El Nino-linked drought reduced hydropower output across multiple South American markets during 2024 and 2025. Brazil's Santo Antonio plant on the Madeira River temporarily halted operations due to low reservoir levels. Ecuador's Coca Codo Sinclair (CCS) facility, one of the country's largest hydropower stations, curtailed output for up to 14 hours a day under low inflow conditions. Uruguay recorded its worst drought in more than 70 years, drawing down reservoir levels across multiple hydro facilities. The International Hydropower Association (IHA) noted in its 2025 World Hydropower Outlook that South America's installed hydropower capacity sits at approximately 183 gigawatts (GW), but that capacity growth has effectively plateaued as climate variability makes output forecasting increasingly unreliable for long-range planning.
The procurement consequence is direct. When hydropower output drops, regional grid operators draw on thermal backup generation, which is more expensive to run and passes cost increases through to wholesale electricity prices. In markets where industrial buyers hold variable or partially indexed contracts, those price increases arrive on the utility bill. In markets where buyers hold fixed-price contracts, the utility absorbs short-term losses and typically recovers costs through rate cases that affect the next contract cycle. Either way, the buyer pays. The question is whether the contract structure makes that cost visible when it arrives or deferred and obscured until renewal.
Brazil's Hydropower Dependency and the Dry Season Spot Price Pattern
Brazil holds 57.6% of South America's installed hydropower capacity, anchored by the 14,000 megawatt (MW) Itaipu facility on the Parana River and the Belo Monte plant on the Xingu River. Brazil's short-term electricity market, governed by the Preco de Liquidacao das Diferencas (PLD), is capped at $178.41 per megawatt-hour (MWh) but recorded prices near $108.12/MWh in the southeastern submarket during the 2024 dry season stress period. In wet season periods, that market typically trades between $18.55 and $27.82/MWh.
Industrial buyers holding partially indexed contracts in the southeastern submarket, which serves Sao Paulo and Minas Gerais, saw direct cost exposure above contract baseload assumptions during that window. World Bank modeling projects that the frequency of multi-year droughts in South America could double by mid-century under current emissions trajectories. Andes glacial retreat documented by the IHA and International Renewable Energy Agency (IRENA) is reducing long-term inflow reliability for Andean hydropower stations that historically provided a buffer against lowland rainfall variability. That is a compounding structural trend, not a cyclical correction.
Brazil's National Energy Plan confirms hydropower's continued strategic weight but explicitly redirects new investment toward system upgrades and storage rather than new large-scale hydro construction. The practical implication is that dry season stress events will continue to be managed against existing infrastructure rather than absorbed by new capacity coming online. For procurement teams modeling energy costs at Brazilian manufacturing facilities over a five-to-ten-year horizon, that is a contract structure question, not a future scenario to monitor from a distance.
Colombia and Chile Carry the Same Structural Exposure With Different Grid Profiles
Colombia's National Development Plan (2022–2026) targets a significant expansion of non-conventional renewable energy to diversify the grid, but the country continues to rely on large hydropower reservoirs as its primary baseload and balancing mechanism. In the first quarter of 2024, severe El Niño-induced droughts caused national reservoir levels to plummet toward critical thresholds—approaching 30% of total capacity—forcing the grid operator to maximize thermoelectric backup generation and raising the risk of power rationing. Beyond these seasonal hydrological pressures, investor confidence in Colombia's energy sector has been further strained by ongoing disputes between the government and utility companies over electricity tariff interventions and market regulatory shifts, adding a layer of political uncertainty to the country's energy transition.
Chile surpassed 40% solar and wind generation in 2024, a diversification that provides meaningful buffer against hydro stress events compared to the Colombian or Brazilian grid mix. Ecuador remains deeply exposed. CCS accounts for approximately 30% of Ecuador's national generation capacity. When its output falls, Ecuador imports power at elevated spot prices or faces industrial curtailment across manufacturing and mining operations. For companies with supply chain dependencies on Ecuadorian industrial output, that curtailment risk carries a production reliability dimension that standard procurement risk assessments do not capture.
What Annual Procurement Contracts Are Not Capturing
Standard energy procurement contracts in Latin American industrial markets are typically structured around annual or multi-year baseload assumptions. Seasonal hydropower stress events do not appear in those assumptions because they are treated as grid operator problems rather than buyer exposure. The gap between that framing and the actual cost and production impact of a six-to-eight-week dry season stress event is where procurement teams are carrying unpriced risk. The IHA 2025 data confirms this is not a theoretical scenario. Major facilities in Brazil, Colombia, and Ecuador have experienced documented output reductions in each of the past three years, with wholesale price spikes following within two to four weeks of reservoir level alerts in all three markets.
The specific review question for finance and procurement leaders with Latin American operations is whether current energy contracts include provisions that activate when wholesale prices exceed a defined threshold, and whether operational continuity plans at those facilities account for a curtailment scenario lasting more than 48 hours. The contract cycle, not the next drought season, is the right time to address the structure.
