Economy & Energy
  Year  I  - No 4
Sep/Out 1997

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Revised:
Monday, 21 July 2003.

A Policy of Espirito Santo for Cogeneration

 Genserico Encarnação Jr
Executive Secretary of the
State Chamber of Energy
of Espirito Santo State - Brazil
eeegense@nutecnet.com.br
English Version:
Frida Eidelman
frida@password.com.br

When I though about writing the present article which would be the basis for a talk to be given at the Seminar on Cogeneration recently held in Vitoria, I though initially about the title : "The" Policy of Espirito Santo for Cogeneration. However, since this policy does not exist yet, and since there is no Energy Policy to contain it, it might be more interesting to write about "A" Policy of Espirito Santo for Cogeneration.

Therefore, I could examine the need to have in our state this policy properly defined. Furthermore, since I have been recently involved in the energy area coordination of the Development Agency in Network of Espirito Santo - ADERES - and more recently I have been nominated Executive Secretary of Espirito Santo’s State Chamber of Energy, this would be the opportunity to write about the procedures in course in order to formulate such policy.

Presently, the state has no Energy Secretariat; the matters of this area have been handle by ADERES and the Chamber.

To start with, I would like to explain how I consider the process of formulating an energy policy for the state. Presently, talks, each one according to its own pace, about the Agreements Petrobras-Vale do Rio Doce (CVRD) and Petrobras-Escelsa are taking place. Starting with natural gas internally produced, complemented by what will be transferred from outside the state, they will would invert the electrical dependence condition of the state, by creating 650 MW thermo-electric generation capacity , besides providing electricity for CVRD’s projects in the first case.

As it is known, the expected local production for the beginning of the next century could come close to 2 million cubic meters daily and the volume to be transferred to the state would be about 4 million cubic meters daily ( see " The Energy Potential of Espirito Santo" of this same author, in e&e, number 3).

Concurrently, we are working with the following strategy:

Observing the evolution, advising the BME ( Balance and Energy Matrix) project which is being developed by Fundação Instituto Jones dos Santos Neves, an organization legally linked to the Secretariat Strategic Action and Planning, through the ad hoc team and specialized consulting . From the updated inventory of the energy situation in the state, followed by a prospective study using alternative scenarios to foresee its energy future, we will have the basis to elaborate an energy policy.

This policy will also make use of two studies proposed to the State Chamber of Energy to be carried out under its support. The first one about Potential Market for Natural Gas in the State. This study will try to suggest new directions - spatial and sectorial - for the expansion of natural gas , besides the large thermoelectric projects, the Vale do Rio Doce projects and the consumption potential of Samarco Mineração. The other one would be the Study of the Cogeneration Potential in the State, possible with the arrival of a more significant natural gas market.

 

3- In the last year of the present state administration we will have one energy policy ( and we will hand it on to the next one) , including cogeneration , with our feet firmly on the ground , that is, with concrete definitions then already fixed relative to the Norte Capixaba Thermoelectric Plant ( certainly under construction, as well as the submarine gas pipeline that will connect the submarine fields of Peroá and Cangoá in the coast of the state) and the confirmed construction of Norte Fluminense-Vitoria gas pipeline to supply with priority the CVRD’s projects.

As I usually joke, "better than that, only if it comes true". This saying hides all the risks involved in even the best planning.

After this introduction let us discuss cogeneration. I don’t dominates the matter in a technical level due to my academic education (I’m an economist) and professional specialization (in generalities, I would say).

As it is known, the electricity production by cogeneration is still little used in Brazil. It is responsible for only 2% of the consumption, while in other countries with a smaller industrialization level it reaches 10%. Therefore, there is space to be filled by cogeneration and it will be one of the main expansion sources for energy offer in our country.

The increase in natural gas offer, the risk of energy shortage as a consequence of the reduction of investments in the electric sector, the growing energy tariffs and the regulation concerning the selling of electricity surpluses for third parties are the main factors that will drive a more extensive use of cogeneration.

We are in the full period of transformation, ending an economic model adopted by Brazil not long ago and beginning a new one.The old model is already dead and the new one is being conceived and generated.

