Although we are going through challenging times with the water crisis and political and economic uncertainties, the Brazilian energy industry is still one of the major targets for foreign investment. While energy inflation in Brazil is the second highest in the world, just behind Norway, the country is enormously important in terms of generating clean energy (hydroelectric, wind, solar, and hydrogen).
As discussions on minimizing environmental impacts make headlines the world over, investors are looking for opportunities to invest in clean and renewable energies.
Recently the M&A Community held their webinar “Projeções de investimento em energia no Brasil” (Predictions for investments in energy in Brazil). Below, the moderator of the discussion, Débora Yanasse, Partner at Tauil & Chequer Advogados in association with Mayer Brown, talks about the energy sector in Brazil and its key opportunities and challenges:
In general, how would you rate the electricity industry in Brazil?
This is an extremely strong industry. Since the first change back in the 1990s, we have had several decades of new market openings, thanks to factors such as a solid regulatory framework and strong independent regulation. This is an extremely mature market with many opportunities for investment, in virtually all segments. More recently renewable energy sources, such as wind and solar energy, have generated even more opportunities.
In terms of energy trading, a relatively small free market has continued to grow. This accounts for 30% of the total market at present but has been showing signs of expansion.
On the consumer side, recent tariff increases have led individuals to gamble on energy production projects as well, showing that it is a market that continues to attract both foreign and domestic investment.
What is the importance of the free energy market for this context? What is its current status?
This is an ever-growing market. An increasing number of people choose to switch their energy provider, instead of remaining with the public sector. As supply becomes diversified, consumers opting for the private option will have more freedom to control price by choosing a product that is financially more attractive to them.
Migration to the private sector is growing year on year, although there are some legal and regulatory conditions and barriers. However the Ministry of Mines and Energy is taking steps to reduce these obstacles, so that an ever-growing number of consumers will have the right to choose their own supplier.
How do you see the privatization of Eletrobras?
This is happening within the context that the key energy distribution player in our country now has opportunities to improve its efficiency, and obtain even more funds from abroad. Discussions on the privatization of the company are in response to the various crises it has faced which are blamed on previous federal government administrations. Once privatized, Eletrobras will be better able to recover its market value and attract more investments.
During the September event, the general atmosphere was that of optimism for 2022. Why is that? What are the best opportunities for investments in the electricity industry?
Brazil is again experiencing a water crisis, which demonstrates the need to diversify both energy generation and the electricity grid.
Another significant change we are seeing in Brazil is investors’ interest in hydrogen-generated energy, which not only helps diversify the grid, but also decarbonize energy distribution.
Regardless of the election results, I believe that 2022 will again be distinguished by investors’ interest in the energy generation market, especially now that the New Regulatory Framework for Distributed Generation has been approved.
How does the political environment impact these investments?
I believe that a possible and indeed likely scenario is a reduction in the number of privatizations. Companies will tend to wait for the election results before making this type of decision, which does not mean that we should expect a reduction in the pace of fund raising or the increasing number of people entering the free market.
Why is it important to diversify the energy grid? How is Brazil positioned in terms of clean energy sources?
One should always bear in mind that Brazil has one of the cleanest energy grids in the world. Our challenge is not to “clean more”, but rather to offer more clean options in addition to hydro-electric, which is currently our main green source of power.
Two energy sources that should stand out, particularly for their potential in specific areas of Brazil, are wind and solar energy. The latter has even more potential, considering that our country has the highest insolation in the world. As for wind energy, this already accounts for 10% or our energy matrix, and should continue growing.
There are also discussions of hydrogen as another energy source as technological advances make this option more viable.
Today, although our comments may suggest the contrary, it would be true to say that Brazil is one of the greatest energy matrix powers in the world, and by making the right decisions, it could gain further prominence.
Does Brazil, with its clean energy potential, have a major differential to attract foreign investments in this sector?
The search for new and cleaner energy sources is not confined to Brazil, but is a global quest. This definitively encourages foreign investors to see Brazil as offering excellent prospects for investment.