Interest rates and the Brazilian electricity sector
One of the most important costs in the electricity sector is the amortization of invested capital (“capex”). This is true globally.
The prevailing interest rate in Brazil is systemically higher than that of developed countries and even our direct competitors (BRICS).
This means that the cost of amortization in Brazil is much higher than global references.
And additionally there is an extra component that is added to the interest rates which is the “country risk”. And in this aspect, Brazil is also associated with an important extra due to the lack of good predictability and stability in the country and the “directions” of the electricity sector.
In the real world, the country’s interest rate + risk for Brazil is on the order of twice that of “well-behaved” countries. And so it is expected that the cost of electricity will remain “”sky high”.
