The Itaipu Dam: The Changing Energy Landscape in South America
Image of the Itaipu Dam from the Brazilian side. Photo by Regina Blenda Ayala.
An engineering marvel for its time, the Itaipu Dam is a binational hydroelectric facility jointly owned by Brazil and Paraguay and strategically situated along the Paraná River. Since it started operating in 1984, the single plant has generated the most energy out of any other plant in history, boasting 2.9 billion megawatt-hours of output. Notably, its daily energy generation alone curbs a substantial 87 million tonnes of CO2 emissions, an amount equal to Paraguay's entire projected emissions for 2024. The dam plays a vital role in powering the electrical consumption of both nations, contributing to 86.40% of Paraguay's energy needs and 8.72% to Brazil’s total demand in 2022. Now, fifty years after the historic Itaipu Dam Treaty was signed, its conditions are up for renegotiation. This has the potential to shift the geopolitical landscape of South America as the negotiation turns a new page on Paraguay and Brazil’s relationship, and change the political balance between the two neighbors. Even broader, it has the potential to set a new precedent for clean energy in the region as Paraguay shifts its focus to energy sovereignty.
The crown jewel of the negotiations is the infamous “Annex C.” Annex C establishes that Brazil and Paraguay are equally entitled to 50 percent of the energy produced by the Itaipu Dam. However, despite Paraguay using only 20 percent of Itaipu’s total production, Annex C prohibits Paraguay from selling its unused hydropower to other countries or corporations other than Brazil, often at way below market price. As a result, Paraguay is the fifth largest energy exporter in the world, despite being one of the poorest countries in South America. Notably, Paraguay suffers from energy poverty, especially compared to its neighbors. Despite the Itaipu Dam supplying 86.40% of electrical energy in Paraguay, the country still relies on coal and high levels of biomass for fine energy consumption. In an exclusive interview with CPR, Paraguayan Senior Industrial Engineer at the National Electricity Administration (ANDE) María del Rocio Cueto (1) explained that the economic costs are a key issue, “In an industrial factory, the cost of energy within its fixed costs is variable depending on its item, but it is always important. It was preferable to burn material, cheap or free, obtained from nature, rather than pay high electricity costs.” Without the proper domestic infrastructure, Paraguay will continue to suffer from energy poverty, especially in its rural areas. However, Cueto reveals (2) that a newly inaugurated sub-station YGuazú will be able to handle more electricity in the national energy grid. This will allow Paraguay’s infrastructure to move away from fossil fuels and instead incorporate more hydroelectric power.
Paraguay and Brazil’s unequal partnership is only exacerbated by government corruption. In 2019, a scandal broke out when the Paraguayan government engaged in secret negotiations with Brazil. Paraguayan officials had accepted unfavorable terms demanded by Brazil for the sale of its hydropower, an agreement that would raise the energy bill for consumers in Paraguay. In addition to rising energy bills, the Itaipu Dam Treaty has proven to be more favorable to Brazil than Paraguay from a business perspective as well. According to Paraguayan researcher Cecilia Vuyk, “Itaipu has worked as an oxygen tank in the form of subsidies to large multinationals in Brazil.” The cheap electricity purchased by Brazil from Paraguay allows large multinational companies to lower their energy costs and therefore boost the Brazilian economy by increasing its industrial capacity.
Yet, there is great potential for change: the new President of Paraguay, Santiago Peña, has big ideas to redefine Paraguayan domestic policy. After meeting with Brazilian President Luiz Inácio Lula, Peña told journalists that to develop Paraguay, the country must utilize energy as a source of development, in contrast to the current revenue-based policy that sells energy to Brazil. Peña emphasized how Itaipu can become a significant source of development for the nation. Brazil’s President Lula is open to these negotiations. In March, during a meeting at Itaipu with outgoing Paraguayan President Benítez, Lula said that Brazil is committed to reaching a fair agreement with Paraguay. President Lula expressed that the negotiation between Paraguay and Brazil will take into account the reality of the two countries, emphasizing Paraguay as an important ally. The talks began on August 13, two days before president-elect Peña took office. Paraguay and Brazil are beginning to form their negotiation teams, with the talks expected to last four to five years, primarily focused on renegotiating Annex C, according to the Brazilian Director of Itaipu.
