The most recent chapter in Chinese investment in the Brazilian electricity sector was written in December, with state-owned utility giant State Grid’s successful bid in the largest power transmission auction ever held in Brazil.
The company secured the largest of the three contracts on offer, and plans to invest 18 billion reais (US$3.6 billion) to build 1,513 kilometres of transmission lines and two substations between the state of Maranhão, in Brazil’s north-east, and the central state of Goiás.
The main aim of the project is to guarantee the flow of renewable energy generation from Brazil’s north-east region, which is experiencing a boom in wind and solar power plants.
Ramon Haddad, vice-president of State Grid Brazil told local outlet Agência Estado that the company has set a deadline to complete the project within six years, but hopes to do so ahead of schedule to make the venture more profitable and more quickly meet the needs of the Brazilian electricity sector. The signing of the concession is scheduled for 3 April, from which the deadline will take effect.
The auction of this single lot alone represents at least five times more than the US$588 million of Chinese investment announced in the entire sector in 2022, according to data from the Brazil-China Business Council (CEBC). It guaranteed a boost to Chinese investment in the country in the first year of President Luiz Inácio Lula da Silva’s new administration.
Recent years have seen relations between the two countries marked by the Covid-19 pandemic, China’s economic difficulties and anti-China rhetoric from former president Jair Bolsonaro. Following this rocky period, the number of projects by Chinese companies in all sectors in Brazil has risen, increasing by 14% in 2022 compared to the previous year, according to CEBC, although the overall value of these investments was down by 78%.
The December auction was celebrated by both the market and Brazil’s federal government, but it also posed a challenge to Lula: that of better defining his energy policy in the midst of the urgent need to combat climate change. Brazil has recently seen significant growth in renewable energy, and the president has regularly pitched his government as a champion of green causes, but also faced criticism over his mixed signals on expanding the country’s oil output.
Experts interviewed by Diálogo Chino recognise that new investments in transmission lines could help eliminate energy bottlenecks that currently see some renewable generation struggle to make it onto the grid and, at the same time, promote the country’s energy transition. However, they also say there are risks that should not be overlooked, such as the possibility that the tender could end up boosting other polluting energy sources.
Mixed news for transition
Celebrating the result of the auction, Brazil’s Minister of Mines and Energy, Alexandre Silveira, argued that the project will “reinforce investments in clean and renewable energies, such as wind, biomass and solar, making Brazil even more consolidated as a major player in the world’s energy transition.”
In practice, the outcome could be different. Anton Schwyter, a consultant for the energy programme of the ️Brazilian Institute for Consumer Defense (IDEC), argues that the new transmission lines could have side effects, such as enabling the construction of fossil fuel thermal power stations in the north-east.
Schwyter recalls that in 2022, as part of the law that allowed for the privatisation of state-owned energy company Eletrobras, the national congress mandated the installation of natural gas thermoelectric plants. Those in support of the measure argued that this was to guarantee the country’s energy security in the transition phase of the privatisation of the state-owned company.
However, that same year, the auction for the contracts of these proposed thermal plants in the north-east did not attract any interested parties, partly because of the region’s poor energy infrastructure. But now, with the construction of these new transmission lines, Schwyter says, such projects may be back on the cards.
The energy consultant tells Diálogo Chino that he believes these proposed thermal plants in the north-east have partly motivated the transmission line project. But, he adds: “To head in this direction is nonsense. Stopping the building of fossil fuel plants would be an important step [for Brazil].”
Doubts have also been raised over the long-term sustainability of a model focused on long-distance transmission lines, at a time when great advances are being seen in distributed generation – decentralised production, which typically makes use of renewable sources, and is aimed at supporting local or even household consumption.
“More and more, you can have energy that you produce yourself. Over time, this will grow a lot,” explains Schwyter. “I wonder if it makes sense to build transmission lines back and forth when there is a way for everyone to have their own [electricity system]. The lines are meant to last 40 or 50 years, but they can become useless and obsolete in a short time, even if they use state-of-the-art technology.”
IDEC is one of the civil society organisations involved in the Clean Energy Coalition, which advocates the progressive elimination of fossil fuel energy sources in Brazil. “The energy transition and the reform of the electricity sector are fundamental,” said Priscila Morgon Arruda, coordinator of IDEC’s energy programme.
Among the necessary changes, Arruda mentions the need for public policies to combat energy losses along transmission lines in the national system, as a way of reducing the need for investment in large new power stations and to lower Brazil’s electricity bill. Brazilians have the highest average spend on electricity bills, among 34 countries listed by the Organization for Economic Co-operation and Development (OECD).
