(News Bulletin 247) – The renewable electricity producer has warned that production cuts in the country could reduce its gross operating profit by up to 40 million euros in 2024. The stock is plummeting in Paris.

Brazil is once again undermining Voltalia on the stock market. Last year, a power outage in the country in August forced the renewable energy producer to lower its financial results forecast for 2023. Its share price then plummeted.

Same thing again this Tuesday. The stock fell by 13% around 11am after warning that difficulties in this country, the group’s most important in terms of production capacity (62% of the total), would weigh on its accounts.

The company specifically indicated that the Brazilian transmission operator was currently imposing “a pronounced capping” in certain parts of the electricity network which risks severely penalizing its gross operating result (Ebitda) for 2024. This, in the event that this capping were to continue “over the coming months and if it (was) not financially compensated”.

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Resumption of Brazilian crop cuts

For a transmission operator, clipping consists of limiting the transmission during a given period of all or part of the electrical production potential of a power station so as to maintain the stability of the transmission network.

Normally, peak shaving occurs only rarely in major global power grids, including in Brazil. But after the major power outage in the summer of 2023, the Brazilian transmission operator had curbed an unusually high portion of generation in order to minimize stability risks on the grid. Peak shaving then gradually decreased before becoming marginal by the end of 2023.

These caps remained low in the first half of 2024. But now, Brazil has decided to increase these caps. According to TP ICAP Midcap, which attended a conference call held by Voltalia, the Brazilian operator “applies a pronounced cap, mainly targeted at intermittent renewable energies, to respond to network stabilization issues”.

“Noting the resumption of a pronounced level of curtailment, Voltalia has met several times with the Brazilian transmission network operator,” the company explains in a press release. “The volume of curtailment of Voltalia’s production in the northeast of the network could be high for a period that could last several months, in particular because of the delay in the construction of new transmission lines to reinforce the network in the northeast of the country,” it adds.

Financial compensation wanted

The company explains that it is taking a series of steps within a collective of electricity producers and via professional associations to limit the financial impacts of these caps. Voltalia and the other producers had already initiated litigation in 2023 to obtain financial compensation for the caps in 2023 as well as for those in 2024.

In parallel, discussions are being conducted with the Brazilian transmission operator and local authorities in order to “accelerate at least part of the financial compensation and reduce the duration of the current power cuts”, the group added.

“Professional organizations bringing together electricity producers such as Voltalia consider that the extremely cautious approach applied by the network operator would not be technically required. The loss of electricity production potential, which would ultimately be bad for the Brazilian economy, would therefore be avoidable. They believe, like Voltalia, that producers must be financially compensated, as demonstrated by the legal action they have initiated,” the company explains.

The group therefore expects that “technical and financial” solutions will be found with the Brazilian authorities.

2027 EBITDA target confirmed

At this stage, Voltalia warns that the impact of the Brazilian cap on its EBITDA for 2024 is “difficult to establish”. However, in the event that the scenario predicted by the Brazilian transmission operator is confirmed, where the group does not obtain financial compensation and where the euro-Brazilian real exchange rate for the second half of the year averages six (as it currently does), this impact would amount to €40 million on the euro on the 2024 EBITDA, Voltalia anticipates. For comparison, Voltalia had generated an EBITDA of €241 million in 2023.

This impact would be particularly accentuated by the fact that Voltalia’s electricity production is traditionally higher in the second half of the year than in the first. TP ICAP Midcap thus underlines that the group’s turnover is historically 70% higher in the second half of the year.

On the sidelines of this announcement, Voltalia confirmed that it is targeting a “normative” EBITDA (i.e. calculated with long-term averages on exchange rates and solar, wind and hydroelectric production) of around €475 million by 2027. The group also confirmed its production capacity targets for both 2024 and 2027.

TP ICAP Midcap has decided to adjust its target price to 14 euros on the stock, compared to 15 euros previously, while confirming its buy recommendation. The research firm indicates that it still has a “positive view” on the stock, particularly due to its “rigorous selectivity” in the development of projects.