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What impact do high temperatures have on electrical systems? It is predicted that companies such as Eletrobras, Copel, and Eneva will benefit from these conditions, according to the bank Ita BBA. This raises the question of how the capital markets will react to the occurrence of the El Nio phenomenon. After experiencing two heat waves in less than sixty days as a result of El Nio, the implications for energy prices and operating costs have been massive. Ita BBA anticipates that higher temperatures will continue to have a significant impact on energy demand, even without the occurrence of unusual events like the recent heat waves.
The bank also emphasizes the importance of certain hydroelectric heating elements (UHEs), specifically the water heating element in the northern region of Brazil. This element played a critical role in meeting demand during the first half of the year but may experience a considerable decrease in production due to the shorter heating period and lower water flows associated with high temperatures. The BBA highlights that major events have the potential to increase energy price volatility and result in a surplus of thermal energy.
To take advantage of this scenario, the bank recommends investing in companies such as Eletrobras, Copel, and Eneva. In particular, Eneva operates a thermal power plant complex that can be activated as needed to ensure the reliability of Brazil’s electrical grid. Additionally, analysts at the bank anticipate a positive impact on the load effect of distributors with concessions in regions where higher temperatures are predicted, such as Equatorial and Energisa.
Looking forward to the future, it is important to consider the potential impact of the 2024 El Nio. El Nio is a phenomenon characterized by the warming of Pacific Ocean waters and occurs at irregular intervals of five to seven years, lasting on average between one and a half to two years. The last major El Nio event took place between 2014 and 2016. Columbia University climate researchers have predicted a 55% chance of a “strong” El Nio between January and March of 2024, with a 35% chance of reaching “historically strong” levels between November and December.
While a historically strong El Nio may not necessarily have a significant influence, the occurrence of the phenomenon can lead to an increase in climate anomalies associated with the time period. Additionally, the study indicates a 58% chance of a neutral scenario for June, July, and August of 2024, with La Nia scenarios gaining strength towards the end of the year. This implies a high probability of below-average rainfall for most of Northern and Northeastern Brazil. The predictions also indicate 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.
In contrast, the Sul region of Brazil has a moderate probability of above-average precipitation until at least the second quarter of 2024. Meanwhile, forecasts from Columbia University show a high probability of above-average temperatures throughout most of Brazil for the entire forecasted period of December 2023 to May 2024. The only region where temperatures are expected to deviate significantly from average is the far northeast of Brazil.
In conclusion, high temperatures have a significant impact on the electrics and energy sector. Companies like Eletrobras, Copel, and Eneva are likely to benefit from these conditions. The occurrence of the El Nio phenomenon, especially a historically strong one, can have further implications on climate anomalies and rainfall patterns in various regions of Brazil. Investors and capital markets should carefully consider these factors when making decisions in the energy sector.
