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Energy and the bubble

Rafael Herzberg's picture
Consultant energy affairs, Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

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  • Feb 9, 2021
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Energy and the bubble
 

Analysts in developed countries have - often - commented that the world economy is experiencing a bubble and the possibility is closer to "bursting".

They argue that the valuation of shares - for example - is detached from the reality of most companies. It is a situation that Bernanke (former CEO of the FED) has called "irrational exuberance".

The country has greatly increased its debt in relation to its GDP, it has not reduced the cost of its official "machine", taxes remain very high and unemployment in the clouds.

Embarking on this scenario, how to evaluate the future of the Brazilian electric sector?

The electricity sector, which is capital intensive, is linked to the cost of money. Interest rates are expected to rise considerably (inflation) and thus the cost of amortizing loans, which is to say, an increase in rates.

In this scenario, the demand for energy would fall due to the "bubble burst" but even so the tariffs would rise, worsening the situation.

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