06/30/2024 – 9:07
Low rainfall, the prospect of the La Niña phenomenon and a market with little volatility over the past two years have contributed to a jump in future electricity prices on the free market, especially in recent months. According to experts, this movement could intensify in the second half of the year.
To give you an idea, last month, the price volatility scenario meant that BBCE, the country’s main energy trading platform, recorded “the best May in the 12 years in which it has been in operation”, with the negotiation of 50,929 thousand gigawatt-hours (GWh). In financial volume, transactions recorded in the period totaled R$6.31 billion.
The figures for June have not yet been finalized, but the high price indexes recorded by Dcide show that the market should remain buoyant. In the most recent bulletin, on the 19th, the price for conventional energy with delivery in the next quarter more than doubled when compared to that reported a month ago.
For Pedro Moro, market research coordinator at the Thymos Energia consultancy, the main factor explaining this movement is the below-average rainfall in recent months, especially in the Southeast/Central-West submarket, considered the country’s “water tank” as it concentrates most of the storage.
In the electricity sector, this indicator is measured by Influent Natural Energy (ENA), which is the volume of water that reaches the hydroelectric reservoirs. “In May, we had the second worst ENA in history. And now, in June, the projection remains very bad. The expectation is that it will be the worst in history”, he said in relation to the subsystem and considering the historical series of the National Electric System Operator (ONS), which is 94 years.
“These two months, this negative ENA, as it was, helped a lot in boosting prices,” he assessed. He also points out that, although there is no forecast for a delay in the start of the wet season, a factor associated with the occurrence of La Niña, the expectation is that the ENA will remain bad in the Southeast/Central-West until then.
A recent report from Itaú BBA raised another point of attention: the little water retained in the soil. According to the document, the soil in the Southeast region is at levels not seen since 2021 for this time of year, the year of the last water crisis.
“Although the reservoirs in the Southeast currently appear to be at a comfortable level, the balance of water resources at the end of the rainy season is the fourth worst reading since 2005 for this region of Brazil”, states the document. In practice, this matters because the drier the soil, the more water it absorbs, which takes longer for rain to impact the plants’ storage and flow levels.
Market conditions
The market intelligence leader at consultancy PSR, Mateus Cavaliere, states that, although the last wet period “was not spectacular”, it was reasonable and allowed the levels of hydroelectric dam reservoirs to increase, which are still the main source of electrical energy of the country and, therefore, weigh more in price formation.
He states that the country is in “much more comfortable” conditions than in 2021 and remembers that the market has suffered from low energy prices in the last two or three years, which leads to an operation that is more sensitive to uncertainties.
“Our reading is that today, anything that is happening does not necessarily need to be a truth set in stone, but an assumption, and it makes people quite nervous,” he assessed.
He stated that, in a fundamental analysis, it is difficult for these high future prices to materialize, given the levels of the reservoirs and the oversupply of energy. “Now, when we factor in this component of agents’ risk aversion, with great fear of, for example, a delay in the start of the next wet period, due to the formation of La Niña, this, in some way, is driving these prices up”, he added.
For Moro, a Thymos specialist, the short-term perception is of an immediate market. “Short-term volatility for small reasons or very low ENA in a specific month that changes the entire curve,” he said, in relation to long-term prices, which are also increasing.
The consultancy updated its price projections and expects an increase in the weekly Difference Settlement Price (PLD) next week.
Cavaliere, from PSR, points out that volatility itself may have contributed to the upward movement, in a cascading effect. “As prices soar, depending on the company’s situation, whether it has more contracts sold than it has energy, or whether it still has a lot to sell, there are some limits, generally, in the risk areas, which they call mandates. And many of them, with these sudden increases, were broken,” he explains.
In this context, the traders themselves, or even generators, were forced to buy or sell energy to ensure compliance. “And then you somehow generated a demand that did not exist before, and very quickly,” he added. He states, however, that this factor has less weight than the others already mentioned, especially with regard to hydrology.
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