EPE towards maturity

The Energy Research Office is the institution responsible for developing energy planning studies in Brazil. Thus, it has a strategic role, widely recognized by the Government, as well as by the industry and the whole society. In 2016, there were very important changes in the Brazilian Government. Such changes have reached EPE. A new approach has been established toward a new positioning in the energy sector, giving value to the factual reality as well to the transparency, communication, technical and multidisciplinary rigors in their recommendations and predictability in the implementation of measures which come from their studies. In this context, it is already possible to observe results on the articulation with sectorial institutions, public and private, on the greater exposition of its well-prepared technical staff and on the broader international technical cooperation. It is EPE towards maturity.

Energy Research Office (EPE, in Portuguese abbreviation) is a public company, which is entirely owned by the Brazilian Federal Government. It was established by law during the wide institutional reform of the power sector, implemented by the Brazilian Government at the end of 2003. The decree which effectively established EPE was published on August 2004.

The goal with the creation of EPE was for the Federal Government to regain its constitutional responsibility of guaranteeing the basis for sustainable development of the country’s energy infrastructure. Sustainable development, in this case, implies in a set of actions that enable energy supply implementation vis-à-vis demand growth, with  competitive costs and prices and minimum social and environmental impacts.

The creation of EPE materialized a genuine intention of the Brazilian society of having a knowledge-based institution integrated with social agents – investors, consumers and nongovernmental organizations – and able to support the formulation of public policies and the decisionmaking process.

It is interesting to notice that an energy planning institution separated from others is not a world standard. Colombia follows the same path with Unidad de Planificación Mínero Energética (UPME). However, in most of the countries of the North Hemisphere, energy planning activities are developed by an institution which is also responsible for the  operation system activities, and, in some cases, for the market activities as well. The Brazilian arrangement, which attracts interest from the international community, imposes the need of a strong coordination among all the above-mentioned institutions, all independently-run in the country.



Background

In its origin, Brazilian energy planning was conducted by two distinct institutions, with very limited integration. Until late 1990’s, the planning of the power and oil sectors were conducted almost independently by Eletrobras and Petrobras, respectively. Moreover, firewood was the main source of energy in the country up to mid-1970’s.

Integrated power sector planning in Brazil started in 1962 with the studies of the Canambra Consortium, which was composed of Canadian, American and Brazilian institutions funded by the World Bank and coordinated by the Committee for Energy Studies in Central-South Region. The results of the study were consolidated in a comprehensive report published in 1966, considered up to today one of the most important studies made in Brazil on power planning.

Those studies were the starting point of the Brazilian hydro potential developing since 1970’s and, later, to the creation of the Electrical Systems Planning Coordinator Group (GCPS, in the Portuguese acronym). This group gathered all the main players under the coordination of Eletrobras, which was then the giant holding company of the Brazilian power sector.

The oil sector, under Petrobras monopoly, assumed a totally centralized institutional arrangement. In fact, sectorial planning was an area inside the Petrobras organizational structure.

This panorama started to change due to 1980’s balance of payment crisis and the increased importance of natural gas as an energy source, the latter being reinforced by the growing concerns about climate change.

The crisis showed that the state-driven financing model for infrastructure expansion, particularly for the power sector, was exhausted. Similarly to liberalizing movements originated in the United Kingdom in early 1980’s, institutional changes were implemented in Brazil, transferring the responsibility of coordinating the sector’s expansion planning to the Ministry of Mines and Energy (MME). As such, the CCPE – Power System Planning Coordination Committee1 – was established in 1999, substituting the GCPS. CCPE’s effectiveness was nevertheless strongly contested because of the electricity rationing of 2001.

In the oil sector, the centralized structure has resisted a little more. Nevertheless, the big challenges of financing the investments to expand domestic oil supply have been pushing to relieve the Petrobras’s monopoly.

Natural gas had an important role in that changing environment. First, the fuel was put in the center of world energy agenda as a key element for an easier transition to the low carbon economy. Second, natural gas demonstrated to be an integration factor for energy planning. On one hand, it is a primary source that can compete, in the final use, both with oil products and with electricity. On the other hand, it is also a primary resource for the electricity generation. Furthermore, natural gas production is often associated with oil production.

