Spot electricity prices surge in drought-stricken Brazil

BRASILIA - Brazil’s worst drought in almost a century has driven up spot electricity prices 40% this year, raising costs for large industrial consumers which negotiate directly with supplies, electric market executives said.

Energy contracts for the second half of this year and for 2022 have soared, along with a jump in spot prices used in short-term operations that could reach the maximum of the regulatory ceiling in the coming months, they told Reuters.

This could result in a sharp increase in costs for large industries that have not signed contracts in advance to meet all their energy demand, the experts added.

Hydroelectricity is the main source of energy in Brazil and reservoirs are very low due to the lack of rainfall.

At the BBCE electricity sales counter, deals for the entire year of 2022 closed on Tuesday at an average of 350 reais ($69.44) per megawatt-hour (MWh), well above 250 reais at the beginning of the year, a company adviser, Victor Kodja, told Reuters.

“The market is stressed, upwards of course, and there is still a strong upward bias,” he said.

Kodja said the average price last year was between 180 reais and 200 reais. Prices can only fall if there is an improvement in the outlook for rain, he added.

On the spot market, where electricity is priced by the so-called PLD settlement price calculated by the Electric Energy Trading Chamber (CCEE), prices are expected to soar in coming weeks and months.

Electricity trader Tempo Energia estimates that average spot prices may hit the regulatory ceiling of 583.88 reais per MWh in July or at the latest in August, against an intraday average of 279.74 reais on Tuesday. ($1 = 5.0400 reais)


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