Benefiting from its expertise and focus on the structuring and development of power generation projects, Brazil Energy S.A. created in 2008, Brazil Hydropower Participações S.A. (Brazil Hydro). Through Brazil Hydro, Brazil Energy intends to diversify and increase its presence in the power generation sector, investing in a variety of hydroelectric power generation projects.
Brazil Hydro believes that, considering the current state of the small hydroelectric power plants – PCHs – (high construction costs, downward energy prices and slow licensing process), the feasibility of greenfield initiatives is currently compromised. Hence, the acquisition of already operating units and the development of long-maturing opportunities are the main objectives, today.
In this business environment, operating plants, with concession terms of around 30 years and bearing long term power purchase agreements (PPAs), are the most compelling opportunities. The Brazilian rivers’ long history of flow measurements, the low operating risks and the PPAs steady returns are some of the risk mitigating factors of these opportunities. In addition to the very low risk, to invest in operating hydroelectric power plants has become even more compelling after the Brazilian Federal Government indicated a downtrend for the real interest rates in the coming years, which might translate in the appreciation of the assets that can generate actual return rates above the market average.
Besides investing in already operating PCH plants, Brazil Hydro believes that, as a result of the great importance of the hydro power source for the country, together with its still unexplored full potential, the development of new projects will become highly competitive and attractive in the medium run. This scenario would get a boost, for example, if the government would determine power auctions specifically by source of energy or if an uptrend in the price of power would occur in the next few years. Therefore, Brazil Hydro believes in the sound opportunities that might come from the continuous study of river inventories and in the future projects that might come from these studies.