In Energy

History has a habit of repeating itself. For a third-time, Brazil has elected Luiz Inacio Lula da Silva, “Lula,” after 12 years away from the Presidential office and a 19-month stint in prison. Lula’s first two-terms (2003-2011) provide clues for the future of Brazil’s energy sector, but the President-elect will have to deal with a fiscally deteriorated country, a divided congress, and a more environmentally conscious world.

This is what AMI predicts will happen:

Petrobras Reverses its Divestment Strategy and Eliminates International Price-parity

Although the divestment of state-owned energy assets will freeze, privatizations and divestments that have been concluded will not be reversed. The reversal of such deals would be extremely costly—both financially (estimated at USD 58bn for Eletrobras), legally and politically for the new administration.[1] Agreements that have not yet been finalized, such as the sales of the three Petrobras’ refineries (Reman-AM, SIX-PR and Lubnor- CE) that were expected to close by the end of the year, could be renegotiated.[2]

Lula will also seek to lower energy prices by changing the pricing policy for fuels sold domestically, eliminating the international price-parity established in 2016. Although Petrobras and its competitors mainly operate in Brazil, most of the machinery and distillates used to extract and process the country’s crude are imported in USD, tying costs to global benchmarks. With domestic fuels being sold at a discount, Petrobras and other crude distributors (Vibra Energia) could lose billions in revenue.[3]

One possibility for a new pricing policy is the creation of a local reference price, proposed by the leading candidate for the Petrobras CEO position, Senator Jean Paul Prates (PT-RN). Prates, who worked on Lula’s energy plan for the upcoming administration, says the reference price would include refining, distribution, and resale margins, but it would “not be enforceable” or “mandatory.”

It is estimated that the Petrobras lost USD 40bn in revenue under this scheme from 2011 to 2014.

Nevertheless, market forces will require sellers to abide to this reference price to compete with other local suppliers, forcing them to sell fuel at a loss (especially if the local reference price does not match global benchmarks). Under the presidency of Lula’s successor, Dilma Rousseff, price controls on diesel and fuel sold locally turned Petrobras into the most indebted oil company in the world. In fact, it is estimated that the company lost USD 40bn in revenue under this scheme from 2011 to 2014.[4]

Petrobras’ strategic plan of shedding assets to paydown its debt will also be reversed. Lula himself has indicated that he wants to expand Petrobras’ investments not only in refineries, but also in natural gas, biofuel, fertilizer, and renewable assets.[5] Offshore wind and the production of biofuels, in specific, will become a key part of Petrobras’ transition towards an “integrated energy company.”

Prates also indicated that state-owned companies will be more involved with the private sector through partnerships.[6] Companies with closer ties to the PT, and a greater willingness to enter into public-private partnerships, will likely win more energy contracts.  The growing presence of state-owned companies may come at the expense of private refineries, independent power producers and individual shareholders, reflected by an 8.5% drop in Petrobras’ stock the day after the elections.

Offshore Wind and Distributed Generation will Boom, especially in Northeastern States

Public spend and large infrastructure projects (in all sectors) will be channeled towards pro-Lula states in the North and Northeast regions of the country, where the President-elect won roughly 70% of the vote. States such as Ceara, Piauí, Rio Grande do Norte, Bahia, and Pernambuco are expected to see the brunt of this investment, mostly in offshore wind to reduce those state’s electricity bills.

Brazil already has a pipeline of nearly 200 GW in offshore wind projects, many of them in those aforementioned states. Lula’s advisors have also indicated that Petrobras will play a key role in the offshore wind segment, driving public investment and public-private-partnerships towards that sector. And lastly, Lula’s close ally Senator Prates, is the author of a bill that would create the legal framework for offshore wind (PL 576/21) and drive billions in investments. The bill was recently approved in the Senate and is awaiting a vote in the house.

In addition to utility-scale solar and wind projects, the incoming Lula government has signaled a preference for small-scale hydro (over large-scale) with a heavy focus on minimizing the local and environmental impact of projects. Having a local partner on the ground to dialogue with the community, and obtain their approval prior to project development, will help minimize that risk.

The distributed generation sector is still a safe long-term bet, showing continued growth regardless of the administration in power. With a far-reaching regulatory structure approved for distributed generation assets in 2022, it is unlikely that the sector will see any major changes in the mid-term. And even though distributed generation assets will be subject to the gradual application of the distribution fee (TUSD) starting in 2023, these assets still provide lofty returns for those that can afford the upfront cost of roughly USD 10,000 (for SME consumers). With limited local, regulatory, and environmental risks, coupled with quick approvals and short development timelines, the distributed generation sector will boom.

