• iCS - Climate and Society

What has the impact of COVID-19 been on the energy sector in Brazil?

By Roberto Kishinami

The pandemic led to a 15% fall in the overall electricity demand, in the first month of protective measures ordered by state governments (started on March 17th). At the moment the power sector predicts that 2020 will end with around 12% surplus of power generation contracts taken by distribution utilities, and that the consumption will only return to the same level of December 2019 at early 2024. The economic impact of the decrease in demand has two sides: i) first in relation to the generation: the spot price of electricity (named PLD) fell to approximately US$8/MWh, at all markets, from a range US$30/MWh to US$50/MWh in the weeks immediately before the pandemic; ii) secondly, in relation to the consumption: in addition to the huge consumption drop, a 20% default of payment of the residential market monthly bill. This figure will increase, as the regulatory body ANEEL issued a waiver for low-income consumers to be exempted from paying their electricity bill from April to June 2020. As the unemployment rate (before the pandemic, 11%, or 12 million people) increases, consumption and default on utility bills is expected to increase as well. Distribution utilities are demanding immediate support from the government. There are two possibilities under consideration. First, a credit line syndicated by the national development bank (BNDES): an approx. US$4 to 5 billion loan, to be paid by all the electricity customers in the next five years (60 months). A second alternative, that can be combined with the first one, to redirect the R&D plus Energy Efficiency mandatory funds, booked in the distribution utilities and supervised by ANEEL, to cover the deficit from low-income customers, evaluated in approx US$1.4 billion from the three months waiver. It is believed that Energy Transition will be highly impacted by this current crisis, due to the paralysis in the centralized generation expansion. The Brazilian power sector is based on national reverse auctions, and the previously forecasted demand (based on average 2.7% GDP growth, until 2025) is already fully contracted. The surplus on energy in the near future will lead to a M&A movement in the sector, hopefully favoring renewable sources. The direction of the changes will depend on the government´ short term decisions.

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