EXTERNAL ENVIRONMENT

RECOVERY OF ENERGY CONSUMPTION

The year 2017 was marked by the recovery in consumption of electricity in the country. Data from the Energy Sector Monitoring Committee (CMSE) show an annual growth of 0.8%, the highest in the last two years, but with a value still comparable to consumption in 2014. According to data from the Energy Research Company (EPE), industrial consumers were responsible for the highest increase, which meant 1.1% growth over the previous year. Residential consumption expanded by 0.8%, and trade and services by 0.3%. For the period 20182022, the projection of average annual growth of energy consumption is 3.9%.

On the comparative study between supply and demand in the period 2019 to 2022, the EPE presented the structural balance of the system considering the sensitivity analysis in key variables, including restrictions to water flow in the Northeast region. Excess supply was also identified for the coming years, but expansion of this supply will continue to be necessary, especially beginning 2022, and made feasible with the new energy auctions2. 3.

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REGULATORY ENVIRONMENT

The energy sector in Brazil is considered by the Federal Government to be instrumental for the economic recovery of the country through three major factors: potential attraction of investments in electricity generation, transmission, and distribution; benefit for production chains; and the well-being associated with energy consumption by families.

In view of this relevance, in May 2017, the Ministry of Mines and Energy presented to the Brazil’s House of Representatives a review of the management model, considering a scenario where, among others, rainfall regimes are unfavorable and compromise the capability to generate electricity at low costs, electricity rates being pressured by sector charges and indemnities.

Principles of the new business model set out by the Ministry are to respect the contracts signed, improve management efficiency, economic rationality, isonomy between agents, dialogue, and transparency. This purpose of this new model is to: adequately allocate risks among agents; improve the environment for investments by reducing legal uncertainty and regulatory instability; ensure energy security at competitive prices; simplify administrative procedures; promote productivity, efficiency, and innovation; and reestablish prices as an economic signal that guides investment decisions.

To this end, the Government has taken some actions, such as enforcing Law 13,360/16, which reaffirms the role of efficiency and economic rationality in attracting investments for the electricity sector, and Decree 8,828/16, which makes managing energy purchase contracts by distributors more flexible and authorizes ANEEL to implement the binomial rate for consumers of low voltage electricity, in line with best international practices. The Government also intends to hold a public consultation on the energy trading model, in order to gain support for the debate on the expansion of the free electric energy market.

In addition, in 2017 the Government predicted an expansion of 5,062 MW (3.3% of total capacity), of which: 24.8% was wind power, 10.7% was solar, and 61% hydroelectric (Hydroelectric Power Plants - HPP, Small Hydroelectric Power Plants - SHEP, and Hydroelectric Generating Complex - HGC), and already contracted the expansion, until 2022, by 21,277 MW, in order to guarantee supply of energy to resume economic growth. 3.

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MARKET

Although energy consumption in Brazil has grown, the current scenario of the electricity sector is unstable due to the possibility of privatizing operations involving the Eletrobras companies. Chesf’s strategy in 2017, in this scenario, was to structure a management model focused on financial balance, on the controls and monitoring of actions foreseen in the Business Plan, and on the constant search for efficiency, becoming a more synergistic and revitalized company.

The water shortage scenario, considered the worst in 90 years, placed on the Company’s agenda the need for alternatives in order to supply energy demand with short- and long-term solutions. The release of Chesf’s resources allowed other lines of credit to be opened and the resumption of investments brought new prospects and conditions to safely carry out the activities and projects to which the Company has committed. For the future, Chesf is structuring the implementation of the Zero Base Budget (ZBB) 4.

Chesf also revised its by-laws (in line with Eletrobras’ guidelines) to comply with Law 13,303/2016 (Law of State-owned companies), especially regarding transparency and governance mechanisms, such as rules for disclosing information, managing risk management practices, codes of conduct, forms of supervision by the State and society, constitution and operation of the boards, as well as minimum requirements for appointing directors. The Company has applied the new guidelines since June 2017, on an experimental basis, ahead of the two-year term, established for the companies to adapt to the Law.

The Company’s activities were also focused on the planning and preparation of a portfolio of new generation and transmission projects, based on geoprocessing references. Integrating the environmental, geotechnology, and project areas was essential to evolving this process. The purpose of the new projects is to produce renewable wind and solar energy (energy research benchmark with sustainability index and social, environmental, and economic project assessment), based on the premise of projects chosen with less social and environmental impact.

It is worth mentioning that the Company’s strategy is to become a benchmark in solar energy. The creation of a Solar Energy Reference Center in Petrolina (CRESP) will help achieve this goal.

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3 More information: Energia e Mineração: A visão do Governo Federal (Energy and Mining: The vision of the Federal Government).
4 Methodology based on a projected budget forecast without taking into account what happened in previous years, with the goal of reviewing the whole process “from the start.” It analyzes the needs for expenditure of each individual process and supports the financial management of organizations.