Brazil's Tractebel Sees Benefit From Rising Energy Spot Prices

Brazil utility Tractebel Energia (TBLE3.BR, TBLEY), which has increased electric sales on the open market by more than 20% since 2009, said Thursday it expects to benefit from climbing spot prices in the next few years.

A combination of possible delays in delivery of new plants, limited effect of government efforts to force down electric rates during the renewal of contracts, and more thermoelectric plants coming online will all contribute to higher Brazilian spot market prices, Tractebel CFO Eduardo Sattamini said during a meeting with analysts.

Tractebel estimates that 33% of energy produced by the company will be sold to the open market this year, after accounting for one quarter of sales last year. Total volume sold to non-contracted customers will reach about 1,200 megawatts, from 980MW in 2009, Sattamini said during the meeting organized by investment analyst association Apimec in Sao Paulo.

The increase in spot prices last year helped push Tractebel's fourth-quarter profit up by 9.6% on the year to 373.3 million Brazilian reais ($233 million), the unit of GDF Suez SA (GSZ.FR) said earlier this week.

As Brazil's energy demand quickly expands, supply will likely come online just as it is needed, exacerbating the risk that project delays lead to energy scarcity and push up prices, he said.

The recent boom in the construction of thermoelectric plants to complement Brazil's primarily hydroelectric generating base will also elevate prices as the thermal plants are costlier to operate than dams.

And the likely revision of rules governing operating license renewals will do little to halt this climb in prices, Sattamini said. Though some expect the government to push companies to lower the rates charged to consumers in exchange for an extension of concessions that begin expiring in 2015, Sattamini sees limited room for a drop in prices.

"The government won't be able to be very benevolent to consumers," he said.

Many utilities whose licenses will expire are state-controlled, with high personnel and operating costs. The government also needs to guarantee returns in order to allow for greater energy investment. That leaves little room for rates to drop on the roughly 20% of Brazil's total electric supply that is set to expire, he said.

-By Paulo Winterstein, Dow Jones Newswires; 55-11-3544-7073; [e-mail]