Electrification, biofuels, energy efficiency (driven by digitalization) and natural gas are corner stones for Brazil’s energy transition. After improving its competitiveness batteries will play a key role in ensuring the reliability of electrical systems. Hydrogen has its part in the energy transition since some of the renewable power sources are intermittent and several end-use sectors of energy consumption are unlikely to be covered by electricity or biofuels. Hydrogen can be produced in a number of ways, but “green hydrogen” from water electrolysis using renewable electricity sources is regarded as globally the most relevant and, according to the NEP, Brazil is widely expected to become a major player in this segment.
Published during the Covid-19 pandemic, Brazil’s 2050 National Energy Plan (NEP 2050) spell out long-term strategies for the country’s energy sector while expressing concern about the uncertainties of this moment in History in which public health is a key factor for the future of the economy at large and, consequently, of the electricity sector. Nevertheless, the plan asserts its significance as a vision of the future and argues for its ability to guide development during this challenging period.
The NEP 2050 issued by the Ministry of Mines and Energy on December 16, 2020, looks into different aspects of the energy sector’s development by examining several ongoing changes in the production and use of energy. The report aims to support decision making through modelling and analysis of long-term impacts associated with different energy policy choices. Its stated goal is “not to predict the future but to aid decision makers in a context of very complex interactions, abundant variables and uncertainties, and sometimes disruptive shifts”.
The report features two possible scenarios: first, “Challenges to Expansion”, which looks at the expansion of infrastructure and energy supply to meet a significant growth in demand; and second, “Stagnation”, which examines the implications of a relative stagnation in Brazil’s per-capita energy demand. The report reckons that the “Challenges to Expansion” scenario will require the current procedures and policies to be added to and improved, and innovative solutions to be introduced so as to foster long-term expansion of the energy sector. Furthermore, electrical energy must be steadily supplied while meeting criteria that encompass energy security, adequate return on investments, availability to people, and social and environmental responsibility. In the “Stagnation” scenario, the consequences of per-capita energy consumption remaining unchanged are analysed. In this case, there will be no imminent need to expand capacity so as to meet an increase in demand, and the focus will shift to other issues such as the most adequate profile for the national energy mix.
The expansion scenario allows for an average 2.2% yearly growth rate, and supports the view that the consumption in 2050 may reach twice the level recorded by the end of 2015, with a more accelerated growth exceeding 2.5% per annum in the first fifteen years since then, while considering an average GDP growth of 3.1% p.a. and GDP per capita growth of 2.8%. On the other hand, the “Stagnation” scenario shows consumption growing by just over 10% during the same time frame.
Despite the uncertainty about the electricity sector’s development in the long term, the report indicates that Brazil’s energy potential far exceeds the estimated total energy demand within that period. This poses the challenge of managing the abundance of resources and the economic implications arising from the country’s becoming a major producer of energy from a range of different renewable sources.
According to the NEP report, Brazil’s energy potential will reach nearly 280 billion toe (ton of oil equivalent) by 2050. This figure represents a potential of 21.5 billion toe in non-renewable resources plus an annual potential of 7.4 billion toe in renewable resources over 35 years. However, the demand for energy may grow from 300 million toe to about a mere 600 million toe p.a. Over 35 years, this may reach a total accumulated energy demand of just under 15 billion toe, which illustrates the enormous disparity between Brazil’s resource potential and its estimated energy demand (figure 1).
Fig. 1 – Comparing resource potential and energy demand in the period covered by the NEP 2050
The optimal use of resources is subject to technical and economic constraints which involve technological, legal, regulatory, environmental, social and governmental aspects. The NEP report points out that these variables result in there being some more easily exploitable resources while others are less so. However, the share of most easily accessible resources alone exceeds the period’s total accumulated energy demand by 60%. The share of harder-to-exploit resources adds up to around 255 billion toe, of which just over 10 billion toe are from non-renewable resources. Renewable resources –whose most challenging potential would reach 245 billion toe by 2050– comprise hydropower plants (HPPs) that might encroach upon protected areas, offshore wind farms from 10 km to 200 miles off the coast, and offshore solar photovoltaic projects with irradiation ranging from 6.5 to 6.8 kWh/m²/day. The estimated technical potential for floating photovoltaic generation is about 4,443 TWh/year.