This change is enthusiastically defended by the national and international private sector. The previous model was inspired by CEPAL’s philosophy of import substitution, made possible by protecting the national production and guarantying the market, characterized by the presence of the State as an entrepreneur. This model left as heritage the ninth or tenth GNP in the world ( the ninth or tenth industrial complex in the world) together with an inertial inflationary process, a large income inequality and 32 million of poverty-stricken people of the late Betinho.

The new model is characterized by the advance of globalization and of neoliberal ideas, a larger openness of the country to the international market, refrain from the State to act as an entrepreneur, privatization and inflation control. It is not yet known the social results of this new model which I personally believe will not be much different from the previous one, may be worse.

The entrepreneurial efficiency may generate social inefficiency: it’s what we are observing with unemployment growing all over the world. Nevertheless, traditionalists, please forgive me but the old model will not have a revival. History repeats itself as a farce. And those with a progressive view will forgive as well but the new model needs some correction in its track in order to survive.

Let us turn back to energy. In this segment, the state has constructed a quite significant infra-structure, in a precise moment larger than the Brazilian needs. It has failed in what regards efficiency, in its broad sense, of the sector and more recently in what regards its investment capacity. We are anticipating crises or even collapse of electric power supply.

I want to conclude this part by recalling the great responsibility of the private sector and their international partners for the construction and operation of new energy production units in the country. It is gone the time when energy was considered as a non relevant data of the problem. Its price was cheap and when the project was ready it was only necessary to connect it to the network of the concessionaire. On the other hand, the state planning simply emphasized the supply of demand.

Nowadays, the private sector (namely, energy generation, distribution or consuming enterprise) has a new attitude, it must have social responsibility in this area. The role previously played by the state, that of a entrepreneur, now restricted to regulation, will be played by the private enterprises. Energy generation is no more an attribution of the state, furthermore, it is not limited to the electric utilities. It’s a task for all, including the Brazilian industrial complex, basically the consumer of this energy.

At this point comes in the Energy Efficiency, one of the most viable ways of "producing" energy in its different forms, under the name of Conservation ( by limiting the waste, by new production processes and by cultural attitude), Rationalization and mainly Cogeneration.

Lets take as an example the last decennial expansion plan of the Brazilian electric sector, made under the coordination of ELETROBRAS and with the participation of all concessionaire companies of the country. It represents in conceptual terms an important progress relative to the previous planning cycle.

Besides acknowledging the possibility of larger risk index in guarantying the energy supply in the short term, it admits, even though timidly, the importance of the energy conservation programs as a mitigating measure of the deficit indexes in the analyzed period. The concept still prevailing is that of considering these measures as simply demand reducing measures and not, as it should be more effective, to incorporate energy conservation as the preferential option instead of raising the energy offer and to treat it with the corresponding emphasis.

The sector agrees at last that in the next decade it will be necessary to promote a greater participation of thermoelectric generation in the expansion, leaving aside the traditional attitude of considering this opportunity as a complement to the hydroelectric generation.

The availability of a more efficient fuel such as natural gas in the national production as well as that coming from Bolivia and in the future from Argentina, the smaller investment necessary per energy unit generated, the installation term and the larger number of parties interested in this alternative, including financing organs, justify on technical, economic and strategic basis the thermoelectric option. Another advantage of thermoelectricity is that the plants may be installed in the load centers, modulated according to the market and with minimum transmission and distribution costs.

Correctly equated, the thermoelectric option should be directed to projects that yield greater global benefits, integrating itself with objectives such as larger energy efficiency, reduction of losses and costs and the increase of the competitivity level in our economy.

In other words, besides contributing to guarantying electric energy supply, the thermoelectric solution may be integrated with further policies directed to economic growth and social development. Within this concept, the installation of thermoelectric plants must be compared with opportunities of industrial and commercial cogeneration.

As they represent local, dispersed and smaller solutions, the cogeneration units, installed near the industry, commercial centers, hotels, airports, hospitals and other electricity and thermal energy consuming concentrations, they allow for the supply to these important market’s segments without needing additional investments in transmission and distribution, releasing the available energy for other users.

Besides that, the global energy efficiency of the cogeneration process may reach levels greater than 80% while in the conventional thermoelectric plants that value is around 30% and in those of combined cycle it gets up to 50 - 55%, eliminating in this way the waste and reducing the consumption and importation of fuel.

