Brazil's Hydropower Crisis: Drought Sparks Energy Concerns

Soil moisture in Brazil's key river basins has hit nearly two-decade lows, affecting hydropower generation. Analysts warn prolonged drought could continue inflating energy costs and stoking inflation, despite expected seasonal rains. Efforts to mitigate impacts with wind and solar energy face transmission bottlenecks, highlighting Brazil's fragile electricity sector.

Soil moisture in Brazil's main river basins, critical for hydropower generation, has plummeted to nearly two-decade lows, data from the London Stock Exchange Group reveals. This poses a threat of prolonged impacts from the severe drought, even after rains return.

Brazilian hydropower, which typically contributes around two-thirds of the country's electricity through rain-fed river networks, has suffered from years of weak rainfall. This has escalated energy costs and driven inflation, compelling economists to anticipate a new round of interest rate hikes. Analysts caution that forthcoming seasonal rains may be insufficient to quickly replenish the hydroelectric reservoirs because a substantial amount of moisture will first be absorbed by the arid soil.

The Paranaiba, Grande, and Tocantins river basins, major contributors to Brazil's energy capacity, reached their lowest soil moisture levels for September since 2005, according to LSEG. LSEG analyst Claudio Vallejos highlighted that the current parched condition of the soil results from a decade with only one year of above-average rainfall. The severely dry conditions have forced the partial shutdown of the Santo Antonio plant, severely impacting the energy sector's operations during peak demands and necessitating the use of costly thermoelectric plants.

(With inputs from agencies.)