Power-Meter Shift to Cut $10 Billion Brazil Market by 50%

Brazil’s decision to weaken a proposal for boosting energy efficiency by installing smart meters is wiping out half of a $10 billion market that lured foreign manufacturers from Elster Group SE to Echelon Corp.

The nation’s electricity regulator, known as Aneel, this year ruled that a 2010 plan calling for utilities including CPFL Energia SA and Centrais Eletricas Brasileiras SA to install the meters was too costly. Under the revised policy, announced Aug. 8, utilities will install the meters only if a consumer asks for the change, and companies may use cheaper equipment.

The policy shift means the market for the meters, which can also help pare power theft, may be less than $5 billion through 2020, down from a previous estimate of about $10 billion, according to data compiled by Bloomberg New Energy Finance. Utilities may replace as many as 38 million meters by the end of the decade.

“We were all expecting a massive market and now there’s an air of pessimism,” Geraldo Guimaraes Jr., vice president for Latin America at Essen, Germany-based Elster, said in a telephone interview from Sao Paulo.

Cheaper Power

Under the plan, utilities will pay for a basic meter that allows homes to buy cheaper power during low-usage hours and charge more when demand is at a peak, said Orestes Castaneda, manager of business and technology at Ampla Energia & Servicos SA, a generator and distributor in Rio de Janeiro state that’s owned by Italy’s Enel SpA. If consumers want more advanced systems that can help lower monthly expenses through solar panels, for example, they will have to foot the bill, he said in a telephone interview.

The amended strategy comes as President Dilma Rousseff seeks to overhaul the industry by prompting utilities to cut rates in exchange for contract renewals. The plan is aimed at reducing power costs manufacturers say are the fourth highest in the world, according to the National Industry Confederation.

“The government’s decision to postpone the installation of the meters is because it would have certainly boosted companies’ investments needs,” said Marcos Severine, head of utilities research at Banco Itau SA, adding that utilities probably would have tried to pass on the costs to consumers. “The justification here is to spread the impact over more time to avoid tariff pressure.”

Cutting Costs

The previous power-meter plan would have been incompatible with Rousseff’s goal to cut power costs by as much as 28 percent to spur industrial growth, said Mauricio Lobo, a manager at Cia. Energetica de Pernambuco, the Recife, Brazil-based utility known as Celpe.

“The cost of an obligatory large-scale deployment of meters will inevitably impact electricity tariffs,” Brasilia-based Aneel said in a June report.

Celpe doesn’t yet have estimates on how many meters it will install or how much investment will be required for the program, Lobo said in a telephone interview.

Eletrobras’s press office in Rio de Janeiro declined to comment. CPFL and Aneel didn’t respond to e-mails and calls from Bloomberg News. Rousseff’s press officer in Brasilia referred questions to Aneel.

Mismatched Equation

The economics of the previous proposal, which would have required as many as 68 million meters be replaced, didn’t add up, Luiz Jose Hernandes Jr., coordinator of the smart grid group at Campinas, Brazil-based research agency CPqD, said in a telephone interview.

“Brazilians use five times less power than in the U.S., and smart meters here are twice as expensive,” Hernandes said. “This equation didn’t match.”

Brazil may still decide to replace all its meters with smart ones in coming years, said James F. Andrus, vice president of Echelon’s Americas unit.

“The situation regarding smart meters in Brazil seems to be still in flux,” he said in an e-mailed response to questions. “It appears that there is still an effort under way by the government to replace all of the electromechanical meters with electronic smart meters over the next 10 years. This sounds promising and we will have to see if it continues to gain support.”

Scaled-back efforts would be a blow to foreign makers such as China’s Shenzhen Kaifa Technology Co. and Switzerland’s Landis + Gyr AG, as well as local producer Ecil Informatica Industria & Comercio Ltda.

Local Offices

Elster opened a sales office in Sao Paulo in April 2011 and has since hired 15 people to serve customers in the market, Guimaraes said. The company made a “huge investment” altering its factory in the southern city of Cachoeirinha to produce meters and their associated communications equipment, he said.

Shenzhen plans to open a sales branch in the second half of next year, Jinmei Liu, deputy general manager of the company’s metering system business unit, said in a telephone interview. The idea is to partner with a local factory to produce meters.

“A lot of vendors are probably scrambling to see how they will handle this new market,” Walter Lowes, managing director for the Americas at Trilliant Networks Inc., a Redwood City, California-based communications technology company, said in a telephone interview. “It’s caused everyone to realign their Brazil strategies.”

Before it's here, it's on the Bloomberg Terminal.