Q&A: Investments can replace H2 subsidies in Brazil

Brazil's power market is at a pivotal moment, amid modernizing discussions, extreme weather and the promise of green hydrogen. Argus spoke to Jerson Kelman, former director at regulator Annel and current federal university of Rio de Janeiro state professor, about the challenges.

Is it viable for green hydrogen to rely on incentivized renewable sources?

It is possible strong global investment will produce opportunities for [Brazilian green hydrogen] in the coming years, but [the world] still needs technological advances to produce economically competitive green hydrogen. Of the various routes in development and suited to Brazil, the following stand out: electrolysis; the high percentage of renewable electricity available in the Brazilian power grid; converting ethanol possibly in the importing country, which could make ethanol a hydrogen carrier; and renewable natural gas, with biomethane produced from our abundant biomass.

What are the most urgent challenges to power sector growth, modernization?

The main electricity sector rules were designed 20 years ago, shortly after the 2001 power rationing. Since then, much has changed. New technologies, mainly wind and solar, which were only viable when boosted by subsidies, became competitive sources.

But the sector's rules were not adapted to the new situation to minimize power costs. On the contrary, large consumers were authorized to buy power directly from cheaper sources, boosted by subsidies paid by the bulk of the population. Currently, lobbies operate in congress advocating new laws that preserve or create unnecessary subsidies that privatize benefits and socialize costs.

To counter this, in 2017, mines and energy ministry MME carried out a broad public consultation with the electricity sector — the CP33, as it became known. The result of the effort was a bill that, unfortunately, is paralyzed in congress.

Therefore, the main challenge is to reestablish the technical and economic governance of the power sector, updating and approving the bill resulting from CP33.

Is Brazil's power grid prepared for extreme weather, such as record temperatures or rains?

As extreme weather events appear to be occurring with greater intensity and frequency, the whole power grid requires review. In other words, distributors and transmission companies are not prepared. If they were it would mean excessive investment in the past and higher tariffs than would have been necessary. More investment in utilities means higher tariffs, so caution is needed to avoid demanding absurd investments that far exceed consumers' ability to pay.

By Rebecca Gompertz