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How investors, energy companies and suppliers can maximize opportunities while avoiding pitfalls in the region's top 6 markets

The Continued Opening of the Free Market and the Challenges for Distribution Companies

With the opening of the free market for high voltage consumers starting in 2024, Lula’s main power advisor, Mauricio Tolmasquim, has indicated that the President-elect is also in favor of opening the free market to small consumers, a head nod towards bill PL 414/2021 currently sitting in Congress.[7][8]

There is speculation that this bill could be even approved before the end of the year, allowing customers with more than 500 kW of energy demand to enter the free market and buy energy from any generation source. After 42 months, this option would be opened to all consumers—regardless of their consumption levels. The opening of the free market is expected to happen with or without this bill, as there is a Ministry of Energy decree currently in public consultation that will open the unregulated market to all consumers by 2028.

The opening of the free market is expected to happen with or without the bill, as there is a Ministry of Energy decree currently in public consultation that will open the unregulated market to all consumers by 2028.

Distribution companies, which will lose a portion of their customers to the free market with this new regulation (and are financially committed to long-term contracts with generators), are expected to be sheltered from losses by the incoming administration as they deal directly with end-consumers. In fact, Tolmasquim mentioned that “good” distribution concessions should be renewed and that no significant contractual changes are expected.[9] Many of these distribution companies are located in Northeastern Brazil – home to several congressman in the influential “Centrao” coalition. The President-elect will be adamant in protecting those companies.

Free market subsidies, projected to equal roughly USD 1bn in 2023, are paid by regulated consumers. Hence, the biggest threat to the free market (which includes many distributed generation players) comes from a potential misrepresentation of the idea that low-income regulated consumers will pay for the subsidies offered to the free sector, nudging the new administration to overhaul the existing regulatory framework. The reality is that low-income consumers in the regulated market are exempt from paying this subsidy, as they are subject to a different social tariff.[10]

Reduced Deforestation but to What Extent?

With a divided congress influenced by a powerful agricultural collation, it is unlikely that Lula will be able to implement wide-ranging environmental changes that negatively impact the agricultural industry, an important backbone of the Brazilian economy. However, more ambitious climate goals and new accountability mechanisms are expected. This is being welcomed by international allies, who are likely to release funds in exchange for the protection of the Amazon Forest.

Several of those proposals are being suggested by Lula’s former Minister of the Environment (2003-2008), Marina Silva (Rede), who wants to create a binding emission reduction mandate for all new energy contracted to the country’s main grid, the SIN. This would involve all public energy tenders held under the new administration. She also recommends the creation of both a carbon market and a National Authority for Climate Security that would hold the country accountable to its decarbonization goals.[11] In exchange for her support during the elections, Marina Silva will likely be an important part of Lula’s international climate team.

There have also been talks of a “Green New Deal” from the Lula administration, an ambitious climate policy that would end deforestation in the Amazon and create a sustainble economy. Although the idea is commendable, the theory does not always work in practice. Lula was able to effectively reduce destruction of the Amazon in his previous two terms, but he also embraced heavy industry, the development of cattle in the Amazon and the expansion of Petrobras’ oil reserves.[12] Lula will certainly allocate more resources to combat deforestation, but his pledge to “fight for zero deforestation in Amazon” is merely a talking point.

AMI is a leading provider of energy intelligence and analytics in Latin America. Whether it is understanding how the changing political environment will impact your investment, or pinpointing the most attractive risk-adjusted opportunities in the energy sector, AMI’s local Brazil team will provide strategic intelligence to guide your investment in this new Lula administration. AMI has over 20 years’ experience in Latin America’s energy sector, helping both multinationals and investors enter and expand in Brazil through opportunity benchmarking, competitive intelligence, and market entry analysis.

Contact for a free consultation.


[1] October 2022, Veja. “Por que a privatização da Eletrobras não deve ser revertida por Lula”

[2] September 2022, Estadao. “Cade: Venda de refinarias pode ser revista se controlador da Petrobras decidir”

[3] October 2022, S&P Global. “Lula’s win in Brazil presidential race likely means return to state-led economy”

[4] October 2022, S&P Global. “Lula’s win in Brazil presidential race likely means return to state-led economy”

[5] October 2022, EPBr. “As promessas de Lula para o setor de energia:

[6] September 2022, O Globo. “Petista descarta reestatização no setor de energia em eventual governo Lula.”

[7] September 2022, Argus Media. “Q&A: Lula would continue, update power market opening”

[8] October 2022, Poder 360. “Governo abre mercado de energia para alta tensão a partir de 2024”

[9] October 2022, Reuters. “Governo Lula não oferece grande risco às elétricas e Eletrobras, dizem analistas”

[10] October 2022, Poder 360. “Subsídios à geração distribuída devem custar R$ 5,4 bi em 2023”

[11] September 2022. EPBr. “Programa de Lula deve incluir meta de carbono em leilões de energia”

[12] October 2022, Reuters. “Analysis: Brazil’s Green New Deal: Lula promises environmental policy overhaul”

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