Politics, Business & Culture in the Americas

Chasing Unicorns in Brazil

On the border of Brazil and Paraguay, David Rodrigues Krug is chasing a unicorn.

That’s how he describes his work at the massive Itaipu Dam on the Paraná River, which forms a natural border between the South American neighbors. In three decades of operation, the five-mile-wide, 65-story dam has come close to generating 100 billion kilowatt hours (KWh) in a single year—but has never quite reached that goal.

“This is like our unicorn,” says Krug, chief of staff for Itaipu Binacional, the quasi-private company that owns and operates the hydropower plant. “We want to do it, but it has to be the perfect year in terms of water, in terms of the system. It would be our exceptional year.”

But the unicorn is getting more elusive amid a major drought that is depleting hydropower reservoirs across Brazil and tipping the nation into an energy crisis—underscoring its over-dependence on hydropower and the urgency to shift to other alternative energy sources, such as wind and solar. Brazil relies on hydropower for about three-fourths of its electricity, but across the southeastern and midwestern regions, dam levels are at one-fifth capacity, leading to electricity rationing and rolling blackouts across Brazil, including in the most populous state of São Paulo. This month, Brazil had to import electricity for the first time in five years.

The blackouts are due in part to Itaipu, which opened in 1984 and is now the second-largest hydropower plant in the world. Itaipu’s electricity generation fell 11 percent last year to 87.8 billion KWh— down from 98.6 billion KWh in 2013—causing it to lose its title of world’s largest hydropower generator to the Three Gorges Dam in China, which generated 98.8 billion KWh in 2014. (The Hoover Dam, by comparison, generates 4 billion KWh per year).

Three Gorges was bound to claim the top position—the Chinese dam has 22.5 gigawatts of installed power capacity (the total possible electricity that could be generated if all turbines operated at full speed for a full year), compared to 14 gigawatts at Itaipu. But Itaipu has 40 dams upriver that guarantee a steady flow throughout the year, while Three Gorges only has two—but more are on the way, said Krug.

Itaipu might have retained its top position longer if the Paraná River was still flowing as powerfully as it used to. The river feeds a reservoir whose height influences the force at which water flows down 20 enormous penstocks—each big enough to hold an Army tank—and spins 20 turbines. The lower the reservoir, the slower the turbines spin—and the dam’s reservoir is currently at its lowest January level since 2001(79.3 billion KWh) and one of its lowest levels in the past two decades, Krug said. In 2001, Brazil’s electricity regulators imposed widespread rationing. The outlook isn’t positive for this year, either, as meteorologists are predicting another year of below-average rainfall.

As we spoke in Krug’s office, the entire headquarters of Itaipu Binacional trembled slightly from the rumble of turbines far below—one of many ways that the dam’s proportions impress visitors. Itaipu contains enough concrete to build 210 versions of the 80,000-seat Maracanã soccer stadium in Rio de Janeiro, and enough iron and steel to construct 380 Eiffel Towers. It is a monument to Brazil’s old faith in hydropower—and something of a time capsule from the 1980s, with its yellow carpeting and analog Siemens control desks covered in big levers and colorful buttons.

After three decades, some of Itaipu’s equipment has become outdated and hard to replace, and the company is in the early stages of raising $500 million in investment, most likely in the public debt market, to perform upgrades. The company’s Brazilian and Paraguayan directors are also in internal talks to potentially refinance the $12.5 billion in debt left over from the construction of the dam, as I reported for Monitor Global Outlook.

While potential investors in Itaipu may question the plant’s uncertain electricity output, Itaipu remains a major source of clean energy in Brazil and Paraguay, generating energy equivalent to burning 536,000 barrels of oil per day at a thermoelectric plant. Last year, the dam supplied 14 percent of the total electricity used in Brazil and 79 percent of what was consumed in Paraguay. And demand is only rising as Brazil’s growing population consumes more electricity.

Hydropower plants inevitably come with some reputational risk to investors, due to social and environmental concerns about the creation of reservoirs and dams. In recent weeks, former construction workers in Paraguay have nailed themselves to crosses to protest alleged missing wages from construction of the dam. But Itaipu has avoided much of the social and environmental criticism being directed at other Brazilian dams because of its smaller reservoir footprint and strong energy output compared to other hydropower projects. The widely criticized Balbina Dam in the Amazon, for example, flooded almost twice the area that Itaipu did, but has the capacity to produce only a fraction of the power.

Krug is still finding new ways to boost energy production at Itaipu, even after three decades in operation. The plant achieved an unprecedented efficiency level of 99.3 percent last year by safely reducing maintenance downtime on each turbine to 11 days, down from 30 days when the plant first opened. And he said he expects to gain another 70 days of operation from the turbines by 2016.

But unless he also sees more rain, Krug is doubtful the dam will ever generate 100 billion KWh in a single year. “For that ‘year of the unicorn,’ we should be starting at a normal water level,” he said.

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