Tractebel Sees Brazil Power Rationing in 2015 If No Rain

Brazil may face energy rationing and higher power prices in 2015 unless it gets rain in the first few months of next year.

The key variable will be rainfall from January to April, which typically accounts for about 60 percent of the water inflow in the country’s hydropower dams, said Manoel Zaroni, chief executive officer of Brazil’s biggest private energy generator Tractebel Energia SA.

While the worst drought in eight decades is reducing output from the most important hydroelectric plants in Brazil, the country’s hasn’t had to ration power yet.

“If it doesn’t rain, we will have energy rationing,” Zaroni said today on a conference call. “Power rates will be very high in 2015, which could lead to chaos in the electricity industry.”

Recent rains haven’t been enough to help refill reservoirs in Sao Paulo, Minas Gerais, Rio de Janeiro and Espirito Santo states, where 70 percent of Brazil’s hydropower capacity is located. South America’s biggest economy gets about three-fourths of its electricity from hydroelectric plants.

The drought means Brazil will probably be forced to continue using costly thermoelectric plants to avoid blackouts. These plants burn coal, natural gas or biomass to produce power.

Record Prices

Tractebel and other companies have been buying energy at record spot prices when output at their dams falls short of supply commitments. The average spot price was 822 reais ($334) a megawatt-hour this week, more than triple the 255-real price a year ago, according the Sao Paulo-based electricity trading board CCEE.

A government decision on rationing must be made in the beginning of 2015, Felipe Hirai, a Bank of America Corp. analyst, said in Sao Paulo last week.

Rationing may have negative credit rating repercussions for the energy sector in Brazil, according to Mauro Storino, an analyst at Fitch Ratings Ltd.

“If the level of rainfall doesn’t improve, it is inevitable that there will be some sort of restriction on energy consumption,” Storino said today in a telephone interview. “It will affect energy companies’ credit risks and inhibit the country’s consumption and production.”

Liquidity Problems

Energy distributors may have increased liquidity problems in the next months, according to Moody’s Investors Service Inc.

“If drought persists, and additional government support is not forthcoming, higher costs will impel Brazilian electricity-distribution companies to raise new debt in order to meet their working capital needs over the next 12 months,” Jose Soares, a Moody’s analyst, said in a report today.

Hydroelectric dams in Brazil’s Southeast/Midwest region are at an average of 19.54 percent of total capacity, according to the Electric System National Operator, known as ONS. That’s down from 36 percent in June.

The last time Brazil was forced to ration power was in 2001.

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