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Energy and the exchange rate in Brazil

Energy and the exchange rate in Brazil
rafael.herzberg@gmail.com

There is a convergence of opinion among economic/financial experts that interest rates in Brazil will continue to fall.

One of the attractions of global investors in Brazil has been for years the real remuneration higher than a list of other countries.

In this scenario it will be reasonable to assume that the Real (local currency) will continue to depreciate against hard currencies. In fact this phenomenon is already occurring!

Generation projects will be more expensive in Reais because most of them depend on imports. Fuel-dependent plants have their variable costs linked to the Dollar and will also have leveraged costs.

Bottom line: Energy should be more expensive in Brazil in Reals.

Rafael Herzberg's picture

Thank Rafael for the Post!

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Matt Chester's picture
Matt Chester on Oct 23, 2019 1:33 pm GMT

Generation projects will be more expensive in Reais because most of them depend on imports. Fuel-dependent plants have their variable costs linked to the Dollar and will also have leveraged costs.

Do you think this will be a boost to renewable energy projects that don't have such fuel import reliances?

Rafael Herzberg's picture
Rafael Herzberg on Oct 23, 2019 9:03 pm GMT

Hi Matt, hydro power projects are entrirely "made in Brazil" but these days reservoirs are considered a "crime" so it became expensive (very volatile given the rain regime) but solar for example depends (highly) on imports (film). And financial resources - mostr probably - depend on har currency as well. So it is a very tricky situation!

Matt Chester's picture
Matt Chester on Oct 23, 2019 9:39 pm GMT

Interesting. Understood that the PV materials need to be imported, but I would think that at least with those being a one time (or, more accurately, once every 20ish year) cost and fuel 'free' that it would be able to tip the scales. But those markets are indeed pretty tricky these days too, I suppose

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