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Brazil’s CTEEP: Taking forward the country’s grid expansion plans [free access]

After facing one of its toughest and longest recessions resulting from the ongoing political chaos and economic crisis, Brazil is embarking on a recovery path to achieve greater economic growth through low interest rates and improved business sentiment. Brazil has accelerated its plans to attract local and foreign investments. These include the federal government’s initiatives to improve the financial strength of the state-owned power company Centrais Elétricas Brasileiras S.A. (Eletrobras) and the Ministry of Mines and Energy’s (MME) Programa de Parcerias de Investimentos (PPI) or the Investment Partnership Programme, to foster private investment in the country’s infrastructure sector. Further, the country’s energy regulator, Agencia Nacional de Energia Eletrica (ANEEL), has been actively conducting competitive bidding of various transmission projects for the expansion of the country’s grid network, which has also helped attract significant private investment to the country.

Companhia de Transmissao de Energia Eletrica Paulista (CTEEP), the subsidiary of Colombian Interconexión Eléctrica (ISA), has been an active participant in ANEEL’s transmission auctions and has managed to secure several concessions in the past few years. The projects won by the utility since October 2016 are expected to add over 1,560 km of new transmission lines to the country’s grid. In addition, CTEEP has also been involved with modernising its existing grid assets through the introduction of advanced technology. Further, as part of its social initiatives, the company is a signatory to the United Nations Global Compact and invested approximately BRL7.4 million in social, environmental and cultural projects.

About CTEEP

CTEEP is one of the largest transmission system operators (TSOs) operating in the Brazilian electricity sector. It is responsible for the transmission of about 24 per cent of the total electricity produced in the country. The utility owns and operates several fully-owned subsidiaries, which include IE Aguapeí, IE Tibagi, Evrecy, IE Itaúnas, IE Itaquerê, IE IEMG, IE Pinheiros, IE Itapura, IE IENNE and IE Serra do Japi. Additionally, it also co-owns several companies such as IE Madeira (51 per cent), IE Garanhuns (51 per cent), IE Sul (51 per cent), IE ERB (50 per cent), IE Paraguaçu (50 per cent) and IE Aimorés (50 per cent). CTEEP has a presence in 17 Brazilian states – Rio Grande do Sul, Santa Catarina, Parana, Sao Paulo, Minas Gerais, Espirito Santo, Rondonia, Mato Grosso, Mato Grosso do Sul, Goias, Tocantins, Maranhao, Piaui, Paraiba, Pernambuco, Alagoas and Bahia.

Existing network

CTEEP and its subsidiaries operate the transmission network at voltage levels of 69-500 kV. As of end 2017, the company’s transmission network (excluding that of its subsidiaries) comprised about 13,104 circuit km of line length, of which 43 per cent comprised 138 kV transmission lines. Further, CTEEP’s network comprised 111 substations and 51,260 MVA of transformer capacity at the end of 2017.

Between 2012 and 2016, the company’s line length increased at a compound annual growth rate (CAGR) of 1.83 per cent, while its transformer capacity increased at a CAGR of around 3.89 per cent.

Table 1: Growth in transmission network

Note: NA: not available; Does not include the data for CTEEP’s subsidiaries and special purpose entities (SPEs)

Source: CTEEP; Global Transmission Research

Operational and financial performance

CTEEP did not record a significant improvement over the previous year in its operational performance in 2017. The company’s transformer availability fell to 99.91 per cent in 2017 from 99.97 per cent recorded in 2016; transmission line availability remained constant while that of reactors improved to 99.99 per cent from 99.95 per cent.

The utility’s network experienced a greater interruption time in 2017 and the Duração Equivalente de Interrupções (DREQ or Equivalent Duration of Interruption) increased from 2.27 minutes in 2016 to 2.3 minutes in 2017. Further, the Frequência Equivalente de Interrupções (FREQ or Equivalent Frequency of Interruption), representing the number of interruptions recorded a decrease from 0.10 in 2016 to 0.09 in 2017.

Over the past few years, CTEEP had consistently managed to hold its transmission losses at 1 per cent. However, during 2017, the figure increased to 1.3 per cent.

Table 2: Key indicators of operational performance

Note: Duração Equivalente de Interrupções (DREQ or Equivalent Duration of Interruption) – Time equivalent of interruption of maximum demand, expressed in minutes; Frequência Equivalente de Interrupções (FREQ or Equivalent Frequency of Interruption) – Number of times maximum demand is interrupted in the period

Source: CTEEP, Global Transmission Research

The company’s financial indicators during 2016-17 might not be directly comparable to those in the years prior to 2016, owing to the cash flow growth during these years resulting from the cashing of old, expired and long-disputed Rede Básica de Serviço Existente (RBSE or Basic Network of Existing Service) concession assets through their indemnification.

Excluding the RBSE effect, the net revenues for the company stood at around BRL1,344 million, representing an increase of approximately 4.8 per cent over BRL1,282 million earned in 2016, while net income decreased by around 25.5 per cent from BRL901 million earned in 2016 to BRL759 million in 2017.

