BIO Energias: Market Analysis and Price Projections Services in Brazil

Interview with Felipe Barroso, CEO of BIO Energias

Could you give us an overview of the energy sector that is so strong at the moment here in Brazil?

The electrical energy sector is part of the infrastructure sector of the country and therefore it is a sector that has to grow because as the country grows over the coming years the power needed is going to increase. We need further investment to generate more electricity to meet the growing consumer demands. We also have to increase the competitiveness of the market. This competitiveness is generated by the various commercial energy traders, as liquidity is created in the market from the purchase and sale of contracts. With this liquidity comes competition and the conditions for the end user to purchase energy, obviously the end user´s objective is to pay the least amount for the energy that they consume. The energy trading sector allows the end user to get information about the free energy market and proposes economies where they will be able to buy energy at a determined price and makes their operations structured in order to make the purchase of energy on the market, from the short term to the medium term and then to the long term, at a more competitive price.

How is your company positioned within the energy market?

Bio Energias is a company that focuses on structuring operations in the field of purchases and sale of energy in a more sophisticated manner. We structure operations to seek a lower purchasing cost and we achieve that by taking on limited potential losses to the volume of the company´s financial capacity. That´s why we have a position on the market where we are really very well known for the work that we do.

Can you tell us a bit about the story behind Bio Energias? When was the company founded?

Bio Energias started in 2008. We are structured as a consultancy company that offers market analysis and price projections. At the end of 2008 we began to work in the commercialization of energy. Since then, due to our serious manner of doing business, we have become one of the most well-known traders in energy, particularly known for the high revenues, safety and seriousness in our work.

You are very well positioned in this market, what are the challenges that Bio Energias faces in this market that is growing so vastly?

Bio Energias is a company that values spreading information about the free market i.e. bringing quality information for those who still are not familiar with the free market, in many cases the end user. We also work behind the scenes as a regulatory body so that the market can become more consolidated, established and also safer for all of the players in the market. Bio Energias has seen excellent growth over the years and we have a lot of potential for further growth. However our growth is limited by the financial capacity of this company. Facing such a scenario we are looking for partners and investors so that we can grow and achieve improved operations and results. We want to be able to bring in good financial returns not only for the owners and shareholders of Bio Energias but also for the potential investors.

How do you perceive the opportunities in this market at the moment in Brazil?

Well in terms of energy distribution, this is an area of very low profitability, of fixed income and of high regulatory risk. The field of energy generation, particularly the largest hydroelectric developments, is an area that depends on the government holding bids for projects and furthermore the profitability is quite dependant on investment going into infrastructural projects. Finally, in terms of commercializing energy, we don’t experience any intervention in terms of concessionaires or fixed income. Therefore the sector of energy commercialization in Brazil depends on the companies´ desire to take risky or not so risky positions and to structure their operations with diverse derivatives and financial operations within the electrical energy sector that avoid losses and allow them to achieve positive results.

There are about 20 main players in this sector, what is Bio Energias´ position in the market?

Bio Energias is among the top three energy companies in the country since we qualified as traders not linked to the economic group. However we opted to position ourselves as boutique traders, in other words we opted to structure our operations in a manner that is more profitable leaving to one side the day trade operations where profitability was low and risk was high. Over time, Bio Energias has become more qualified and has improved its operations so that we can get more or the same profitability out of fewer trades. We are focusing on gaining even better results in this way.

You mentioned your preference to work in a boutique form rather than day trading. What would you say is the importance of participating on the foreign market?

The national electricity sector is one that is not commercially interlinked with any other country. Therefore the purchasing and sale of energy or investment in the generation or distribution of electricity are activities that are uniquely and exclusively done within the country. On the other hand, there are no restrictions stopping foreign investors investing in Brazil and remitting the profits back abroad.

You only deal nationally?

Yes. We have studied other countries but Brazil is our focus.

What is the outlook for this sector in 2014 and the coming years?

2014 is a year that has been condemned to high energy prices due to the low levels of hydro energy production and reserves. On the other hand, historically in Brazil from time to time we have had high prices and then the situation has been reversed and we have had long periods where prices have been very low. From 2000 until 2010, the prices remained so low that when the consumers changed from a regulated market to a free market they saved between 20 to 40% on their electricity bills. If you think that an electricity intensive industry could then take on the weight of the electricity costs for their product, this thus creates huge competitiveness for Brazilian industry when buying energy within the free energy market in relation to their competition whether national or international. We think that in 2015 the cycle of high prices will pass and from then on we should have low prices once again.

Therefore, looking at this scenario on the medium to long term, what does the future hold for Bio Energias?

Bio Energias chose to become a boutique trader during 2013 and 2014 precisely because we foresaw a halt in the migration of consumers from the regulated market to the free market due to the high prices. We prepared ourselves in 2012 to go into the retail market and that preparation is useful at any moment where we begin to consider changing our strategy. So, as prices go down again we can restructure and prepare ourselves to serve smaller clients; we have developed all of these kinds of instruments.

Today the sector is quite profitable, what is your message to foreign investors in terms of capturing resources.

A foreign investor has a great opportunity in terms of profitability in the energy trading sector here in Brazil. Despite it being a sector where the prices are extremely volatile, there are instruments and means for you to predict the volatility and the tendencies and to help you operate within this market using the financial tools available in the market in the electrical sector. Therefore an investor who has the financial resources available and who has an appetite for risk can find opportunities that are very profitable here. So much so that various banks are starting to enter the trading sector along with various economic groups and even civil construction groups are entering the energy trading sector seeking the kind of returns that can be achieved in this field.

As you are a big player in the energy sector, can you tell us who your main clients are?

Bio Energias works with majority of the players in the electrical energy sector. We have 1,500 consumers, 150 traders and approximately 300 generators of electrical energy. We have no operational restrictions for any of these agents. Some of these clients work with us today, the next day these clients work with others, and then they come back to us. Suffice to say 50% of industry in this country is in this sector and operates with Bio Energias.

Can you tell us about the challenges faced by Bio Energias in terms of new research?

Bio Energias has entered into the Development and Research sector looking for a way of structuring the power generation assets so that they don’t depend on hydroelectricity, water or on government concessions to be able to make the necessary investments and also are not dependant on other commodities. If you look at the sugar-alcohol industry: hydroelectric energy is directly linked to the sugar and alcohol. Development and research is being carried out in the field of energy from grass, a grass that is uniquely and exclusively grown to be burnt in boilers to generate energy. This would therefore be a way of generating energy that implies control over production of fuel and the generation of this electricity, and could be associated to a trading that could create more profitability, as within the power generation assets there are various real options that a trader can bring to the table.

How you see the company in 5 years´ time and what are your dreams for the company?

Bio Energias has been looking for a strong financial partner to be able to grow in an expressive way. One of our strategies would be to associate ourselves with a company that holds power generation assets because for a trader to be associated in this way with such a partner allows them to bring real options from that power generation asset together with the trader´s purchasing and sales portfolio to create exponential profitability for both companies. Therefore, to unite a trader with a generator or bank means you are doing a cross selling of assets that will be really interesting and still allows for the possibility of creating new products or entering new markets.

What would be your final message to a foreign investor, whether generator or a financial investor?

Despite the fact that Bio Energias is a company that doesn’t own a physical power generation asset, our asset is our intelligence and knowledge. We have a really great track record, we have been presenting results in the order of 500% to 1,000% in relation to the year and in relation to the risk. We are a company that generates high profit and deals with a lot of reasonability and recognition within the sector that will allow us to be a long term durable company.

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