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China Three Gorges Brasil (CTG Brasil) is advancing the modernization of the Ilha Solteira and Jupiá hydroelectric power plants in São Paulo and Mato Grosso do Sul states, through its Rio Paraná Energia subsidiary.
In June, the company concluded the issue of 845mn reais (US$167mn) in local bonds, of which 650mn reais will be invested in the second stage of the undertaking, whose total budget is 3bn reais.
In this interview, CTG Brasil’s vice-president of finance and investor relations, Carlos Carvalho, talks about growth plans, the potential of PV solar power generation, and the start of certifying operations with I-Recs.
BNamericas: Why did Rio Paraná Energia decide to invest in the modernization of its hydroelectric plants?
Carvalho: First, it is important to explain our structure. Rio Paraná Energia is one of the companies that make up our operations in Brazil. It was created when CTG Brasil won the auction of the concessions for the Ilha Solteira and Jupiá hydroelectric plants in 2015. Located on the Paraná river, between the states of São Paulo and Mato Grosso do Sul, they have total installed capacity of 4,995MW.
Because they are old assets, with more than 40 years of operation, when we were awarded the concessions we already knew of the need to invest in the modernization of the plants. We are investing about 3bn reais in this process, focused on increasing the availability and reliability of operations, an important contribution to the Brazilian electricity sector.
The project is the largest of its kind underway in the country and reinforces our long-term commitment to Brazil. In addition to Rio Paraná Energia, our structure includes four other companies (Rio Verde, Rio Canoas, Rio Paranapanema and Rio Paranapanema Participações), and the holding company.
BNamericas: Why the option for debentures, or local bonds?
Carvalho: We are looking for more flexible ways to raise funds, and issuing debentures is a more attractive option for investors.
BNamericas: What is the timeline of these projects?
Carvalho: With an estimated duration of 10 years, the modernization project for the Ilha Solteira and Jupiá plants is in its second phase, which includes the modernization of eight generating units – four in each plant – and their auxiliary electrical and mechanical systems, plus the implementation of a new generation operation center (GOC).
Already in the second phase of the project in 2020, the replacement of all the voltage elevator transformers at the Ilha Solteira plant was concluded ahead of schedule. In the first phase of the project, four units – two from each plant – were modernized. In total, there are 34 generating units: 14 at the Ilha Solteira plant, and 10 at the Jupiá plant.
BNamericas: What are your main ongoing projects/contracts?
Carvalho: In terms of research and development (R&D), for example, CTG Brasil almost doubled its investments, from 13.2mn reais in 2019 to 24.8mn reais in 2020. The increase is the result of the area’s growth in recent years, in addition to the improvement of our internal processes.
Among the R&D projects in progress, I would like to highlight the development of a methodology for selecting sites for the implementation of reversible power plant projects in Brazil, including the definition of the regulatory and economic framework for their insertion in the electricity matrix.
In addition, we are working on research to analyze real conditions for PV solar power generation in the country, which should attract new investments from industries seeking clean, reliable, and low-cost energy.
Another important investment, which will add more efficiency and excellence to the operations of our assets, is the implementation of the new ERP [Enterprise Resource Planning, an online corporate management software].
The acquisitions made by CTG Brasil over the years brought the challenge of integrating the processes and, as a solution supported by robust technology, we gathered all the asset management in a single system, the SAP 4 Hana. With it, all units now have access to real-time information, improving management for better decision making.
BNamericas: What are the group’s expansion and investment goals?
Carvalho: We arrived in Brazil in 2013 and we are already the second largest private energy generator in the country, with investments in 17 hydroelectric plants and 11 wind farms, with total installed capacity of 8.3GW.
Our investments are long term. We believe in Brazil’s potential for the development and operation of large-scale clean and renewable energy generation projects, which is CTG’s core business. Therefore, we maintain our growth plan and keep looking for market opportunities, always focused on clean and renewable energy generation, such as hydro, wind and solar.
BNamericas: Do you intend to grow in the free energy market?
Carvalho: Yes, we are increasingly aware of the opportunities in the free energy market, and we are investing in projects in this regard. In 2020, for example, we started an R&D project together with the electricity trading chamber (CCEE) to develop a mechanism to measure the risk of free market participants, including all agents that register contracts with the CCEE, such as traders, generators, and consumers.
In the current phase of the project, the executing entities are completing a market simulation platform that should facilitate the evaluation of proposed solutions for improving security measures. Our main objective is to contribute to the growth of the Brazilian electricity sector and, consequently, to the development of Brazil, since energy is an essential input. The project will last until 2024 and has an investment of 4mn reais.
Another important mechanism aimed at growing business in the free market, as well as strengthening the company’s digital transformation strategy, is the CTG Conecta platform, launched in early June.
The intention is to offer our clients more autonomy in the monitoring of the energy contracts signed with CTG Brasil, in addition to expanding our contact channels with prospects, who will have one more possibility to request proposals for the purchase and sale of energy.
BNamericas: Does CTG plan to participate in regulator Aneel‘s next generation and transmission auctions?
Carvalho: CTG Brasil operates in clean energy generation. For auctions with this focus, we continue to evaluate the opportunities.
BNamericas: Are you studying mergers and acquisitions?
Carvalho: As I said, we are always attentive to opportunities in the clean energy market and this includes the possibility of mergers and new acquisitions.
BNamericas: What are the financing strategies?
Carvalho: CTG Brasil plans its financial leverage seeking to optimize its capital structure to maximize the return on its projects and minimize risks. In this context, long-term financing alternatives with appropriate costs and ratios are studied well in advance, which can be confirmed through the appropriate leverage and profitability ratios of our companies.
BNamericas: Do you have your eye on the renewable energy certificates (I-Recs) and carbon credit markets?
Carvalho: We want to continue generating clean energy on a large scale and, considering the size of the company, to have a direct impact so that Brazil continues to grow with low-carbon energy, paying attention to best practices to benefit the environment, the business and the communities around our hydroelectric plants. In this sense, we are indeed in search of I-Recs, and the goal is to start the certifications of our operations still this year.
In addition, we neutralized 100% of the direct CO2 emissions related to the company’s operations in 2019. The neutralization was the result of forest conservation activities in an area of 220,000ha in Amapá, which will prevent the emission of about 3.5Mt of carbon into the atmosphere in 30 years.
We achieved neutralization by joining the REDD+ Jari-Amapá project, which promotes training in sustainable management techniques and agro-extractive production in the Vale do Jari region, in order to promote the wellbeing of communities, making them partners in the maintenance of forest resources.
