’ll tell you right now, I’m a nerd—not a dweeb obsessed with science, not a geek obsessed with technology, but a straight-up book nerd. I read too much. I read all the time. I have a stack of books and magazines that I call the TBR (to be read).
That stack possesses everything from a nonfiction book on the wreck of the Essex to Philip Pullman’s “Golden Compass”(again) to James Garner’s biography. And, in between are the magazines: The New Yorker, National Geographic, Garden & Gun, The Family Handyman, Country, Lapham’s Quarterly. (My family has a running, cross-sharing, cross-generational magazine collective, but that’s a story for another day.)
My favorite magazine, by far, is Smithsonian. I would offer that it’s the best mainstream magazine in America, and I’d be totally willing to tussle with anyone who thinks otherwise.
A recent issue of Smithsonian featured Brazil: its growth, its setbacks, its economy, its culture. Since I knew I’d be writing an industry feature on Brazil soon (for the May/June issue of my favorite industry magazine Intelligent Utility), I devoured that article. Of course, it didn’t talk at all about the power market or the transmission of electricity. But, it did, surprisingly, draw an interesting picture of the distribution of electricity: the random, claustrophobic “cage” of secondary wires overhead pulling in multiple houses and businesses onto the power grid (sometimes illegally). Locals call these illegal wire connections “gatos” or “cats,” according to the story. (The photo illustrating this story shows actual gatos in Sao Paulo.)
Those gatos, or illegal hook-ups, used to be the norm in a lot of the poorer areas of Brazil, but that has changed significantly in the last few years, according to a recent article in the English-language Rio Times (and supported by that Smithsonian article).
Brazil is certainly coming from behind in the areas of economic outlook and electrification. And, as those gatos die off, the Brazilian smart grid market is just being birthed. Brazil is considered one of the rising stars in this market, and a number of power companies are eyeing Brazil as a potential investment.
So, I asked experts at Northeast Group, a research and consulting firm based in Washington, D.C. that focuses on the energy sector and the rapidly emerging market for smart grid, about Brazil’s smart grid potential.
They pointed out that Brazil’s power market has formally separated segments: generation, transmission and distribution—although many times one or more elements across those segments are owned by the same parent company.
And, those segments are big—real big when compared to U.S. counterparts, either in numbers or miles. Some Brazilian distribution utilities have over 5 million residential customers or span gigantic regions (like, say, across the Amazon).
“Among the 35 emerging market countries that Northeast Group covers, Brazil represents one of the markets with the most potential. (We do not cover China and India.) Brazil’s core market conditions and its sheer size make it a compelling market for smart grid,” said Ben Gardner, president of Northeast Group. “The country has nearly 200 million people and 64 million electricity customers. And these are both growing quickly.”
Gardner went on to point out that Brazil’s original goal was to have smart meters to all customers by 2021, but that few believe Brazil will reach that on time. Still, even with a delay, Brazil will be among the leaders of the smart meter market (in installed numbers) within a few years.
“Almost all emerging market utilities [including those in Brazil] are talking about smart grid, and several are completing pilot projects,” said Gardner. “But, there are still roadblocks to large-scale rollouts.”
The biggest hurdle: money. While these projects can provide long-term positives, it’s still problematic to get people to invest in that long-term vision.
“Emerging market countries tend to have lower levels of income, which makes it politically challenging to pay for deployments through short-term rate increases,” Gardner added.
The Catch-22 here is: The fact that Brazil is an emerging market means its more difficult to find financing for power projects, but those power projects—and the creation of a steady, reliable power infrastructure—can help pull Brazil out of the “emerging” bracket.
“Economic growth (GDP) is absolutely dependent on reliable power supply and infrastructure. For example, on average, the manufacturing sector already loses about 3 percent of its value every year in emerging market countries due to power outages. In many of these countries, manufacturing is a key component of economic growth. Without electric infrastructure improvements, this rate will dramatically worsen. At the same time, rising income levels are encouraging more residents to install energy-intensive home appliances such as air conditioning—many of these countries are in hot climates. This means that in many countries, energy demand growth is outpacing overall economic growth,” said Gardner.
If you’re looking to invest in an emerging market such as Brazil, Northeast Group advises clients to focus not necessarily on the whole, but on certain market segments where they have a competitive advantage. If you’re focused on renewables, go where there is good solar or wind potential, or into the heavy hydro areas. If you’re focused on smart metering, try urban spaces where the local utility is trying to curb theft. If you’ve got the greatest residential home energy management widget, push into the higher end suburbs where that may be the next hottest trend.
“Brazil is a large enough market that each of these market segments is significant, and most utilities and regulatory authorities have shown a willingness to promote smart grid. Investors and vendors should determine what driver they think will be most critical and/or fits their profile, and look for specific opportunities in the country that meet those criteria,” he said.
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