The share of easier-to-exploit resources adds up to just over 24 billion toe, of which 11 billion toe are from non-renewable resources. Renewable resources –which may reach up to 13 billion toe– comprise thermal power plants, biomass, HPPs that do not encroach upon protected areas, onshore photovoltaic plants and wind farms, small hydropower plants, and offshore wind farms within 10 km off the coast.
In the “Challenges to Expansion” section, the report says that potential (which comprises consumption served by the grid, by self-production, by distributed generation, all estimated before discounting energy efficiency gains) will grow by an average 3.5% p.a. from 2015 to 2050, reaching an average of about 240,000 MW (or just over 2,100 TWh) (figure 2). Within that total, an estimated 5% of potential consumption (nearly 11,000 MW on average) will be served by distributed generation, and 7% (or 16,000 MW on average) by self-production. Energy efficiency is estimated to increase significantly in that time frame, reaching 17% of total demand in 2050, or just over 40 GW (around 360 TWh) on average.
Fig. 2 – Evolution of electricity consumption
In the “Stagnation” section, the projected average growth rate for the potential of electricity consumption is 1% p.a. from 2015 to 2050, reaching just below 100,000 MW on average (or just under 870 TWh), on the basis of reduced economic expansion and modest population growth. Within that total, the share of self-production goes up to 14% (or 13,000 MW on average) and that of distributed generation reaches 7% (nearly 6,000 MW on average), while energy efficiency accounts for 10% of total demand in 2050 (or just under 10,000 MW on average).
In the “Expansion” scenario, demand for electricity through centralised generation will reach about 172,000 MW on average –equivalent to about 2.5 times the consumption recorded in 2015 (figure 3)–, and that figure may be even greater if the prospects for accelerated expansion of DG, self-production, solar thermal energy and energy efficiency do not materialise. In the “Stagnation” scenario, centralised generation is predicted to remain between 65,000 and 70,000 MW on average –approximately 2/3 of the total energy requirement in 2050–, due not only to the more modest growth associated with this scenario, but also to an increase in the relative participation of self-production and DG.
Fig. 3 – Evolution of electricity demand met by centralised generation
The main expandable power sources considered by the NEP are hydropower, biomass, wind, solar, natural gas, coal and nuclear. With about three quarters of the electricity mix generated from renewable sources, Brazil currently has one of the highest shares of renewable energy in the world. In order to keep the share of renewables high and carbon emissions low in the long term, hydropower will still play an essential part in the expansion of the electricity supply along the national grid, because of its operational flexibility, its capacity to store energy in reservoirs, and possible synergies with other renewable sources, the report says.
The NEP reports a hydroelectric potential of 176 GW, with 108 GW in operation and construction as of 2019 and 68 GW of inventoried hydroelectric potential. This figure includes HPPs and hydropower projects under 30 MW that had been inventoried and approved by ANEEL, the Brazilian Electricity Regulatory Agency.
In addition to a 10 GW potential made possible through repowering, the range of HPP projects can be expanded through energy integration with other South American countries: 10 GW from binational projects and 24 GW from other international projects, raising the total potential to 198 GW. This figure does not include individual projects under 30 MW, which all together add up to 22 GW.
According to the report, the operational flexibility of hydropower plants has been gaining importance as the system’s relative storage capacity is reduced in the face of growing demand and the increasing penetration of intermittent renewable energy sources such as wind and solar. This is because hydropower plants, even run-of-the-river ones, can benefit from a degree of resource management, which makes it possible to meet capacity and flexibility requirements along with various ancillary services.
The report points out that, even in a scenario with a significant rise in demand for electricity in the 2050 time frame, the available hydropower potential inventoried will remain relatively small (52 GW), so the HPPs’ installed capacity share in the electricity mix may drop from 64% in 2015 to 31% in 2050, just as the share of renewable sources rises from 15% to 45%. As biomass, wind and solar have low dispatchability, this may lead to an expansion in power complementation by more than 60 GW in that time frame.
