A paradigm shift in the commercialization of Paraguay’s surplus electricity from Itaipu : from a bilateral agreement to potential entry into the Brazilian electricity market

Abstract

Paraguay is a country with sustainable characteristics in terms of its power system, which is today 100% hydropower generation thanks to ITAIPU, YACYRETA, and ACARAY power plants. Paraguay has an energy export profile in the binational power plants, but this export (actually, energy cession) is restricted only to its partners (Brazil and Argentina) by the provisions of the respective bilateral treaties. These agreements also require the signing of power purchase contracts with the energy companies of the partner countries. The state-owned company, ANDE, is the Paraguayan part of these contracts. This work contributes to the analysis of the best options to harness the ANDE’s power purchase from ITAIPU's Bi-National Hydropower Plant. The regulatory framework of this analysis is the regional and bilateral energy integration agreements, and the criteria to define the best options are the results of a financial evaluation of two hypothetical scenarios of energy surplus sales into the Brazilian short-term power market, based on historical data (2014-2017). The questions which guide this paper are: i) What are the options to commercialize 20 ITAIPU's Paraguayan energy under better conditions than the current ones? ii) How to improve the benefits of Paraguay's energy surplus? The cases of CAN and SIEPAC were analyzed to identify the mechanisms and degree of integration of their markets, and concerning the region, it was identified that both MERCOSUR and UNASUR do not propose the means to overcome the barriers to the commercialization of Paraguayan energy from ITAIPU in other markets in the region. An alternative was proposed in the Lula-Lugo Agreement (2009), which allows ANDE to gradually access the Brazilian electricity market. The results achieved in this study showed that the Paraguayan company can go from about USD 300 million to about USD 1,500 million in terms of income by installing an electricity marketer in Brazil (in the period analyzed).