With 90 million consumers on the radar, trend includes banks, trading firms, oil companies, and even phone carriers
13/11/2022 9:06PM Updated 10 hours ago
The power industry is about to undergo transformations expected to change the way most Brazilians buy electricity. With the possibility of consumers freely choosing their supplier, national and international companies of varied sizes and segments are preparing strategies. They include Vitol (energy), Raízen (energy), Santander (bank), and BTG (bank).
Brazil has about 10,700 free consumers, but the rebound of the process of opening the electricity market will create potential market of 90 million consumer units and R$400 billion per year.
The trend paves the way for new competitors, such as banks, retail traders, power generation companies, oil companies, and even phone carriers offering customized services to compete with independent firms that are pioneers in the free market.
This opening is centered on bill 414/2021, about the modernization of the electricity sector, and in the public consultations and ordinances of the Ministry of Mines and Energy. The government proposes that all high-voltage consumers will be able to choose their power supplier as of January 1, 2024.
This would be the starting point of the largest expansion of the free market since its creation in 1995. Nearly 106,000 additional consumers would have the option of joining the free trade environment.
Rodrigo Ferreira — Foto: Leo Pinheiro/Valor
While the regulated market is consolidated in about seven economic groups operating in monopoly fields, the free market draws new players every year, said Rodrigo Ferreira, head of the Brazilian Association of Power Trading Companies (Abraceel).
According to Mr. Ferreira, a wider opening is a matter of time, since it is one of the main requests of the electric sector, there is political will for this to happen, and global giants are already mobilizing.
“It is a market of R$400 billion a year that grows up to 1.5% above the GDP. It is a segment with clear rules and legal security. The regulated market does not attract new players. In the free market, the agents’ pulverization is large and has been attracting new national and international players to the sector every year,” says the executive.
The most recent player was Vitol, one of the largest independent oil and oil products trading companies in the world, which launched its Brazilian energy trading subsidiary. The company received an initial injection of R$108 million and the backing of the parent company.
“Brazil is the largest power market in South America, with over 70 gigawatts of demand and several large players,” said Murilo Soares, chief trading officer at Vitol Power Brasil. “As an energy commodity trading company, we will not have a specific focus on the power sources we will trade.”
In the context of the energy transition, oil companies combine renewable projects and emission cuts. Hydrocarbons will still be present at least until 2050, but the mixed strategy of investing in renewables in the free power market (ACL) may be a revenue prospect at this time for the competitiveness of sources and to align with the principles of the environmental, social and governance (ESG) agenda.
An example of this is TotalEnergies. The French company bought a 34% stake in Casa dos Ventos for more than R$3 billion in a joint venture that intends to jointly develop, build, and operate the 6.2 GW portfolio. Besides positioning Total in renewables, the acquisition brings capital and credit capacity to the partnership. As for Casa dos Ventos, the association with the oil company will allow the expansion of its generation arm and its strategy of supplying energy to large customers in the free market.
The Portuguese company Galp had been operating in Brazil only in oil and gas, focusing on the pre-salt, but recently unveiled projects totaling 4.8 GW in renewable energy and may invest $5 billion over the next 10 to 15 years.
Galp’s power business has been in place in Brazil for less than a year, but the strategy includes being present in the free market dealing with final consumers, said Paulo Tarso Araújo, the company’s head of trading in Brazil.
“We are setting up a team and operating in the market for large and medium consumers, and getting ready for the next step, which is the opening for smaller consumers. This will be more of a retail business. The most agile traders have already started to go digital,” he said.
Effectively pursuing this consumer is what will define who will survive. The consulting firm Thymos Energia estimates that companies will have to invest more than R$6.5 billion to attract clients.
2W Energia has R$100 million to finance its strategy and sell power from two wind farms under construction. In addition, it closed an important contract with phone carrier Oi to sell migration solutions for the free market.
As for banks, the portfolio of potential consumers in theory can be equivalent to the portfolio of clients, since retail is part of the institutions’ day-to-day routine.
Itaú BBA has had a trading company since 2020, joining Santander and BTG Pactual, which have been operating in the sector for longer and have already been trying to bring SMEs to the free market. They already have a strong presence in the sector, whether in project finance, structuring, or banking, and the trading business will complete their portfolio.
“It makes perfect sense to talk to the same client that is already part of the bank’s universe, who has a payroll, a credit card, an investment, and who can also count on a simple, efficient, and economical product to buy energy,” said Artur Hannud, the partner in charge of the commercial team of BTG Pactual’s energy desk.
The senior executive of Santander’s energy desk, Rafael Thomaz, adds that this type of consumer seeks convenience. Today they market about 1.5 average gigawatts and are structuring how to grow in retail.
“The DNA of the bank is in customer service. We started in 2019 and are in a phase of expansion of the business with the retail market. The bank will position itself, creating a structure that serves these smaller customers,” said Mr. Thomaz.
Even traditional trading companies are changing and no longer want to do only the operations of buying and selling power, offering services to consumers and generation companies as well. A pioneer in this sector, Tradener is expanding renewable services to sell in the free market. Comer, on the other hand, brought Perfin as a partner of the group in 2021 and incorporated solar generation assets to its portfolio.
Raízen, Cosan’s fuel and bioenergy company, is pursuing a strategy of diversification focusing on energy transition, and has been achieving results through its subsidiary WX Energia.
After the corporate reorganization of the assets of the Votorantim group and the Canadian fund CPP Investments, Auren Energia established a goal of doubling the number of clients and reaching 1,000 clients within a year. The strategy ranges from power management for new smaller clients, digitalization of marketing, and even low-voltage clients.
By Robson Rodrigues — São Paulo
Source: Valor International