When the case is simulated where no HPP project encroaching upon protected areas is made available, the increased capacity of the selected HPPs falls by nearly 30 GW in 2050, as opposed to the case where all the inventoried potential is used. In this scenario, there is a need to expand the use of other sources, whose share in the total installed capacity should rise above 50%. This also makes it necessary to increase complementary power to 67 GW.
In the “Challenges to Expansion” scenario, the demand for electricity in 2050 is three times greater than in 2015. Thus, given the greater relative competitiveness of intermittent renewable energy sources, a significant expansion in the use of wind power is expected. Simulations indicate that installed capacity of wind energy may reach 110–195 GW in 2050, generating 50–85 GW on average, which hints at its growing importance in the electricity mix during that time frame: 22–33% of total installed capacity, generating 27–40% of the total energy on average. The total installed capacity of wind power in 2050 may even exceed 200 GW if special cases are accounted for, such as a 100% expansion on renewables and a 100% electric vehicle fleet – in these cases, wind projects may reach 209 GW and 246 GW respectively, meaning a wind share of 36% and 42% of total installed capacity in 2050.
On the other hand, according to a study by the International Renewable Energy Agency (IRENA), solar has been the energy source with the most significant global annual growth in installed capacity, which is mainly due to falling prices in recent years, to the technological robustness evident in projects in regular operation for more than 30 years, to the vast existing technical potential, and to the greenhouse gas emissions-free operation of solar parks.
Brazil’s location means it receives high average levels of solar irradiation, a fact which stimulates the development of viable solar projects throughout the country. Thus, solar power has become a competitive alternative as a renewable source of energy and can help the country meet its commitments to reduce greenhouse gases, the report says, by using its potential of 307 GWp in the irradiation range of 6,000–6,200 Wh/m²/day.
As in the case of wind, the NEP report sees a significant expansion of solar photovoltaics based on its prospective increased competitiveness in the 2050 time frame. Considering only centralised generation, solar photovoltaics should reach an installed capacity of 27–90 GW generating 8–26 GW on average by 2050; those figures assume a total solar installed capacity of 5–16% generating 4–12% of total energy by 2050, disregarding the share of DG PV in the mix (figure 4). Such expansion should occur predominantly in the last decades of the time frame, when solar becomes more competitive. Additionally, it is to be noted that solar PV should make up for constraints to hydropower’s expansion of installed capacity.
Fig. 4 – Expected expansion of (centralised) solar PV in the expansion scenario
In addition, the total centralised solar PV installed capacity in 2050 may be greater than 100 GW if it happens to be favoured over wind (in the case under analysis, there may be restrictions that prevent total installed capacity of wind to exceed 50 GW in 2050) or if the expansion of transmission is limited (to auctions until 2019, for instance, in the extreme case under analysis). In those two cases, the centralised solar PV installed capacity should reach around 95 GW and 190 GW, respectively. Such figures relate to an 18–30% centralised solar share of total installed capacity in 2050.
Due to solar PV’s modularity, decreasing costs and popularity throughout society, it should account for just over 85% of total distributed generation installed capacity in 2050, with 28–50 GW, or 4–6% of the total load.
Energy transition: decentralisation, decarbonization and digitalisation
The report also addresses the energy transition towards a decarbonised economy, decentralised energy resources and digitalised energy production and use. In this context, there are incentives in place to use energy resources more efficiently and to reduce the use of carbon-intensive fuels. Also stimulated are the electrification for energy conversion processes, as well as the automation and digitalisation of processes, controls and services so as to make it possible to improve energy efficiency and expand the use of non-dispatchable renewable energy sources such as wind and solar.
The energy transition will be based on (mainly renewable) electrification, biofuels, energy efficiency (driven by digitalisation) and natural gas. If the competitiveness of batteries is improved, they are also expected to play a key role in ensuring the reliability of electrical systems. Hydrogen also has a role in the energy transition since some of the renewable power sources are intermittent and several end-use sectors of energy consumption are unlikely to be covered by electricity or biofuels, the report says. Hydrogen can be produced in a number of ways, but “green hydrogen” from water electrolysis using renewable electricity sources is regarded as globally the most relevant and, according to the NEP, Brazil is widely expected to become a major player in this segment.
