Brazil: How deep will power prices fall?
The downward trajectory of deregulated power prices for future delivery seems to have no end!
In one year the reduction was 45%!
What most calls my attention is the fact that the current price is substantially below the marginal cost of expansion (MCE).
I always calculate the MCE because it is a robust reference of "balanced" attractiveness for the investor to enable new generation plants. In other words: the MCE is the one that offers a return that justifies the undertaking!
So what?
For now, the scenario is wonderful for buyers. But, if it persists, there is a risk that there will be no supply to cover the increase in consumption for the simple fact that it is no longer worthwhile for the entrepreneur.
Challenging times! They require careful analysis of the "macro" scenario so that robust, defensible and feasible alternatives can be chosen.
If you are interested in exploring this situation, I am at your disposal!
Rafael Herzberg
Expert Member
Top Contributor