Deal Specifics: Under the agreement, ArcelorMittal will acquire a 55% stake in the Babilonia project for an equity investment of $150mn. Located in the north-eastern state of Bahia, the $800mn asset is currently in the permitting stage and construction work is expected to start later this year. Once operational, ArcelorMittal Brazil will off-take the power produced by the project under a 20-year power purchase agreement (PPA).
Enerdatics Insight: Our data suggest that Brazil has witnessed a 335% y/y increase in transacted capacity for onshore wind assets in 2022, with companies such as TotalEnergies, ENGIE, AES, and Omega Energia announcing major moves during the year. We believe that this trend is driven primarily by the deregulation of the country’s power markets, which allows for additional small and medium-sized businesses to off-take clean power. Enerdatics notes that the deregulated market is more favorable for both developers and end-users - the former can side-step highly competitive auctions that have led to a decline in the price of renewable power, while the latter can reduce their energy bills by avoiding the taxes and charges levied in the regulated market. The free or deregulated power market in Brazil also benefits from stable power prices, driven by favorable hydrologic conditions that ensure a sufficient amount of non-contracted energy is available to the system, on demand. Currently, the de-regulated sector satisfies more than 30% of Brazil’s power demand, with estimates pointing to the level rising to 70% in the long term.
Another welcome regulatory change - introduced in Dec’22 - allows renewables developers to sign US dollar-denominated PPAs. The law reduces the foreign exchange risk of bilateral power contracts in the country, incentivizing international investors to enter into long-term PPAs with corporate customers.
The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.
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