Energy exchange to launch in Brazil, aims to boost power trading

Indian Energy Exchange

03/10/2023 13:00

By Leticia Fucuchima
       SAO PAULO, Oct 3 (Reuters) - A new platform for power
deals in Brazil will launch next year, its backers announced on
Tuesday, marking the first such energy exchange in Latin
America's biggest economy and an attempt to boost trading of
energy financial products in the country.
    Named N5X, the new exchange is a joint venture between the
L4 Venture Builder fund backed by bourse operator B3  B3SA3.SA 
and European Energy Exchange's Nodal Exchange. 
    It plans to start operations in 2024 and initially offer a
service to register power purchase agreements between buyers and
sellers in Brazil's free power market, where generators can ink
long-term power supply deals directly with large consumers.
    The exchange also plans to pursue regulatory approvals so it
can offer electricity derivatives and a clearing house to
facilitate deals.
    Brazil is the world's sixth-largest consumer electricity
market, and the No. 7 power generator, with an installed
capacity of more than 190 gigawatts, according to N5X data.
    The country's electricity sector has increasingly embraced
financial markets, including energy derivatives like futures
contracts in recent years. But despite the initiatives, the
trading volume of energy financial products remains modest, with
most deals still linked to the physical delivery of electricity.
    "There is an opportunity for the volume traded to be
greater," N5X CEO Dri Barbosa told Reuters, noting the total
volume of power generation currently sold through financial
products significantly lags the international average.
    The new platform will adopt the role of a central
counterparty. That could also boost traded volumes because
Brazil's power market lacks such a clearing house able to
mitigate default risks that face electricity sellers and buyers.
    Currently, energy traders have to assess credit risks of all
of their counterparties, which imposes costs and is seen as
limiting liquidity.
    Barbosa said the joint venture partners hold "a long-term
vision" for the exchange.
    "They know that this is not a three-year project, it's not a
five-year project, it's a very long-term project," she said.

 (Reporting by Leticia Fucuchima; Writing by Peter Frontini;
Editing by David Alire Garcia)
 ((Peter.Siqueira@thomsonreuters.com; +55 11 56447727;))