With Paraguay poised to make its own decisions regarding unused hydroelectricity, the country should focus on sustainable and economic development. President Peña seems to be doing just that. In fact, Senior Industrial Engineer at ANDE Cueto revealed (3) that, “The new administration plans to create a Ministry of Energy, which will allow the creation of public policies to change the energy matrix towards more renewable energy while phasing out fossil fuels.” As the administration refines the goal of a new agency, the Ministry of Energy should focus on green hydrogen production. Spurred by the Paris Agreement, green hydrogen production would create fuel out of Itaipu’s renewable electricity and could be used for long-distance and public transportation. This has the potential to create renewable and sustainable public transport connecting the capital to rural areas in Paraguay, increasing access to valuable resources found only in urban areas. Another possibility of green hydrogen is fueling long-distance transportation such as trucks. If it enters the export business using green hydrogen as fuel, it has the potential to not only help the economy, but do so sustainably. To change the landscape of Paraguay’s energy, it is of paramount importance that there is a successful renegotiation of Annex C as it would open up Paraguay’s possibilities for embracing renewable energy.
Paraguay and Brazil are not alone in their use of hydroelectricity. Hydropower is the main source of electricity generation in Latin America, accounting for 45% of the total electricity supply from the region. If Paraguay decides to pursue domestic development with green hydrogen production, it can set a new precedent for a region marred in energy poverty. However, as past actions by Brazil and Paraguay have shown, there is a risk of corruption disrupting the negotiations and impeding Paraguay from achieving energy sovereignty. The question still remains if Brazil will continue to be cooperative in the negotiations, as they stand to potentially lose the economically favorable Annex C clause. President Peña must take bold steps to ensure Paraguay’s position in the Itaipu negotiations and garner the domestic support needed to make this new transition to a Paraguay run by renewable energy.
Regina Blenda Ayala (CC ‘27) is a freshman at Columbia College eager to study political science and history. You can find her trying new restaurants every weekend and enjoying the buzz of New York City. A proud mix of Paraguayan, Mexican, and Italian, she enjoys discussing foreign policy and diplomacy.
(1) The following quotation in Spanish was given in an interview with CPR by Paraguayan Senior Industrial Engineer at the National Electricity Administration (ANDE) María del Rocio Cueto. The English translation is provided in the article for clarity, “Los costos. En una fábrica industrial, el costo de la energía dentro de sus costos fijos es variable dependiendo de su rubro, pero siempre es de importancia. Era preferible quemar material, barato o gratis conseguido de la naturaleza, antes que pagar altos costos eléctricos.”
(2) The following quotation in Spanish was given in an interview with CPR by Paraguayan Senior Industrial Engineer at the National Electricity Administration (ANDE) María del Rocio Cueto. The English translation is provided in the article for clarity, “El país a nivel del sistema eléctrico aún no estaba preparado para traer toda la energía de Itaipú, sin embargo semanas atrás ya fue inaugurada la Subestación YGuazú, con lo cual se cumplirá esa meta. Esto permitirá más infraestructura como para ir desplazando la energía fósil por la hidroeléctrica.”
(3) The following quotation in Spanish was given in an interview with CPR by Paraguayan Senior Industrial Engineer at the National Electricity Administration (ANDE) María del Rocio Cueto. The English translation is provided in the article for clarity, “No obstante te comento que existe un Plan del nuevo Gobierno, de crear un Ministerio de Energía, el mismo permitirá direccionar políticas públicas para hacer que la matriz energética vaya cambiando a energias más renovables y ya no fósiles.”