Power sector integration in South America has long attracted support from some of the continent’s most prominent leaders, yet political differences and have delayed progress to date. However, a combination of successful cooperation in the hydro sector and the election of a raft of left leaning governments in recent years once again offer the prospect of a truly continental power pool that would allow hydroelectricity to be marketed across the continent where it is most needed.

Perhaps the most outstanding example of cross-border power sector cooperation in the region is the 14GW Itaipu project on the Parana River on the border between Paraguay and Brazil. Operational since 1991, the scheme has just enjoyed its most productive year yet on the back of exceptionally high rainfall. Output for 2008 reached a staggering 94,685GWh, helped by the installation of two additional 715MW Francis turbines in the past three years.

Itaipu provides 19% of all power consumed in Brazil and its successful development and operation has encouraged Brasilia to investigate the possibility of tapping more of the hydroelectric potential in its borderlands. The most prospective option at present is the Garabi scheme on the Uruguai River on the border with Argentina. The latter already operates two binational projects, the 3200MW Yacyreta scheme with Paraguay and the 1890MW Salto Grande venture with Uruguay. In January, Brasilia and Buenos Aires signed a preliminary agreement to develop the Garabi scheme, but this will not necessarily lead to actual construction, as the project has been on the drawing board for more than three decades.

Environmental non-governmental organisations may have thought that they had heard the last of Garabi, as previous attempts to reach a development agreement have floundered because of fears that the Uruguai River is already too heavily dammed. It is believed that thousands of people would have to move and 33,000ha of land, much of it agricultural, will be flooded but the prospect of securing 2800MW of additional generating capacity could prove tempting to the two governments concerned, both of which have rapidly growing economies and demand for electricity.

Argentine President Cristina Kirchner Fernandez has talked of Garabi as a means of promoting closer ties with Brazil. Speaking at a meeting on the project with Brazil’s President Luiz Ignacio Lula da Silva, she commented: “If we deepen the integration process, if we [capitalise on] the complementary nature of our industries, we’re going to sort out our differences. We are going to sort out our differences, because the deeper our integration the less reason there will be for some nay sayers, some minorities, who keep hoping that we can’t deepen Mercosur”, referring to the regional trade organisation. Mercosur has repeatedly sought to promote closer regional integration through cross-border power projects, including new hydro schemes.

That South America’s two biggest economies and traditional rivals are considering closer hydro sector cooperation is further evidence of the slow but steady improvement in international relations in the region. The swing to the left in the political landscape may have made some difference but most South American leaders do not share the socialist and nationalising zeal of Venezuela’s Hugo Chavez or Bolivia’s Evo Morales. Brazil’s Lula and Argentina’s Kirchner Fernandez are far more pragmatic in their economic policies and their refusal to challenge the power of foreign companies in all sectors has disappointed their more hard line counterparts further north.

The clash of political ideologies has most recently been seen in the hydro sector in the dispute over Brazilian firm Odebrecht’s operations in Ecuador. Since gaining power in January 2007, Ecuador’s President Rafael Correa has pledged to reduce poverty and curtail private sector influence, thereby gaining the support of the radical governments in Venezuela and Bolivia. Last September, a dispute between the government and Odebrecht saw the army seize control of the Baba, San Francisco and Toachi-Pilaton hydro schemes, all of which are being – or have been – developed by consortia led by the Brazilian firm.

San Francisco came on stream in May 2007 with 230MW of generating capacity but the government complained that it was not as reliable as had been promised. Quito demanded that the firm return a payment made for completing the run of river project nine months early and provided a list of improvements that it insisted were required to both turbines and dam infrastructure. While it is difficult to assess the validity of Quito’s complaints, Odebrecht appears to be the victim of the government’s determination to take a firm stand on private sector concessions and distance itself from contracts awarded by the previous government.

Although the firm took the lead on the development of the project, it only held a minority stake in the Hidropastaza joint venture that operates San Francisco, with Ecuador’s state owned utility Hidroagoyan owning the remaining equity. The joint venture holds a 30 year concession to operate San Francisco and was awarded all three hydro licences by the previous administration. The fate of the other two projects, which are still under development, is not yet known.

The contractual dispute has also affected relations between Ecuador and Brazil. When ordering the army takeover, Quito stopped payments to Brazil’s national development bank, Banco Nacional de Desenvolvimento Economico e Social (BNDES), which had provided a $243M loan to help fund San Francisco, turning the country’s hydro sector into the focus of a heated diplomatic exchange. Brasilia withdrew its ambassador to Ecuador last November but he returned in January after payments to BNDES were resumed. The long term fate of Odebrecht’s operations in the country, which are valued at a total of $800M, remains uncertain but other foreign firms may be deterred from investing in future hydro and other infrastructural projects in the country.