Arruda also calls for projects that aim to eliminate energy poverty, the lack of access to electricity that affects many Brazilians, particularly remote communities in the Amazon.
Socio-environmental risks
The possible socio-environmental impacts on areas where the transmission lines will pass are among the serious issues that need to be considered in this type of development, warns Lívio Ribeiro, associate researcher at the Getulio Vargas Foundation and a partner at BRCG, a company that provides economic consultancy on China.
The researcher emphasises the need to “avoid what has happened in other projects in the country” in which local communities have not been properly consulted over works. “This generates conflicts because of the need to enter Indigenous land,” Ribeiro says. He adds that dialogues should be opened up with communities in these territories, mediated by environmental protection agency IBAMA, and FUNAI, the government body for the protection of Indigenous peoples.
The bidding notice for the auction stipulates that the winning company is responsible for “complying with the provisions of applicable environmental legislation, taking all necessary actions with the licensing authority, at its own risk, and meeting all its requirements.” To participate in the bidding, State Grid presented an environmental plan and included the costs for complying with environmental legislation in its budget.
In a response to Diálogo Chino, the Ministry of Mines and Energy said that the Krenyê and Ava-Canoeiro Indigenous lands, in Maranhão and Goias states respectively, are the closest to the planned transmission infrastructure, located about 40 kilometers from the planned stations. The ministry emphasised that the technical documentation on environmental impact submitted by State Grid followed the guidelines established by the Energy Research Company (EPE), a state organisation that that supports the ministry and other energy industry bodies.
State Grid also confirmed to Diálogo Chino that the project does not interfere with officially established Indigenous lands or quilombola territories (Afro-Brazilian communities that were traditionally founded by escaped slaves), and reiterated its commitment to ensuring the project’s sustainability. The company added that the implementation and operation of the transmission lines would be “carried out with the best environmental practices aiming at preserving the environment, within the scope of the environmental licensing process of the project, which is already underway. ”
Brazil is prepared, it has a socio-environmental regulatory framework, and the Chinese will certainly follow its rulesLuiz Augusto Figueira, a researcher at Getulio Vargas Foundation
In Brazil and across Latin America, Chinese investments in large-scale projects have often been received with caution by some observers, who have highlighted previous cases of socio-environmental impacts linked to Chinese companies and financing in the region. Last year, Latin American NGOs raised accusations of violations by Chinese companies to a UN rights body, and called for greater dialogue with Chinese organisations.
However, Lívio Ribeiro says that even though there are risks, Chinese overseas investment is becoming increasingly conscious. “Ten years ago, the Chinese would invest without knowing that they could have an impact on a quilombo,” he says. “What I realise has happened over time, in various investment areas, is that they have come to understand the dynamics of other countries, such as those in Latin America.”
Luiz Augusto Figueira, a researcher at Getulio Vargas Foundation and a former executive at Eletrobras, adds that in Brazil, government bodies are becoming increasingly judgemental when it comes to authorising projects: “Everything will depend on respect for the rules and supervision. Brazil is prepared, it has a socio-environmental regulatory framework. The Chinese will certainly follow the country’s rules.”
Chinese investment in Brazilian energy
State Grid arrived in Brazil in 2010 and already holds 19 transmission concessions across the country, plus another five in joint ventures. “The arrival of State Grid strongly signalled Chinese interest in energy transmission,” said Figueira.
For Figueira, the Chinese state-owned company saw “a great opportunity” to expand operations in a country that already has experience in high-voltage direct current (HVDC) transmission, similar to the infrastructure it is developing at home. This technology reduces energy losses and costs over long distances, and is to be used in the lines auctioned in December. Another factor, according to the researcher, is the state-owned company’s access to low-cost financing and to Chinese suppliers along the sector’s production chain.
Chinese interest in sectors such as energy in Latin America and the Caribbean has remained stable in recent years, even with international and market fluctuations, but there are changing patterns in new agreements and projects, according to a recent report by the Inter-American Dialogue. It highlights a shifting focus away from participating in oil projects towards renewable energy deal-making.
In the Brazilian context, the Chinese focus on oil remains strong. Ribeiro recalls that China is the second largest oil consumer in the world behind the United States, and that Chinese businesses have made large contributions to Petrobras to explore for oil in Brazil’s south-east, in the pre-salt layers of the Santos Basin.
State Grid’s success in the power line auction, however, follows the recent investment trend of Chinese companies towards the green energy and electric vehicle industries. “What China is doing in Brazil is similar to what it’s doing around the world,” Ribeiro summarises.
