en.Wedoany.com Reported - XP Research has released a thematic report stating that the intensification of the El Niño phenomenon will favor hydropower generation and maintain downward pressure on energy prices in the short term.
The institution assesses that above-average rainfall expected in the southern region and the Paraná River basin will help replenish the reservoirs of the Itaipu hydroelectric plant and the Southeast/Midwest subsystem. This subsystem accounts for approximately 70% of the storage capacity of the National Interconnected System (SIN, Sistema Interligado Nacional).
With improved hydrological conditions, the Settlement Price for Differences (PLD, Preço de Liquidação das Diferenças)—the reference price for short-term operations in the energy market—is expected to face downward pressure. XP ranks the utilities sector as one of the most affected by this climate phenomenon.
The report argues that El Niño impacts the performance of power generation companies through three key factors: energy demand, reservoir levels, and market trading prices. Rising temperatures increase the use of air conditioning and cooling systems, raising the load on the power system; increased rainfall improves water inflows, reduces hydrological risk, and expands the availability of hydropower generation. XP concludes that the positive impact of hydrological conditions over the coming months will outweigh the growth in load demand.
Market forecasts have already adjusted. XP states that the impact is already reflected in energy futures contracts. Electricity prices traded on the Brazilian Energy Trading Exchange (BBCE, Balcão Brasileiro de Comercialização de Energia) were revised downward between late May and late June, with average forecast prices for the third quarter of 2026 falling 29% and the fourth quarter falling 12%; contracts starting from the first quarter of 2027 saw changes ranging between 1% and 3%. XP explains that this discrepancy reflects the concentrated impact of rainfall on the current dry season, while 2027 prices remain dependent on the performance of the next rainy season. On the day the report was released, the 2026 electricity price traded on BBCE stood at R$241/MWh, 31% below the R$347/MWh in XP's model; the difference for third-quarter 2026 contracts reached as high as 52%.
Falling electricity prices could affect the performance of generation companies that still have significant uncontracted volumes for 2026. The companies tracked by XP have an average uncontracted position of only 2%, meaning that an average of 98% of their sellable electricity for 2026 has already been contracted. Among the companies, Axia Energia has the largest exposure, with 19% of its annual energy balance uncontracted; Engie Brasil and Cemig are almost fully contracted and less affected by short-term market volatility; Auren holds a short position and may benefit from falling short-term market prices. XP assesses that the impact of El Niño should be concentrated in the short term and will not alter investment logic based on long-term price prospects.