The decrease in net income can be attributed to the decrease in equity pickup, or a fall in the current value of the company’s shares in the equity of its subsidiaries; and due to provisioning for reversal of the discontinued RBSE facilities.

At the same time, the earnings before interest, taxes, depreciation and amortisation (EBITDA) of the company also decreased by around 15.8 per cent to BRL759 million in 2017 from BRL901 million in the previous year owing to the lower profits of the company’s subsidiaries – IE Madeira and IE Garanhuns.

The revenues of the company have increased at a CAGR of around 11 per cent over the past five years since 2013, while the EBITDA has increased by approximately 30 per cent.

The return on equity for the company increased from 0.43 per cent recorded in 2013 to 0.55 per cent in 2017.

Table 3: Key indicators of financial performance (BRL million)

Note: 1 – Data on net revenue, EBITDA and net income includes cash flow from RBSE receivables.

EBITDA – Earnings before interest, tax, depreciation and amortisation

Source: CTEEP, Global Transmission Research

Capital expenditures

CTEEP invested a total of BRL294.9 million in 2017 – an increase of around 54 per cent over the investment in 2016. The investments included BRL197.9 million spent by the parent company CTEEP over reinforcements, building of new connections, modernisation and improvement of the existing network, BRL85.4 million invested via its subsidiaries for the completion of works in progress and BRL11.6 million spent as corporate expenditures.

Figure 1: Capital expenditure 2013–17 (BRL million)

Source: CTEEP; Global Transmission Research

Recently, in 2017, CTEEP also acquired a 75 per cent stake in Interconnection Eléctrica Norte e Nordeste (IENNE) from the Spanish company Isolux Energia e Participações S.A. (Isolux) and local power company Construções e Participações S.A (Cymi Holding). The deal involved an investment of approximately BRL101 million and has resulted in the transfer of 100 per cent control of IENNE to CTEEP. IENNE’s owns transmission assets in the states of Maranhao, Piaui and Tocantins and the acquisition deal is part of the CTEEP’s growth strategy to expand its asset base.

Further, CTEEP plans to invest around BRL679.5 million during the year 2018. This includes BRL220 million of expenditures on reinforcements, new connections, modernisation and improvements to be undertaken by CTEEP, BRL440.4 million in investments in the company’s new subsidiaries and for the completion of the original project works of its subsidiaries IE Madeira and IE Garanhuns, in addition to reinforcements and improvement expenditures by other subsidiaries and BRL 19.1 million of corporate investments.

Network expansion plans

CTEEP has been actively undertaking various transmission projects to support the development of power infrastructure across the country. The utility has regularly participated in the transmission auctions conducted by ANEEL.

Recently, under the transmission auction 02/2018 held in June 2018, CTEEP won the concession for two lots, including one in partnership with Transmissora Aliança de Energia Elétrica S.A. (TAESA). The lots represent six transmission projects, entailing the construction of around 41 km of transmission lines and the installation of around 1,900 MVA of transformer capacity.

Prior to this, CTEEP has also won a total of seven lots under the auctions 013/2015 and 05/2016, held in October 2016 and April 2017 respectively. The two lots involved a combined investment of BRL2.5 billion in the Brazilian electricity sector and will generate a 30-40 per cent increase in the company’s asset base and lead to an expansion of 80 per cent in the current Receita Anual Permitida (RAP or Annual Revenue Allowed) of the utility’s operating subsidiaries.

Some of the recently won concessions are listed below:

Table 4: CTEEP’s recently won transmission concessions

Note: NA–not available

Source: ANEEL; Global Transmission Research

Initiatives for grid modernisation

The company has been undertaking several significant projects to modernise its grid infrastructure and operations, and to make the grid more secure and reliable. Some of the major projects include the improvement of IT infrastructure at the Milton Fornasaro substation, located in the city of Sao Paulo.

The IT improvement programme was focused on the control, protection, automation and supervision systems of the substation. The project will lead to the automation of processes and increase the reliability, safety and agility of the facility and will ease the maintenance of the substation.

In addition to this, CTEEP undertook a project for the installation of a 440/230 kV transformer bank at the Taubaté Substation, including the replacement of the reserve phase and the existing transformer bank. This will help provide greater reliability in the load supply to the Vale do Paraíba region, served by the Santa Cabeça, Aparecida, Taubaté, Mogi das Cruzes, São José dos Campos and Itapeti substations.

Conclusion

CTEEP is focused on operating, maintaining, and expanding the transmission network by undertaking greater capital expenditure programmes. In addition to this, the utility has been involved with increasing the reliability of its existing network by deploying the latest technology. The company also plans to develop battery storage systems in the country in the future, for which a study in partnership with the University of São Paulo is currently underway.

Further, the participation in ANEEL’s recent auctions has signalled greater investor confidence in the country, paving the way for faster recovery from its economic downturn.