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What do high temperatures do to the electrics? This is a question that many people may not consider until they experience the effects firsthand. However, for companies like Eletrobras, Copel, and Eneva, the answer to this question can have a significant impact on their business.
According to Ita BBA, a leading bank in Brazil, high temperatures can significantly affect energy demand. This is especially true in the absence of unusual events like heat waves. In fact, the bank expects that higher temperatures will continue to have a major impact on energy demand, even without the occurrence of extreme weather conditions.
One of the key elements that Ita BBA highlights is the role of hydroelectric heating elements (UHEs), particularly in the northern region of Brazil. These UHEs play a critical role in meeting energy demand, especially during the first half of the year. However, with shorter heating periods and lower water flows caused by higher temperatures, there may be a substantial decrease in production from these UHEs.
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The bank also indicates that major events, such as heat waves, can cause energy prices to become more volatile. This volatility can lead to an increase in thermal energy surplus, which can have a significant impact on the market.
In light of these potential challenges, Ita BBA recommends investing in companies that stand to benefit from this scenario. Eletrobras, Copel, and Eneva are among the companies that the bank believes will see positive impacts from the effects of high temperatures on energy demand. Eneva, in particular, has a thermal power plant complex that can be activated as needed to ensure the reliability of Brazil’s electrical grid.
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Another factor that Ita BBA considers is the load effect on distributors that have concessions in regions where higher temperatures are predicted. Companies like Equatorial and Energisa may see increased demand for their services as a result of these higher temperatures.
Looking ahead to the future, scientists are already making predictions about the potential impact of El Niño on Brazil’s climate. El Niño is a weather phenomenon characterized by the warming of Pacific Ocean waters. Columbia University climate researchers have predicted a 55% chance of a significant El Niño event between January and March of 2024.
This prediction has led to speculation about which Brazilian stocks will benefit from El Niño. While a historically strong El Niño may not always have a significant influence on the market, it can lead to an increase in climate anomalies associated with the time period.
For example, the study conducted by Columbia University suggests a high likelihood of below-average rainfall in most of Northern and Northeastern Brazil. Similarly, there is an indication of below-average precipitation in several parts of Minas Gerais during the first quarter of 2024, which is typically the hottest month of the year in Brazil.
On the other hand, the Sul region of Brazil has a moderate probability of above-average precipitation until at least the second quarter of 2024. This indicates that different regions of Brazil may experience varying effects from El Niño.
In terms of temperatures, forecasts from Columbia University suggest a high likelihood of above-average temperatures throughout most of Brazil from December 2023 to May 2024. This is due to a combination of factors, and the only area expected to have significantly different temperatures from average is the far northeast of Brazil.
Overall, it is clear that high temperatures can have a significant impact on the electrical industry in Brazil. Companies like Eletrobras, Copel, and Eneva are expected to benefit from these effects, while distributors in regions with higher predicted temperatures may also see increased demand. Additionally, the potential for a significant El Niño event in 2024 adds another layer of complexity to the market. As investors navigate these challenges and opportunities, it will be crucial to stay informed and adapt strategies accordingly.