In a similar way, sugarcane, which became in few years the second most important energy source in the Brazilian energy matrix, competes with both liquid fuel production and power generation, a competition that tends to increase in a scenario of increasing production of second-generation ethanol.

This was the background for the creation of EPE. EPE was created to be a governmental instrument able of developing an integrated energy planning, facing the responsibility and challenge of pioneering a comprehensive approach that considers economic, technological, social and environmental aspects of all of the energy uses and sources.


Establishment

EPE’s central office is in the city of Rio de Janeiro, where it hold an area of two floors in the RB1 Building, at 1 Rio Branco Avenue. The company’s headquarter is in Brasilia, the capital of Brazil.

Those who visit the EPE Central Office, especially the meeting room of the Executive Board, are delighted with a breath-taking wide view of the Guanabara Bay, noticing in this landscape, the President Costa e Silva Bridge (Rio-Niteroi Bridge)and the mountains of the Serra do Mar, which embraces the Northern Zone of the city and the region known as Baixada Fluminense. In a closer perspective, the lower view contemplates the remodelled Maua Square, the passenger terminal at the Port of Rio de Janeiro, the modern Museum of Tomorrow and, occasionally, the passage of the VLT, light vehicle on rails, a legacy of the 2016 Olympics Games to the downtown.

Everything good. Everything fine. But that was not always the case, even when EPE was already working at the same address.

Initially, it is interesting to mention that EPE’s location was discussed in the federal congress. The original text of the executive order that created EPE, sent to the Congress by the President, left the issue open for the decision of congressmen, even though there was an understanding on the convenience of centralizing its activities in Rio de Janeiro. In fact, many important institutions of energy sector are in Rio such as Eletrobras and one of its main subsidiaries (Furnas), Petrobras, the regulation agency for oil, natural gas and biofuels (ANP), the independent electrical system operator (ONS) and the most important Brazilian financial agent for power system investments, the BNDES. Moreover, in the city of Rio de Janeiro and its surroundings, are located four of most important universities of the country2 and advanced education programs dedicated to, among other areas, energy planning (e.g. Coppe/UFRJ).

The discussion was intense. Based on the aforementioned elements, the House of Representatives, where the Presidential executive order started the approval process, defined that the headquarters and the EPE Central Office would be located in Rio de Janeiro. This argument, however, did not sensitize the Federal Senate, which defined Brasilia as the location for EPE’s headquarter and central office.

As the text approved by the Representatives was modified, the project returned to the House. Finally, it was established that headquarter of EPE would be in Brasília and that its central office would be in Rio de Janeiro, alike other state-owned companies such as Eletrobras and Petrobras. That is how Law No. 10,847, which authorized the Executive to create the EPE, was approved on March 15th, 2004. 

The next steps were legal and bureaucratic procedures to make that authorization effective. On August 16th of the same year, Decree No. 5,184 was issued. It was created the EPE. A few months later, on November 9th, the President of the Republic appointed the first director of EPE. On January 2nd, 2005, EPE began its operations.

Prof. Dr. Mauricio Tolmasquim, former Deputy Minister of the MME, was the first CEO of EPE and was responsible for structuring the institution. He wrote: "all has started from zero, literally. On August 2004, there was not even an employee linked to EPE, nor there was a place that could be called as the institution's office. We were in a small room furnished by Eletrobras, on Marechal Floriano Avenue, in downtown Rio de Janeiro. There was where the first actions of the EPE began. Much more than any other factor, it was the enthusiasm and the will to make the right thing of a small group of people that pushed everything forward”.

In 2005, EPE central office has moved to the address where it’s working until today. But, it did not happen without setbacks. Half of the area was occupied by the technical staff, already heavily involved in their routine jobs, while the other half was under adaption to the institution’s needs. When completed the construction work on half of the area,  another move has happened in order to prepare the first half properly. Something like changing the car tire in motion.