Progress on Madeira

While Ecuador’s hydro industry faces an insecure future, the pace of dam construction in Brazil has certainly picked up, partly on the back of the Madeira scheme in Rondonia State, which is the biggest hydro scheme currently under development anywhere in South America. Located on the Madeira River close to the Bolivian border, it comprises the 3330MW Jirau and 3150MW Santo Antonio projects. In February, BNDES agreed to provide a $3B loan to Jirau, equivalent to more than two-thirds of total project costs of $4.38B. Jirau is being developed by a consortium comprising French firm GDF Suez (50.1%), Brazilian power companies Eletrosul (20%) and Chesf (20%), plus Brazilian construction firm Camargo Correa (9.9%), which collectively won a 30-year concession to develop and operate the scheme in May last year.

BNDES has already agreed to provide a $2.55B loan to the San Antonio development consortium of power companies Furnas and Cemig, construction firms Odebrecht and Andrade Gutierrez, plus banks Santander and Banif. Construction will be carried out by a wide ranging consortium called Consorcio Construtor Santo Antonio (CCSA), which comprises Odebrecht, Andrade Gutierrez, Alstom Hydro Energia Brasil, Areva Transmissao and Distribuicao de Energia, Siemens, Andritz Hydro, Voith Hydro and Bardella.

A $318M contract to supply electromechanical equipment, including twelve bulb turbine generators, to Santo Antonio was awarded to Andritz VA Tech Hydro (now Andritz Hydro) in November. Promoting the technology on offer, an Andritz spokesperson commented that the 72MW bulb units “are particularly suitable for low heads and thus for hydroelectric projects that utilise large water flows, such as in the Madeira River. These units provide high efficiency, since they remain entirely submerged in the water, thus being capable of handling large water flow variations”.

Alstom Hydro is providing a further 19 bulb turbines from its engineering plant close to São Paulo in Brazil, and describe these units as “indicated for low fall, high flow rivers, which is the case with the Madeira River. The reservoir, in the case of bulb type turbines, requires a smaller area thus minimizing socio-environmental impacts.” According to the company, bulb type turbines have been far less popular in South America than in Europe or North America in the past, so it appears to consider Santo Antonio an excellent opportunity to promote the technology more widely across the region.

The first of Jirau’s 44 turbines are scheduled to come on stream in 2013, with the first San Antonio turbine due to produce electricity one year earlier. Electricity from both halves of the Madeira venture will be widely marketed once a new 2375km transmission line is completed. The interconnector is to be developed in seven sections by companies licensed by national power sector regulator, Agência Nacional de Energia Elétrica (Aneel), following the completion of a contract tender in December. Successful bidders secured the contracts with bids ranging from $6.2M up to $69.5M, depending on the length and technical difficulty of each section.

Environmental opposition to the entire Madeira scheme has been huge, both within Brazil and in neighbouring Bolivia. Critics fear that the river’s very diverse fish life could be affected, while the malaria risk could increase as mosquitoes thrive in the new reservoir that will be created. In addition, thousands of people have been displaced. The companies involved in dam construction have already run into problems and the Jirau consortium was fined $208,000 in February for destroying about 47 acres of primary rainforest in a nature reserve that lay outside its concession. It has also been fined $3.35M for killing an estimated 11 tons of fish by using dynamite. Environmental NGOs fear that the entire ecosystem of the western Amazon Basin could be affected by the project as a whole.

Newly merged French conglomerate GDF Suez already has 6.9GW of installed capacity in Brazil and is currently developing new dams elsewhere in the country, including the 1087MW Estreito and 241MW Sao Salvador plants on the River Tocantins in northern Brazil. The former is being developed by Consorcio Estreito Energia (Ceste), which is a consortium of GDF Suez offshoot Suez Energy South America Particpacoes, Alcoa Alluminio, Camargo Correa Energia and Companhia Vale do Rio Doce (CVRD). Ceste was awarded the concession in 2002 and subsequently allocated the main construction contract on the project, worth $324M, to a joint venture of OAS and Impregilo of Italy.

A price tag of $395M has been put on Sao Salvador, which is being constructed by the French firm’s subsidiary, Tractebel Energia. After years of delays, the Brazilian organisation responsible for licensing hydro schemes, Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis (Ibama) granted a four year construction licence for the project, while Tractebel already holds a 30-year operating permit starting in 2011, which it acquired with a bid of $2.58B. The French firm revealed in late November that it had already completed much of the construction work on the dam.

