The price of energy from the plant will rise 15.4%, but the government guarantees that the cost will not be passed on to the Brazilian consumer as the state-owned company will contribute the surplus to deduct from the electricity bill
The governments of Brazil and Paraguay signed an agreement this Tuesday (May 7, 2024) in Asunción to define tariffs for the Itaipu plant for the next 3 years. The Brazilian side agreed to a smaller adjustment than what the Paraguayans requested, but created a mechanism to, in practice, maintain the current cost for the Brazilian consumer. To this end, it agreed counterparts with the neighboring country.
The president of Paraguay, Santiago Peña, defended an increase in the tariff from the current US$16.71/kW to just over US$22.70. Then he proposed $20.75. Brazil, which wanted to reduce or at least maintain the current tariff, agreed to set it at US$19.28 until 2026.
According to the Power360the adjustment will be fully compensated by Itaipu itself, in a type of cashback. The extra amount that will be received by the Brazilian margin will be reverted to the low tariff account, deducting from electricity bills.
With this, the Luiz Inácio Lula da Silva (PT) government ensures that the increase will be zero for Brazilian consumers. Itaipu Binacional will contribute R$300 million per year that it will receive in surplus to compensate for the adjustment, which will total R$900 million at the end of the amount’s validity period.
This amount will be deducted by Aneel (National Electric Energy Agency) in the distributors’ tariff review processes. With the type of “subsidy” using Itaipu’s cash, the government projects that the final tariff will remain the same for the regulated consumer.
ANNEX C AS CONSIDERATION
The arrangement was personally created by the Minister of Mines and Energy, Alexandre Silveira, to partially meet Peña’s request and, at the same time, not cause an increase in electricity tariffs in Brazil. For this, the Brazilian government demanded counterparts from Paraguay, which were accepted.
Are they:
- Anticipate the negotiation of Annex C, reviewing the financial bases of the contract, and conclude the negotiations by December 2024 to present to the Congress of the 2 countries;
- Establish that after 2026, surplus energy from the Paraguayan side of Itaipu will be sold on the Brazilian market in competition with national generators, stimulating competition and price reduction;
- Release the possibility of selling Paraguayan energy in general on the Brazilian market immediately.
In practice, Brazil has pre-agreed with Paraguay that, in the review of Annex C, there will be a future reduction in tariffs, albeit gradually, considering the end of payment for the debt for the construction of the plant and amortization of investments.
With the terms already established in this Tuesday’s agreement, the Ministry of Mines and Energy estimates that the plant’s tariff will be between US$ 10 and US$ 12 from 2026 and will reduce structurally in the following years.
The Brazilian government understands that, in this way, a definitive solution for Itaipu’s tariffs is in place in the coming years. The country would be free to purchase surplus energy from Paraguay using the current model, above the market price. Thus, the consumer would no longer have additional costs from 2026, paying only operational expenses.
The review of the Itaipu tariff has been under debate between the 2 countries since the end of 2023. The rate, called Cuse (Unit Cost of Electricity Services), is charged in dollars, in a calculation that considers, among other points, expenses of the plant and, until last year, the installments of debt incurred for the construction of the dam.
Historically, the tariff was defined in a regulatory manner, according to the contract. However, since 2022, it has been negotiated annually between the 2 countries. Since taking office, Santiago Peña has taken upon himself the responsibility of achieving an increase in tariffs charged. It was even one of his campaign promises.
