Tractebel Sees Brazil Power Rationing in 2015 If No Rain

Oct. 28 (Bloomberg) — Brazil may face energy rationing and
higher power prices in 2015 unless it gets rain in the first few
months of next year.

The key variable will be rainfall from January to April,
which typically accounts for about 60 percent of the water
inflow in the country’s hydropower dams, said Manoel Zaroni,
chief executive officer of Brazil’s biggest private energy
generator Tractebel Energia SA.

While the worst drought in eight decades is reducing output
from the most important hydroelectric plants in Brazil, the
country’s hasn’t had to ration power yet.

“If it doesn’t rain, we will have energy rationing,”
Zaroni said today on a conference call. “Power rates will be
very high in 2015, which could lead to chaos in the electricity
industry.”

Recent rains haven’t been enough to help refill reservoirs
in Sao Paulo, Minas Gerais, Rio de Janeiro and Espirito Santo
states, where 70 percent of Brazil’s hydropower capacity is
located. South America’s biggest economy gets about three-fourths of its electricity from hydroelectric plants.

The drought means Brazil will probably be forced to
continue using costly thermoelectric plants to avoid blackouts.
These plants burn coal, natural gas or biomass to produce power.

Record Prices

Tractebel and other companies have been buying energy at
record spot prices when output at their dams falls short of
supply commitments. The average spot price was 822 reais ($334)
a megawatt-hour this week, more than triple the 255-real price a
year ago, according the Sao Paulo-based electricity trading
board CCEE.

A government decision on rationing must be made in the
beginning of 2015, Felipe Hirai, a Bank of America Corp.
analyst, said in Sao Paulo last week.

Rationing may have negative credit rating repercussions for
the energy sector in Brazil, according to Mauro Storino, an
analyst at Fitch Ratings Ltd.

“If the level of rainfall doesn’t improve, it is
inevitable that there will be some sort of restriction on energy
consumption,” Storino said today in a telephone interview. “It
will affect energy companies’ credit risks and inhibit the
country’s consumption and production.”

Liquidity Problems

Energy distributors may have increased liquidity problems
in the next months, according to Moody’s Investors Service Inc.

“If drought persists, and additional government support is
not forthcoming, higher costs will impel Brazilian electricity-distribution companies to raise new debt in order to meet their
working capital needs over the next 12 months,” Jose Soares, a
Moody’s analyst, said in a report today.

Hydroelectric dams in Brazil’s Southeast/Midwest region are
at an average of 19.54 percent of total capacity, according to
the Electric System National Operator, known as ONS. That’s down
from 36 percent in June.

The last time Brazil was forced to ration power was in
2001.

To contact the reporter on this story:
Vanessa Dezem in Sao Paulo at
vdezem@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Steven Frank, Will Wade

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