Regulated rates have become one of the most expensive in the world. The spot price is oscillating as never before, from the minimum to the maximum there is a factor of 1:10 and deregulated firm long term prices are also showing a lot of volatility. The range is an astonishing 1:2.
What is really happening?
The country's energy matrix is changing, driven by the Federal Government's strategy to subsidize non-traditional and more expensive sources. Since most of the Brazilian power is based on hydro and rains have not been very abundant, more thermal and expensive power plants have been dispatched to meet the country's demand. Environmental restrictions are demanding more investments and years to build new power plants, transmission lines and distribution systems. Taxes and red-tape related costs (also known as "cost Brazil") have been increasing steadily over the years and are now sky high. On site power projects (generation, co-generation, energy efficiency, energy management) gained importance with respect to the traditional "just power from the public grid". Downsizing took place everywhere. The clients hardly have people in a position to understand and recommend solutions in the energy arena, which typically is not their core business. So the energy account has become an important cost for the Brazilian corporate world.
In this scenario what are the new drivers for the corporate world's decision making process?
As opposed to contracting a single energy source, the need for a diversified portfolio so as to mitigate the above mentioned risks. This portfolio should include natural or liquefied gas, bio-masses, fuel oil, diesel depending on availability, logistics, price, contractual arrangements (firm long term, spot, take or pay, etc.). Types of energy conversion processes involved and the flexibility to use other or a combination of energy sources play an important role, not to mention access to higher voltage connections and associated lower wire fees.
Accordingly the challenge for providers is offering solutions consistent with this new and complex situation. Companies that have a strong muscle to offer a variety of solutions and also that are in a position to help the client understand the options, risks and actually participate in the decision making process are the ones who may be better off.
The trend from the Brazilian client's prospective is contracting a solution and not bits and pieces. Therefore there is a lot of room for M&A.