Eneva wins two thermal vegetation within the ‘Eletrobras public sale’; IRR can attain 60%
- October 3, 2022
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Eneva has just won almost 600 MW of thermal generation capacity in the ‘Eletrobras auction’ – a project that has the potential to add R$1.5 billion to the company’s EBITDA at a real IRR that investors estimate could reach 60%. .
The auction was highly anticipated by Eneva’s shareholders due to its potential to generate value for the company, given that the thermal plants are located in the North of the country, where the company’s gas reserves are located.
The auction – which took place under the Eletrobras privatization law – put 1 GW of energy up for sale with the construction of three thermal plants in the northern region of the country.
There were three major competitors: Eneva, the French company Global Participações em Energia (GPE), and Eletronorte. Eneva took two of the three thermal plants, and the other one went to GPE.
The auction was carried out without any discount, at the maximum price of R$ 444/MWh.
In recent weeks, the market has been pricing in stronger competition at the auction, which could lead to lower prices. The expectation made Eneva’s share fall from R$16.10 on the 12th of this month to R$14.26 at yesterday’s opening.
Today, the paper rose 1.5% with the news, trading at R$14.65.
The project must generate brutal value for Eneva. The market is projecting an internal rate of return (IRR) that varies from 40% to 60% per year with the construction of the two thermal plants — depending on the capex designed by each analyst.
BTG analysts, for example, project an IRR of 60%, assuming a capex of R$ 2.7 billion.
“The IRR is high because Eneva has a very low gas cost, since it will send the gas from Azulão, and because the auction had almost no competition, which made the price go through the roof,” said Pedro Marco, analyst at Reach Capital. The manager has been long in Eneva for years, which is the largest position in her fund long only.
The two thermal plants will be built over the next few years and have a delivery deadline by the end of 2026. They are expected to increase Eneva’s EBITDA by around 50% from current levels (with the addition of around R $1.5 billion).
Under the terms of the auction, the thermals will be inflexible. In other words, they will have to dispatch energy 70% of the time – unlike what happens in most thermal plants today, which are activated only when the hydroelectric plants have a low reservoir.
“These thermal plants will give the system reliability,” said Adriano Pires, from the Brazilian Infrastructure Center. “They will allow better management of water from hydroelectric reservoirs and reduce price volatility.”
Today’s auction also put up for sale another 1 GW of thermal generation capacity in the Northeast region of the country, but these assets did not attract any interested parties.
According to Adriano, there were no interested parties “because this price of R$ 444/GWh is not enough for the entrepreneur to take the risk there.”
“In the North, they will use natural gas onshore in thermal plants, which is much cheaper. In the Northeast, they would have to use Imported LNG, which has a stratospheric price today because of the market situation. The account does not close.”
In March of next year, the government should hold a new auction, when these 1 GW from the Northeast should be put up for sale again.
Source: Brazil Journal