Brazil grants wide authorization for thermal plants in drought

Smoke rises during drought, high temperatures and low humidity in Brasilia
Smoke rises during drought, high temperatures and low humidity in Brasilia, Brazil, August 30, 2017. REUTERS/Ueslei Marcelino/File Photo

SAO PAULO, June 7 (Reuters) - Brazil on Monday authorized thermoelectric plants to fire up without contracts for up to six months "on an exceptional and temporary basis" due to the worst drought in almost a century.

The drought has lowered reservoirs and raised concerns about hydroelectric power supplies. The authorization published in the Official Gazette covers all thermoelectric plants, not just gas-powered ones as first planned, and includes other more expensive fuel sources.

The measure will allow thermal plants that do not have contracts for the sale of their power to include fixed costs in the revenue they are entitled to receive when they are called on to operate, the so-called Variable Unit Cost (CVU).

The thermoelectric plants can be activated under these conditions for up to six month, though the measure allows for an extension.

Fixed costs that can be included by the plants with no contracts will end up being paid by consumers, energy analyst Urias Martiniano said.

Brazil's electricity system has been pressured by the least rainfall since 1930 and this has required thermoelectric generation to kick in to meet demand since last October, which has pushed up rates due to higher costs.

The government has said additional measures will be needed to guarantee energy supplies.

The Electric Sector Monitoring Committee (CMSE), led by the Minister of Mines and Energy, has advocated in recent weeks the need to ease operating conditions of some hydroelectric plants.

On Saturday, the national grid operator (ONS) said measures taken will guarantee power supplies in Brazil this year, though it admitted the risk of shortages in the June to November period..

Among the actions being taken, the agency highlighted the easing of restrictions for dams in the São Francisco and Paraná river basins, increased thermal generation with guaranteed fuel supplies and power imports from Argentina and Uruguay.

Reporting by Luciano Costa in Sao Paulo Editing by Matthew Lewis

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