Summary
Electric energy prices in Brazil are skyrocketing as supply is not enough to keep up with demand. On-site power projects and inside the fence energy savings are the available solutions for the corporate energy users. What does it take to make them happen?
Analysis
Brazilian GNP is growing steadily at 5% a year. There is a need for 5 GW/year of new generation (associated with US$ 10 Billion/year in investments) to meet the demand but only half is being actually put on line. Energy prices are climbing stiffly: energy saving projects have become as attractive and necessary as on-site power projects. There is a whole new world for entrepreneurs, equipment suppliers, service providers, financiers, consultants, traders, brokers, lawyers, and energy companies.
BRAZIL IS AN EMERGING COUNTRY…BOOMING
With a population of 200 Million and larger than the continental USA, Brazil in the recent years is booming. Per capita income is way up, therefore a significant new part of the population is consuming more electricity now. They are buying more electrical appliances. Industries are using more energy because the demand for products and services is very strong. Up to a few years ago production of electric energy (current installed capacity of 100 GW) was well above demand. Now electric energy is close to becoming a scarce resource.
DECISION MAKERS HAVE TO DEVISE NEW STRATEGIES
Industrial, commercial, institutional and even residential energy users have to consider their options to go for well informed decisions. The good news is that with the current energy prices there is ample room for a wide variety of solutions. Even though more than 90% of Brazilian electricity is produced by hydropower plants, corporate energy users pay US$ 0.15 to 20 cents per kWh (this includes the commodity price, the wire fees and the taxes) simply put because supply is close to demand. At this price level, inside the fence energy savings, cogeneration projects and, peaking power projects have become very attractive. The challenge here is matching the appropriate solution with needs and wishes of each client regarding technical, financial and management issues.
THE NEW OPPORTUNITIES
With a few exceptions, energy is not the core business of the corporate world. There is a need for packaged solutions by which the energy users would get the results but would not be heavily involved with project development and its operation. Build, operate and transfer (BOT) and performance contracting among other business arrangements reflect ways to facilitate and even encourage energy users to go for new projects.
WHERE IS THE CATCH?
The first step is to convince executives of the need for energy related projects.
This is a time consuming activity because the understanding of the energy situation is at stake.
There are mixed signals: the Government is always selling the idea that there will be enough energy to meet the demand and that future energy prices will be lower.
On the other hand, the supply side of the market is telling the opposite: it has become increasingly difficult to contract energy.
The second step is coming up with the adequate business arrangement for each client. The catch is: sales are far more expensive in Brazil than in the developed countries. Firming up a contract requires more time of higher level professionals because the projects involved are “new animals”.
Finally, Brazilians prefer to deal with Brazilian counterparts. Therefore, all the solutions needed in Brazil should be offered in conjunction with natives who understand the Brazilian culture.
WELCOME TO BRAZIL!
