On June 1, 2001, apagão, the Portuguese word for “blackout,” became part of the vernacular in Brazil. In order to avoid a collapse of the national electricity grid, the government issued an order to slash the country’s energy consumption by a fifth.

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There was no other option due to the severe lack of capacity and the subsequent effect on the Brazilian economy was a dramatic: inflation surged, the currency crumpled and the country’s risk rating dipped into the negative range. Today, the specter of those days has risen again. Given the current 4.8% annual growth rate, there is a 30% chance of blackouts returning to Brazil by 2012, according to the Acende Institute, a group representing Brazil’s electricity industry.

Currently, more than 80% of Brazil’s energy comes from hydroelectricity, and additional sources of generation have lagged. The country’s current hydroelectric output hovers around 75,000 MW, less than 30% of its estimated hydro potential, according to the Mines and Energy Ministry.

A 10-year energy plan calls for creation of almost 27,000 MW of capacity, and the federal government has stated its intent to auction seven major hydroelectric projects by 2011. Environmental groups acknowledge the need for electricity but say the projects’ long-term effects on the environment and native groups are being ignored.

The possibility that other options may be even feasible is dismissed due to the perceived ease of building hydro projects, says Glenn Switcks, the Latin America program director of Berkeley, Calif.-based International Rivers. “In Brazil there is still absolutely no recognition that there is any problem or impact of building dams on this scale,” he says.

The energy strategy prioritizes rivers far in the country’s interior as sites for future dams. Previously, large dam projects there would languish in a regulatory licensing morass, but new rules have changed the game. Brazil’s environmental protection agency, known by its acronym IBAMA, was overhauled to better facilitate progress of these projects. The initial result is the recent tendering of the Madeira River dams.

Their success will directly affect the possibility of additional dams. The most controversial is the proposed 11,000-MW Belo Monte scheme on the Xingu River. A 2,160 MW project at Marabá on the Tocantins River and a massive 9,000-MW project at Sao Luiz on the Tapajos River are awaiting environmental permits.