March 6, 2017 / 10:34 PM / 10 months ago

Brazil power costs likely to increase after below average rains

SAO PAULO, March 6 (Reuters) - Electricity costs for companies and individuals in Brazil are likely to further increase in the second half of the year due to insufficient water in hydroelectric plants’ reservoirs after below average rains, power sector experts said on Monday.

Brazil’s power trading chamber (CCEE) projects summer rains to reach only around 70 percent of normal levels Brazil-wide, a situation that could lead to an increase on costlier thermal power generation in the second semester.

CCEE’s projections have already forced the government to pass on to consumers tariff hikes this month. That could happen again later in the year, the experts said in interviews.

“We will probably have a red flag adopted during one or more months late this year,” Erik Azevedo, a partner at power trading company FDR Energia, said.

Under the country’s system to advise consumers about changes in tariffs, power distributors issue green, yellow or red flags to indicate favorable to costly conditions for electricity generation.

Until March consumers were billed under a green flag, with no additional charges. But a yellow flag was instated this month adding 2 reais (64 cents) per 100 kilowatt hour (kwh) to bills. If a red flag is applied, consumers will be charged 3 additional reais per 100 kwh.

A red flag has not appeared in Brazil power bills since February last year.

“We have seen a wet period below normal. It is still premature to talk about a red flag, but it could happen,” Carlos Caminada, a risk manager at power trading firm Ecom Energia, said.

Another factor to watch is the economic recovery, the experts said. If demand picks up quicker than expected, the likelihood of a red flag increases.

Brazil is emerging from two years of power consumption contractions, following the worst recession in generations. (Reporting by Luciano Costa; Writing by Marcelo Teixeira; Editing by Richard Chang)

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