Exchange rate and energy (Brazil)

Exchange rate and energy (Brazil)

The electricity sector is capital intensive. Its value chain (generation, transmission and distribution) requires around USD 3 Billion/GW installed.

Assuming a growth of 5 GW/year in the Brazilian demand, it is equivalent to an investment of USD 15 Billion, or around R$ 80 Billion.

With the local currency devaluing, a risk arises that deserves consideration by everyone responsible for making strategic decisions for their companies or institutions.

How will regulated tariffs and prices in the free market “react” to this new scenario?

If they are pegged to the USD, supply should remain in line with (growing) market demand  – investors will feel free to increase installed capacity.

If not, there could be “stress” due to lack of supply to the extent desired by consumers. In both cases, I see a substantial price increase (in the local currency) on the horizon!