Energy (Brazil): tipping point

Energy (Brazil): tipping point

The official electricity auctions held this December resulted in R$91/MWh (A-1) and R$117/MWh (A-2). Please note 1 USD = R$ 4.9.

How to evaluate these prices?

I like to compare electricity prices with the marginal cost of expansion (CME), which is mainly the amortisation cost of new plants – to be built.

Considering the conditions of the Brazilian economy and investors’ perception of risks, the CME is in the order of R$ 150/MWh.

In simple words: the prices closed at these auctions are far below what would be minimally acceptable for investors.

The realistic expectation is that there will be a “turnaround” as the prices charged are not defensible in the long term.