The movement of convergence of the natural gas and electricity industries characterized the global energy industry over the past 20 years. In OECD countries, the use of natural gas for generating electricity increased at a rate of 6% per year during this period and its participation in the generation matrix increased from 9% to 23%. Currently, the portion of natural gas is higher than nuclear one and lower than coal one.
Some dynamic factors explain this: (i) the discovery of significant natural gas reserves and interconnection of markets have changed the perspective, especially in Europe, natural gas as a product with limited availability and reserved for more noble purposes, (ii) the expansion of combined cycle turbines causes generating electricity from natural gas more efficient, increasing its competitiveness against other sources, and (iii) liberalization of industries reduced institutional barriers to new entrants.
With some delay, Brazil followed this movement, but the expansion of natural gas in thermoelectric power plants faced many obstacles. The construction of the Brazil-Bolivia gas pipeline has boosted the use of natural gas in Brazil, and perspective in the late 1990s was that the thermoelectric power plants would support the development of the natural gas industry in the country.
However, the conditions for investment in natural gas power plants were not attractive even in a context of insufficiency of electricity supply. The Thermoelectricity Priority Program (PPT) has encouraged the construction of gas power plants, but not in time to avoid the rationing of electricity in 2001 and 2002.
Since then, several power stations using natural gas were built, and the capacity to generate using natural gas reached 10 GW, about 10% of full power generation (Figure 1). However, the input generation capacity of thermoelectric power plants meant that there was no integration between industries.
Figure 1 – Installed Capacity (MW) and Average Production (MWmed) of Thermoelectric Power Plants using Natural Gas
The industries are in different levels of maturity, and expectations about the role of each one in the process of convergence are also quite different.
The Brazilian electricity industry is experienced, and its managers consider that the thermoelectric power stations using gas have a role to complement hydroelectric generation. That is, these stations have to operate only in situations where the hydrology is unfavorable, which reduces the spilling of water, and therefore the system’s cost of operation.
The natural gas industry is less developed in Brazil. The infrastructure of transportation and, especially, distribution is embryonic. Only the major markets (São Paulo and Rio de Janeiro) have distribution gas network. In this context, the role of thermoelectric power plants would be supporting the development of the network. Regular consumption of gas by thermoelectric power plants would allow the dilution of fixed costs and, increasingly, natural gas would be expanded to other markets.
As the operating regime of thermoelectric power stations follows the logic of the electricity sector, the average utilization factor of the stations using natural gas is 22% . The low utilization by stations does not provide the dilution of fixed costs for developing the gas network.
The institutional model of the electricity sector established in 2004 has changed slightly this situation. The thermoelectric power stations have different treatment, and its revenue is not bound to its use . Like the PPT, this is a solution for solving problem of those investing in power stations, but not for the development of the gas network.
The discordance between the expected roles of the two industries caused problems. To address the underutilization of its gas transport network, Petrobras chose to develop markets other than thermoelectric ones at the beginning of the 2000s. The natural gas consumption grew progressively. The major use of the gas network involved lack of fuel to feed the thermoelectric power stations when these were required to operate. This situation caused the Petrobras and ANEEL term of commitment in 2007.
The unavailability of natural gas resulted in the dominance of thermoelectric power stations using oil in the new energy auctions. According to the 2019 PDE (Economic Development Plan), these will represent 10 GW of installed capacity in 2013. In addition to environmental impacts, the amount of capacity in power station with high operating costs is not appropriate for the Brazilian electricity system. In case of an unfavorable extended hydrologic period, a costly sum will be transferred to consumers. The 2019 PDE also indicates that planning does not consider the construction of new natural gas power station in Brazil.
The solution to impart flexibility to the supply of natural gas to thermoelectric was the construction of regasification terminals for Liquefied Natural Gas. However, beyond the level of higher cost, hiring LNG is not completely flexible.
To facilitate integration between the natural gas and electricity industries it would be necessary to review the electricity system operation in order to make the operation of thermoelectric power stations using gas recurrent.
This review would have implications on operation of the electricity sector. On the one hand, the operational cost would be higher and more water would be spilled. On the other hand, the reservoir would be kept at higher levels, contributing to security of supply and reducing the need for investment in the electricity sector. Nowadays, the Brazilian electricity system operates with a utilization rate of 52%. Although this low factor is partially explained by the presence of hydroelectric power stations, it indicates that capital costs are high. To assess the net effect for the electricity sector it is necessary to quantify the changes in capital and operating costs resulting from recurrent operation of gas power stations.
Some recent events indicate that the review of the electricity sector operation is feasible: (i) discoveries of natural gas at sea and on land will make available relevant volumes of natural gas in coming years, (ii) common practice of dispatch from thermoelectric power stations due to security reasons reveals dissatisfaction with the current electricity operating system. Due to these reasons, this issue will certainly gain more space in the debate on energy policy in Brazil.
 To calculate the average utilization factor (average generation/installed capacity ratio), it was assumed that the capacity input occurs in half of each year.
 Annual fixed value compensates power stations, and operating costs (fuel) are transferred.