The view of Guanabara Bay and the mountains could be seen back then. However, Maua Square did not look like it is today. There was the decayed building of the passenger terminal at the port and the old building of the customs authority, which was equally in bad conditions (later it was transformed into the Rio Art Museum). There was also the Perimetral highway, which contributed to the hostile aspect of the region. The neighborhood was populated somewhat differently than other parts of the downtown, where most of the offices were concentrated. Not rarely, robberies or small thefts occurred in the surroundings. The building was nice, but maybe because of these circumstances, the rent was not so high.

Then, works associated with the Olympic Games came and today the panorama is completely different. Rent has tripled due the improvements in the surroundings. Today, with the real state crisis and the excess of supply due to the attraction of urban investments made in the area, rent returned to values close to those of 2005, in real terms, in a region that is revitalized and quite pleasant now. New CEO of EPE, Dr. Luiz Augusto Barroso often says that "EPE bought a lottery ticket when it went to the Maua Square. It was lucky that the ticket was prizewinning”.


Structuring

The EPE was structured in four Boards: Energy Economy; Power System; Petroleum, Natural Gas and Biofuels; and Corporate Management. When EPE started to work, it gave a natural priority to the activities in the power sector. After all, at the same time when EPE was created, significant changes in the institutional arrangement of the power sector were implemented, changing the characteristics of the supply auctions. That is why the Environment Department was initially linked to the Power Studies Board. Later, in 2009, Environment Department was relocated to the Energy Economy Studies Board, which, in this way, began to act, in technical terms, in a completely transversal way regarding the others final areas of EPE.

With the new form of the auctions for expansion of energy supply, as such they are carried out until today, EPE was assigned to do the procedures for technical qualification of projects and, progressively, to carry out the basic studies which guide the process of transmission auctions. This came in addition to the company’s responsibility of developing classic energy planning studies.

In the Oil, Natural Gas and Biofuels Board, the first challenge was to structure a planning area outside Petrobras, which, for many years, carried out the main prospective sector analyses. It was really a long and hard fight, especially in the first years of EPE, which was overlooked within the oil sector.

In this context, the Corporate Management Board of EPE was facing the challenge of promoting bids for hiring studies and to implement the appropriate infrastructure for the institution as well. Additionally, the area has organized the first national exams in order to hire EPE’s technical staff.

The first national exam was carried out in 2005 and hired the first EPE employee in 2006. Since then, EPE has carried out more six national exams and, as a result, formed a skilled and young technical team. Indeed, EPE has a permanent highly skilled multidisciplinary staff, which comprised in December 2016 a workforce of 314 people with an average age of 39, being 286 with Bachelor’s degree, 169 of them (or about 55%) with at least a Master’s degree.

With such a skilled team and considering the institutional role defined by law, we can say that the major asset of EPE is its technical staff. Because of this, EPE was present in the main happenings in the energy sector in last years. The  recognition comes from the Government and the whole society, thus allowing its continuity and even the expansion of its institutional role.



Consolidation

Since its foundation, EPE has consolidated itself as a key element in the chain of activities that begins with the definition of guidelines by the Energy Policy National Council and the MME. Considering these guidelines, EPE carries out studies and researches in order guide the development of the Brazilian energy sector.

In this context, EPE has worked on three main fronts: formulation of ideas; development of studies and execution of actions.

In the first front, EPE acts like a true think tank of the Brazilian energy sector, being recognized as a respected center of reflections about potential directions of the sector.

Indeed, since when was created, EPE has actively participated in the most important discussions about the Brazilian energy sector. We can note the outstanding performance of EPE in the discussion of relevant topics such as improvements in the regulatory framework of both power sector and oil and gas sector; environmental licensing for hydropower plants; review of energy security criteria adopted in the power sector; introduction of renewables (wind, photovoltaic and biomass) in the power system; evaluation of areas with oil and natural gas resources; integrated environmental assessments of sedimentary basins and river basins; stimulation of distributed generation and energy efficiency; formulation of the national targets for greenhouse gas emissions reduction in the direction of a low carbon economy, among others.

