September 13, 2022

Itaipu: Tariff Relief as the Debt Ends

Paulo Steele*

TR Soluções' projections show that the amount quota-holding distribution companies pay for the plant's energy in 2023 could come close to the average price of these concessionaires' other contract mix.

Amid the government's efforts to reduce energy tariffs in the country, the Itaipu plant has been getting significant media attention due to the prospect, already in 2023, of paying off the debt tied to its construction. Under this scenario, the plant's energy is expected to be passed on to Brazilians at a significantly lower cost.

Figure 1 - Evolution of ITAIPU's Average Total Energy Cost

Source: TR Soluções, SETE system

Indeed, TR Soluções' projections point in that direction: the debt reduction is among the main factors that would explain a possible near-halving of the amount quota-holding distribution companies pay for the binational plant's energy in 2023 compared to last year, dropping from BRL 476.15 per MWh to BRL 219.85 per MWh. This year, the figure is BRL 346.25/MWh.

Projections from the technology company specializing in energy tariffs also show that next year's projected value will come close to the average price of quota-holding distribution companies' other contract mix, of BRL 221.74/MWh, as detailed below.

Currently, Itaipu's energy is allocated to 31 quota-holding distribution companies, all located in the South, Southeast, and Center-West regions. This allocation is required by law, as is energy from Firm Capacity Quota Contracts (CCGF) and Nuclear Energy Quota Contracts (CCEN), and from the Incentive Program for Alternative Sources of Electric Energy (Proinfa).

The plant's electricity value is set based on the power pass-through approved by the National Electric Energy Agency (ANEEL). For this year, the figure came to US$24.73 per kW.month, against US$28.07 per kW.month in 2021, as shown in the table below.

Table 1 - Components of Itaipu's Power Pass-Through Tariff

Given this pass-through value, the contracted capacity, firm capacity, and an average annual dollar exchange rate of BRL 5.20, we get a power pass-through cost of BRL 291.55/MWh. For comparison, it's worth noting that a one-dollar change in the pass-through cost equals a variation of about BRL 12 in the total value of energy from the plant.

However, to make up the plant's total energy cost as felt by the consumer, the other cost items associated with the plant also need to be added to Itaipu's power pass-through tariff, such as hydrological risk, as well as transmission-related expenses. In this context, in 2022 the total value of electricity from the plant was estimated at BRL 346.25 per MWh.

Table 2 - Composition of Itaipu's Final Tariff for Quota-Holding Distribution Companies

Given all the variables, and holding constant other cost factors unrelated to the plant's financing, such as the GSF (85%) and the dollar exchange rate (BRL 5.20), we can expect that, due to the plant's construction-debt cost payments ending in 2023, the total value of electricity from the plant will settle at BRL 219.85/MWh, as shown in Table 2.

It's important to note this scenario assumes a more favorable hydrological-risk situation than that seen particularly in 2021, when that variable added a cost of BRL 84.62 per MWh to the binational plant's energy. Additionally, the projection doesn't factor in any changes to the contractual provisions of Annex C of the plant's treaty, on the terms for trading the plant's energy, whose negotiation is expected to happen in 2023.

*Paulo Steele is managing partner at TR Soluções, a technology company specializing in electricity tariffs.