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Power prices (Brazil): tipping point

Power prices (Brazil): tipping point

Security to close robust decision-making processes requires consistency with reality.

What is the right "technical" equilibrium price that brings peace of mind to closing sustainable deals for both energy providers and energy consumers?

I always advise my clients to consider the marginal cost of expansion as a reference. MCE is a value associated with the cost of energy produced from plants to be built, respecting the Brazilian energy matrix.

  • Required investment is R$ 4 200/kW typically
  • Amortization period of 10 years for the  invested capital 
  • Interest rate including country risk of 1.5% per month 
  • Monthly amortization results of R$ 76/kW/month 
  • Referring to the energy produced is equivalent to R$ 150/MWh 
  • 30% of the country's power matrix is ​​thermal 
  • Fuel cost of the thermal plants is R$ 200/MWh produced 
  • Amortization and fuel cost (CME) is R$ 150/MWh + (30% x R$ 200/MWh) 
  • CME results in R$ 210/MWh (1 USD = R$ 4,1)

If energy offers are around R$ 210/MWh there is a balance, to justify closing deals.

If the offers are well below, the possibility of the supplier failing to honor the contract until its end.

If the offers are well above, the possibility of the client falling out of competitive parity in his market.

Conclusion: It will be worth analyzing market prices aiming at systemic sustainability.

Rafael Herzberg's picture

Thank Rafael for the Post!

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