Worsening of the water crisis tends to weigh on Cesp and Energisa; Alupar and Omega are among the most resilient names, says Credit Suisse

SAO PAULO – Amid the worsening water conditions in the country, investors have shown greater concern with the energy sector on the Stock Exchange. This is because water sources have a relevant share in the Brazilian electricity system, almost 70%.

With the deterioration of the scenario, investors turned their attention to the supply and demand relationship for 2022, which could be compromised if there is no improvement in the hydrological situation in the next rainy season (October to April), in order to ensure a balance and support the highest consumption expected for the summer in the country.

In this scenario, Credit Suisse sees Cesp (CESP6) as the company most affected by the crisis, given its high exposure to water sources.

Other companies that have a more diversified portfolio, however, tend to be more resilient in the dry season.

This is the case of Omega Generation (OMGE3), which tends not to be impacted and may even benefit, in the bank’s assessment, from greater wind production with higher spot prices.

With respect to the energy distribution segment, measures to reduce consumption, such as a rationing program, would result in a reduction in total volumes, as a response to higher tariffs, analysts write.

In this scenario, although companies such as Energisa (ENGI11) are affected, given their high exposure to the distribution segment – ​​around 97% of their earnings before interest, taxes, depreciation and amortization (Ebitda) –, the bank sees possible tariff revisions and the regulatory environment as important “balls” for long-term cash flow.

Equatorial (EQTL3) and Alupar (ALUP11) should benefit from exposure to the transmission segment (which is not affected), reducing the elasticity of energy consumption, highlights Credit Suisse.

According to the bank, if a rationing is announced, the impact of the GSF (hydrological risk measure) may be limited, with lower contract levels and higher cash sales; and distributors could have a rebalancing of tariffs.

Also according to Credit, it is not only companies in the energy sector that should be negatively impacted by the lack of rain, but also those that make heavy use of electricity, but are not self-sufficient in energy, and may be harmed by the high costs of energy.

More expensive electricity bills

It is noteworthy that, in August, the Extended National Consumer Price Index 15 (IPCA-15) rose 0.89% compared to July – above the 0.82% high expected by economists consulted by the Refinitive and the highest result for a month of August since 2002.

The main villain in the result was electricity, which increased 5% and accounted for 0.23 percentage points in the month’s index.

In the midst of the water crisis, flag 2 on the energy bill of the Brazilian population is already a reality. In July, Aneel approved a 52% increase in the red flag 2 rate, which went from R$ 6.24 to R$ 9.49 per 100 kWh.

Now, however, the market expects a new increase in the extra fee on the electricity bill in September, in order to support measures against electricity rationing.

For XP, the increase should be from the current R$ 9.49 to R$ 11.50, in September, which would result in an increase of 12 basis points in the IPCA.

If the readjustment is between R$15 and R$20, as estimated by the media, the resulting impact would be between 36 bps and 70 bps. In the extreme case, which is considered unlikely, the impact would be 100 bps to R$ 25 per 100 kWh.

The official readjustment of the extra fee should be announced by Aneel next Tuesday (31).

Yesterday, President Jair Bolsonaro (no party) issued a decree that determines the reduction of electricity consumption from September 2021 to April 2022, by the direct, autarchic and foundational administration.

According to the text, public agencies will have to reduce consumption by 10% to 20%; the measure does not apply to state companies.

In XP’s assessment, even though the impact is small, the measure signals an even greater concern given the water crisis scenario, despite the Minister of Mines and Energy denying the risk of rationing.

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