On the topic of decarbonisation, the challenges include using the country’s renewable resources efficiently and integrating new capabilities that reduce carbon intensity in the economy such as efficient energy use, demand response, smart batteries and smart grids. Also considered are biofuels, transport electrification and smart cities. The NPE report recommends removing barriers that currently deter low-cost environmental mitigation (those for energy efficiency in particular); evaluating alternatives for the country’s stance in international negotiations on combating climate change; setting up a public policy watchdog for decarbonisation of the Brazilian energy mix; designing new products; and supporting energy efficiency and innovation efforts.
Regarding decentralisation, the report calls attention to distributed energy resources (DER), emphasising distributed solar PV systems, and discusses the growing use of digital systems that make automated, decentralised decisions following Industry 4.0 protocols, and of blockchain decentralisation for greater security and for enhancing the performance of peer-to-peer transactions. New possibilities created by technological innovation will significantly expand the range and supply of services in the electricity sector, the NEP says. They will also allow service providers, prosumers and consumers to play an increasingly active role in the sector. Among the new challenges, the report stresses that the influx of DER will bring about an increased number of players and will require transmission and distribution companies to perform an increasingly proactive role in the management and operation of grids. With increased decentralisation of energy resources, there will be a greater need for real-time information exchange between players so that price signals can guide the use of resources in order to maximise systemic benefits. Another discernible challenge is that of creating market designs that would allow prices to reflect grid limitations and periods of low supply. There is a need to build a roadmap that lays out expectations about real-time information exchange as well as the necessary level of detail at each phase of the desired market design, so that participants are enabled to prepare for its subsequent stages. It is also recommended to split services across different players so that distributors can focus on operational tasks in a remuneration model of distribution services which are not linked to the purchase of energy. Some technological challenges for systemic optimisation are listed that relate to the integration between distribution and transmission service providers, as well as to the need to define obligations, constraints, benefits and penalties for consumers, producers and aggregators.
Regarding digitalisation in energy production and use, smart grids should allow better control of assets and their performance, data analysis based on system operation, better responsiveness to price variations, as well as optimal use of new technologies (e.g, distributed generation, demand response, electricity storage, and electric vehicles). However, the NEP warns that co-ordination problems may arise between different players, which may affect the reliability of electricity supply. On the other hand, digitalisation can be of assistance to make operation more reliable and efficient in a scenario where consumers might play a proactive role in the performance of the system. In this context, the use of smart meters is one of the key technologies that should help decentralise the operation of electrical systems by providing a bi-directional flow of energy, allowing better management of consumption profiles, and enabling demand response.
The report argues that the increasing digitalisation in energy production and use will bring new business opportunities, a more efficient pricing and fee structure, and a more adequate management of different consumption profiles. The profound ongoing changes make it necessary to keep track of the deployment of smart metering and the possible impacts of new technologies such as IoT, cloud computing, big data, data analytics, artificial intelligence, and blockchain, and to be alert to new challenges such as the need to minimise vulnerability to cyber attacks, the cost of information security, and the new role of centralised operation in the integrity of the electrical system.
Digitalisation has the potential to build new architectures of interconnected energy systems, the NEP says, which suggests the need to create a regulatory framework and a market design that adequately distribute costs and benefits through correct incentives for operators, consumers and producers.
Another point highlighted in the NEP 2050 is the change in consumer’s roles brought about by technological advances and new business models. More information on consumption patterns should empower consumer engagement while opening the way for new products and services. In other words, the new infrastructure associated with digitalisation, the revelation of individual consumer preferences, and the need to update market designs and regulations should generate new business models and increase the diversity of players.
The NEP warns that if the country is to optimise the use of its energy resources, public policies must bring to bear not only the growth in energy consumption but also new consumer behaviours. Among the challenges discussed in the report are the need for greater regulatory clarity and legal certainty, as well as the escalating complexity of Brazil’s electricity system.