Drought brings hydropower crisis in Brazil

• 13 days ago (2024-09-13)
• David Flin

Hydropower 125 Latin America 80

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Brazil’s prolonged drought has drastically reduced soil moisture in the main hydropower basins, causing a major challenge to hydropower generation, which generates around 70 per cent of Brazil’s electricity.

As a result, the Operador Nacional do Sistema Elétrico (ONS) has had to rely increasingly on thermal power plants to maintain electricity supply, resulting in higher tariffs.

The effects of the drought have been particularly severe for run-of-river hydropower plants such as the Santo Antonio power station, one of the country’s largest, which has had to curtail operations due to the low flow of the Madeira River.

The impact on energy costs is significant. Prices have increased with the activation of “red flag” tariffs, a pricing system used in Brazil to reflect the higher costs of thermal generation. This could lead to significantly higher inflation, with local brokers Warren Rena estimating it could add up to 32 basis points to annual inflation in 2024 if current conditions continue.