One must consider here the ideal and the possible solutions. In the case of Espirito Santo, due to the relatively modest cogeneration potential ( even though not negligible, as we shall soon verify) and the urgent need of internal electric energy production, the possible sometimes surpasses the ideal without eliminating it. We refer to the urgency of generating in our territory, trough thermoelectric plants of the combined cycle a relatively large amount of energy, well above the cogeneration possibilities. But it should remain clear that one thing does not eliminate the other.

The cogeneration projects are competitive in a general way. This is so when they are designed for the necessary electric energy, in a typical activity of self generation or when they are designed for the optimal production of thermal energy to be used and the selling of electric energy surplus to concessionaires or other consumers.

The establishment of specific rules such as those to be soon determined by the Federal Government, with incentives to cogeneration whose main stimulation will be the obligatory purchase by the concessionaires of the cogeneration surplus, constitutes today the essential requirement for developing cogeneration activities in the country.

Up to 50% of the national market may be supplied by energy bought from cogenerators; about 10% of this market in the year 2002 will be supplied by cogeneration. In the south-southeast region this is equivalent to 3,000 MW for an estimated potential of 7,000MW.

Here lies the large obligation of the Brazilian industry, specially that installed in the most industrialized regions, in what regards energy production via cogeneration. The energy policy of these regions should be oriented towards the use of that potential and no to guaranty the viability of the Bolivian gas pipeline, through the use of gas in thermoelectric plants. The latter have been justified by the crises that the electric sector is now facing.

In the case of natural gas, considering the needs of electrical and thermal energy of consumers with cogeneration potential, the option for thermoelectric plants may represent a rise in the consumption of this fuel, noble and rare, of about 40%.

Furthermore, cogeneration is great business. For an industrial entrepreneur, to produce electric energy for R$ 30 or 40/MWh when this energy is supplied for R$70/MWh is a great business. From another point of view, the obligation for the concessionaire to buy the surplus energy for, lets say, R$ 30/MWh from cogenerators who would buy it for R$70 MW/h, with the possibility of reorienting this selling to consumers who could pay this tariff or even more, is also big business for the concessionaire.

A preliminary and conservative estimation found that in Espirito Santo there would be an additional generation potential of about 50 MW. This potential would be concentrated in the food, beverage, textile, ceramic ware industrial sectors, without considering the sectors that are already cogenerators, namely, paper and celulose (Aracruz) and steel mill (CST). These have already cogenerated about 300MW.

If we add to this estimation the sugar cane and alcohol plants and other possibilities of cogeneration from the service sectors we could have a much larger total.

It should be noted that the cogeneration of, lets say, 50MW represents the availability of 100 MW, what would represent about 10% of the energy needs of the state. Half by self generation and the other half by the larger availability of the electric network.

With the arrival of natural gas from outside of the state, with priority to Vale’s projects, the present consumption of this Company would be liberated for other uses, allowing for the adequate supply of that fuel for cogeneration projects, without hindering the supply to Usina Termeletrica do Norte Capixaba, which have been studied by Escelsa and Petrobras.

A state policy of cogeneration must incorporate incentives of different natures, such as financing by the State Development Bank (BANDES) and use of already existing investment funds (FUNRES, FUNDAP and FUNDES) as well fiscal incentives ( without carelessly consigning the future state income) in order to facilitate its implementation.

I believe that these considerations and others that were made in the Cogeneration Seminar referred to at the beginning of this article may constitute a reasonable basis, in what concerns the establishment of objectives and guidelines, for "The" Policy of Espirito Santo for Cogeneration in the context of Energy Policy.

The "design" of a new Energy Policy for Espirito Santo, containing a cogeneration program is fascinating. Together with other types of policies ( especially that for the environment) and actions that are taking shape beyond the energy sector such as the structuring projects coordinated by ADERES in the railway, highway, airports, ports and tourism fields, may be establishing the basis for a new economic and social developing cycle in the state.

 Consulted article: Thermoelectricity and Cogeneration, November/96, by Eugênio Miguel Mancini Schleder, Director of DNDE/MME and General Coordinator of PROCEL and CONPET.