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Brazil expands energy supply in Northeastern region with IDB financing

Brazil will add 1,080 megawatts (MW) of electric power in the Northeastern states of Ceará and Maranhão with the construction of two coal-fired power plants partly financed by the Inter-American Development Bank.

The IDB will contribute $197 million from its own capital to the private sector projects, which will cost a total of $2.8 billion. The Bank will provide a $147 million “A” loan to Porto do Pecém Geração de Energia S.A. ("Pecém I") and a $50 million “A” loan to UTE Porto do Itaqui Geração de Energia Ltda.("Itaqui"). Pecém I is led by a consortium headed by Energias do Brasil S.A. and MPX Energia S.A.  Itaqui is led by MPX Energia S.A.

The IDB will also arrange up to $314 million in B loans from several international banks. BNDES, the Brazilian national development bank, is expected to contribute up to approximately $1.5 billion in local currency as part of the financing package of the projects.

Pecém I and Itaqui will add 720MW and 360MW, respectively, to the national grid by 2012 and are part of the Brazilian Government’s Growth Acceleration Program (PAC).  

In approving the loans, the IDB sought to balance the dual objectives of meeting growing energy demand in its member countries while responsibly mitigating sources of climate change.

In order to meet anticipated demand, electricity supplies in Brazil need to grow by about 4,500MW per year, according to government estimates. These new plants, which will sell energy to 32 distribution companies that have a combined client base of more than 158 million people, will make a substantial contribution to this goal.

Fossil fuels make up a comparatively small part of Brazil’s energy matrix, thanks to a system of hydroelectric facilities that supplies 84 percent of the country’s electricity and an ethanol industry that produces around 40 percent of its transportation fuel. However, these renewable sources make Brazil vulnerable to drought, so the government has been working to diversify its energy matrix to guarantee security, reliability and affordability of the supply of electricity.

As a condition for the IDB’s participation in each project, the sponsors agreed to develop and implement a Greenhouse Gas Emission Reduction Plan. The plan will include the construction of renewable energy projects to offset approximately 10 percent of the annual greenhouse gas emissions produced by the Pecém I and Itaqui plants.  Under the plan, these renewable power projects will meet the United Nations Framework Convention on Climate Change eligibility criteria for carbon offsets.

To ensure that the regulated emissions comply with both the Brazilian emissions standards and the stringent Environmental, Health, and Safety Guidelines for Thermal Power Plants approved in December 2008 for the World Bank Group, the IDB has required specific amendments to the engineering procurement and construction contract. The plants will also use imported coal with high heat rate, low ash, sulfur and mercury contents.

As part of this financing, the IDB will also support the development of experimental, pilot scale greenhouse gas reduction projects. One of these pilot projects could involve the use of microalgae that consume CO2 to produce biomass, which can subsequently be harvested and used as biofuel.

Coal is an abundant and comparatively inexpensive source of energy that will be part of the energy matrix of many countries for decades, including those in Latin America and the Caribbean. Given increasing concerns over the role of coal-fired plants in the production of greenhouse gases, the IDB intends to finance those projects that use the best appropriate and available technologies to increase the efficiency of the plants and diminish their coal consumption and related emissions.

The IDB will encourage this transition to more climate-friendly fossil fuel power plants in partnership with other multilateral development institutions through initiatives such as the Clean Investment Fund (CIF) and the Clean Technology Fund (CTF), which will underwrite efforts to scale up deployment, diffusion and transfer of low-carbon technologies.

The IDB is also rapidly expanding its portfolio in the areas or renewable energy, energy efficiency, and climate change adaptation and mitigation through its Sustainable Energy and Climate Change Initiative (SECCI). Last month the IDB disbursed $153 million in loans for the construction of two large ethanol plants in Brazil, and the Bank has active and planned green energy operations and technical assistance programs in virtually every one of its member countries. 

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