Hot Times Ahead: The Impact of High Temperatures on the Electrical Sector and Capital Markets Amidst El Nino

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What do high temperatures do to the electrics? The effects of high temperatures on the electric industry can be significant and wide-ranging. Not only do they impact energy demand but they also affect the operations and infrastructure of power companies. Companies such as Eletrobras, Copel, and Eneva are expected to benefit from the increased demand for energy during periods of high temperatures. This is according to Ita BBA, a prominent bank that closely monitors market trends.

One of the key factors that Ita BBA highlights is the role of hydroelectric heating elements (UHEs) in the northern region of Brazil. These UHEs play a crucial role in meeting energy demand during the first half of the year. However, due to shorter heating periods and lower water flows caused by high temperatures, these UHEs may experience a substantial decrease in production. This decrease in hydroelectric power production could lead to an increase in thermal energy surplus and result in more volatility in energy prices.

Ita BBA believes that companies like Eletrobras, Copel, and Eneva, which have a stake in thermal power generation, will benefit from this scenario. In particular, Eneva operates a thermal power plant complex that can be activated as needed to ensure the reliability of Brazil’s electrical grid. The bank also predicts a positive impact on distributors with concessions in regions where higher temperatures are predicted, such as Equatorial and Energisa.

Looking ahead, there is the potential for another El Nino event in 2024. El Nino is a phenomenon characterized by the warming of Pacific Ocean waters and occurs at irregular intervals of five to seven years. According to climate researchers at Columbia University, there is a 55% chance of a strong El Nino between January and March of 2024, with a 35% chance of reaching historically strong levels between November and December.

While the influence of a historically strong El Nino may not be significant, it can lead to an increase in climate anomalies during the time period. The study also suggests a 58% chance of a neutral scenario for June, July, and August, while La Nina scenarios for the end of 2024 are gaining strength.

The forecast indicates a high probability of below-average rainfall for most of Northern and Northeastern Brazil, as well as below-average precipitation in parts of Minas Gerais during the first quarter of 2024. On the other hand, the Sul region of Brazil has a moderate probability of above-average precipitation.

In terms of temperatures, Columbia University forecasts a high likelihood of above-average temperatures throughout most of Brazil, except for the far northeast. This is expected to be the case from December 2023 to May 2024, due to a combination of factors.

Overall, the impact of high temperatures on the electric industry and capital markets is significant. It not only affects energy demand but also has implications for energy prices, power generation, and the infrastructure of power companies. Investors and market analysts are closely monitoring these trends and identifying opportunities in companies that stand to gain from this scenario.

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