On the second front, the most visible aspect is the regular publication of several studies developed by EPE team, among which stand out: the Ten-Year Energy Expansion Plan (PDE, in Portuguese abbreviation); the Brazilian National Energy Outlook (PNE); the National Zoning of Oil and Gas Resources; the Transmission System Expansion Plan (PET); the Ten-Year Pipeline Transport Network Expansion Plan (PEMAT); the Monthly Review of Electric Energy Consumption; the Statistical Yearbook for Electric Energy; the Brazilian National Energy Balance (BEN). And still: hydrographic basin inventories, hydroelectric feasibility studies, integrated environmental assessments of hydrographic and sedimentary basins, among others. 

Regarding the execution of actions, we can say that EPE has played a central role in the electricity generation and transmission auctions, participating both in the methodological design, preparation phase and instruction phase by developing, among others, studies for the definition of cap prices of the generation auctions. Additionally, EPE is also responsible for the studies that lead to public calls for natural gas carriers and the bidding process for the construction or expansion of pipelines.

We can say that EPE is today consolidated in the institutional arrangement of the energy sector, being present in the main events of the area and being directly responsible for a set of relevant actions in the Brazilian energy sector. However, EPE still need to prepare in order to face the numerous challenges of ensuring the expansion of energy infrastructure in Brazil, a country with great potential for development, while global energy sector undergoes a big transformation, able to change dramatically its way of operation.



Challenges

On July 2016, EPE faced a major institutional test, its first change of command. The new young CEO of EPE, who came from private sector and is a specialist by training, has sat on the chair with humility, respecting and valuing the technical excellence of EPE’s team.

The four basic principles of the new administration – transparency, objectivity, communication and loyalty – were quickly and broadly assimilated by EPE’s team, who embraced enthusiastically the decentralizing concept and participative management style, putting always in first place technical excellence, freedom of thought and a constructive process that come from the disagreement of opinions. All of this can be synthesized in a symbolic statement that is "if it is not to do the right thing, it is better to not even start it". As the new CEO of EPE often says, “we are here to do the right thing in the right way".

Thus, communication and dialogue with society were greatly expanded, especially in face of the new guidelines to rapprochement with the various sectoral stakeholders (e.g. financial market) and through the expansion of cooperation agreements with international entities related to the EPE business, such as CENACE in Mexico. Additionally, there is, of course, the continuous work driven to intensify domestic institutional integration, with other important sectoral stakeholders such as ONS, CCEE, ANEEL, ANP, universities, research centers and organizations like Cigré. Internally, the approach between the board and the functional body was widened, intensifying discussions between the board and the technical staff, allowing open discussions that constantly seek to improve analyses and results.

Within the guideline of restoring realism in sectoral planning and thus obtaining the long-term benefits required by the Brazilian society, this openness and transparency in communication have been fundamental to clarify to stakeholders the reasons behind the extremely tough, but necessary, decisions regarding the industry rearrangement taken since mid-2016.

EPE has played an important role in the efforts to improve the sectoral business environment, either by supporting governmental programs, such as "Gas para crescer", "RenovaBio", "Combustível Brasil", "REATE", or by formulating innovative initiatives, such as an auction to "uncontract" the exceeding energy which would be supplied by delayed projects. Of course, this also includes the review of studies directly developed by EPE, such as the PDE and the PNE, emphasizing the better communication about the perspectives of the energy industry in Brazil.

However, EPE's budgeting panorama has deteriorated dramatically in recent years, to the point that key expenditures are strongly impaired. Indeed, there is virtually no funding for basic expenses such as training. As an example, the budget for the training of 314 employees is around BRL 350.000 per year, which means a little bit more than BRL 1.000 per year per capita. This is definitively crucial for an entity that seeks to keep its intellectual excellence.

Despite the significant lack of resources in a challenging environment both energetically and institutionally in the country, EPE has not been losing ground in its relentless seek to be on the state of the art in the generation and diffusion of knowledge, preserving the technical and scientific rigors.

In conclusion, the path taken by EPE involves strengthening communication channels with society, exchanging the most relevant experiences with its international peers, improving its analytical tools and, above all, delivering results based on guidelines that seek the best management practices and the contribution to a business environment in the levels desired by Brazilian society. This is how, EPE will successfully carry out its ambitious longterm vision, which is to become the worldwide reference in energy planning studies, being increasingly recognized by the high quality of its work and for its technical independence and by the availability of unbiased information.

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