Sao Paulo. The plant is expected to come on-line in 2003, initially producing 157 MW but increasing to 720 MW upon completion.

Itaipu is planning a second auction for bids to supply two new turbines for its hydroelectric power plant. At a previous auction, the only bid came from a consortium led by Siemens, Asea Brown Boveri and Alstom. Once the new turbines are installed, which is to be within three years, the plant will increase from 12,600 MW to 14,000 MW. Itaipu is the largest hydroelectric power generating plant in the world.

Brazil’s National Electricity Agency (ANEEL) is planning two auctions this month for two build-operate-transfer concessions for new hydroelectric facilities. One is Quebra-Queixo 120 MW plant in Santa Catarina on the Chapeco river and the other is the Barra Granda 690 MW plant between Santa Catarina and Rio Grande do Sul on the Pelotas river.

Latin America Power, presented by Potencia and Power Engineering magazines, is coming to the Centro Internacional de Exposicion de Caracas, S.A., in Caracas, Venezuela, on May 9-11, 2000. Information on the technical conference and exhibition is available from PennWell by calling 1-888-299-8016, or on the Internet at www.latinamerpower.com.