Bloomberg News

Brazil’s Cheap Energy Stymies Cane Investments, Bradesco Says

October 21, 2011

Oct. 21 (Bloomberg) -- Falling electricity prices in Brazil are hindering investments in new sugar-cane mills, an analyst at Banco Bradesco SA said.

Prices of energy sold during the last government-organized auction for new power capacity fell to about 100 reais ($56.22) a megawatt-hour, from 144 reais in August 2010, Bruno Varella, an analyst at Osasco, Brazil-based Banco Bradesco, said today in a telephone interview. That’s about a third less than companies need to build the power plants that typically run cane mills, he said.

“With power prices where they are, groups don’t reach a good return on their invested capital and they decide not to commit” to new mills, Varella said. About 15 percent of a mill’s net present value is attributable to cogeneration and the remaining 85 percent to sugar and ethanol sales, he said.

Brazil’s cane industry is producing about half the ethanol its growing fleet of cars require, Varella said. That supply and demand mismatch will widen without new investments in mills and the cane plantations that feed them, he said. Mills produce electricity by burning bagasse, the stems and stalks that remain after sugar cane is processed.

Developers of wind farms in Brazil are beating small hydroelectric and biomass plants to contracts to sell power in government auctions, driving down prices, he said.

In two auctions held on Aug. 17 and Aug. 18, 78 wind farms signed contracts to sell power from 1,929 megawatts of capacity and 11 biomass plants sold power from 555 megawatts, national energy agency Empresa de Pesquisa Energetica said on its website.

--Editors: Will Wade, Charles Siler

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at

To contact the editor responsible for this story: Reed Landberg at

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