GDF Suez is also one of the most likely developers of a series of new hydro schemes in Peru. The government has published plans for ten new projects, including the 1355MW Inambari and 1379MW Paquitzapango ventures, both of which Lima would like to be brought on stream by 2014. More rapid progress on awarding concessions and contracts is required if this tight deadline is to be achieved. The French company’s most likely competitor in Peru is Eletrobras but it has been reported that GDF Suez’s subsidiary, Suez Energy Peru, is restricting its interest to three dam proposals in the south of the country which would primarily be developed to supply the mining industry. Lima has already revealed that Electrobras is expected to bid for five projects, which would have combined generating capacity of 1570MW.

Impsa hydro secures deals in the north

Endesa Chile is currently the dominant investor in the Colombian hydro sector, where it operates the 1163MW Guavio, 541MW Betania, 324MW Guaca and 276 MW Paraiso projects. However, the biggest hydroelectric venture currently under development in the country, the 844MW Porce III hydro scheme, is being developed by Colombian power company EPM (Public Companies of Medellin) in Antioquia City in Los Andes region in north of the country

Most power generation equipment on the project is being designed and supplied by Impsa Hydro for EPM. Impsa Hydro delivered the first of four Francis turbines to the project in January, with the others due to follow during the course of this year. The turbines, which are being developed at Impsa’s factory in Mendoza, Argentina, are each rated at 211MW and all are expected to come on stream by mid-2010. Output is expected to average 4300GWh a year

The Argentine firm has established itself as a major equipment supplier to the hydro sector in South America, providing turbines for use on the 270MW Dardanelos and 312MW Simplicio schemes in Brazil, plus the 150MW Acaray project in Paraguay, but it is in Venezuela that it has become involved in larger projects, supplying the 498MW Macagua I and 2230MW Tocoma schemes. Despite Venezuela’s commitment to state ownership of key assets, the Chavez government is more than willing to award engineering and construction contracts on new dams to foreign firms. However, given the war of words that has dominated relations between Caracas and Washington in recent years, it is noteworthy that it is Latin American rather than US firms that secure deals.

Impsa Hydro has already begun to install some equipment at the Manuel Piar hydroelectric power plant on the Tocoma scheme. Following a competitive tender, it secured a turnkey contract in January last year to supply electromechanical equipment to state owned power company CVG Electrificacion del Caroni (Edelca) for the scheme, including ten turbines each rated at 223MW, making them the largest Kaplan units in the world. The turbines are to be located on the Caroní River, about 15km downstream from the Guri dam, in Bolívar State of southeastern Venezuela.

The Andean Development Corporation (CAF) has provided a massive $900M to help finance the venture, in two tranches of $300M in 2004 and $600M in 2008, although the government of Venezuela puts the total cost of the project at $3.06B. CAF agreed to back the venture to “increase the efficiency and reliability of the Venezuelan National Electricity System…improve the electricity supply in this member country and promote development of regional energy infrastructure.”

Venezuela already sources 75% of its electricity from three existing hydro projects on the Caroní River: the Guri, Macagua and Caruachi schemes, so CVG Edelca will increase its dependence on the river even more once Manuel Piar is completed in 2014. By that date, 16,130MW of generating capacity will be installed on the river, although no more dams are planned for the lower river basin. In January this year, the Inter-American Development Bank (IADB) awarded the government of Venezuela a $14M loan to improve water management in the Caroní Basin in order to maximise hydroelectric production on the four hydro projects and improve living conditions for local communities.

Outlook

South America’s emerging economies are likely to be required to at least minimise their greenhouse gas emissions when the successor agreement to the Kyoto Protocol is drawn up over the next three years. Further hydro schemes on the continent’s many large rivers could therefore help to provide low carbon, base load generating capacity, but the key to ensuring their successful operation is maintaining high levels of environmental protection at and around dam sites, and implementing any possible measures to mitigate negative impact of large dam construction. As a result of global warming, the international community seems more than prepared to accept large dam projects as an environmentally acceptable means of producing electricity but this should not be taken to suggest that they are intrinsically environmentally responsible.

The governments of South America can also use such large projects to promote power sector integration, both within domestic markets and across the region as a whole. Jirau, Santo Antonio, Tocoma and Garabi would all benefit from having access to a number of national markets in order to ensure their long term commercial success. Particularly where several gigawatts of generating capacity are located in a single location, it is often prudent to have several transmission lines to provide access to different markets, so hydro schemes can drive power sector and even more general economic integration of the kind that has been discussed ever since the South American states gained independence, but towards which so little progress has thus far been made.