Brazil power firms retreat from trading as risks rise

Feb 6 (Reuters) – Some Brazilian power companies are pulling back from energy trading amid rising credit risks, greater price volatility, shrinking sales from generators and reduced liquidity in the market, company executives and sources said.

CPFL and CTG Brasil, two major generators controlled by Chinese groups, are among the firms that have quit “directional trading,” in which firms take long or short positions to profit from price swings.

Local groups such as Capitale, Urca and Trinity have also sharply cut or nearly halted trading operations.

Brazil’s power-trading market, which moves billions of dollars annually, operates through bilateral deals without a central counterparty monitoring leverage. That makes reputation crucial, especially for independent traders that do not own power generation assets.

“At some point, you simply don’t know who still has good credit,” said one sector executive who asked not to be named to discuss the matter freely.

The trading retreat follows a series of failures in the sector in recent years, most notably Gold Energia, whose billion-real default in 2024 shocked the market and reshaped how participants assess risk.

Lower market liquidity also reflects a more cautious stance by major generators such as Copel and Axia, formerly Eletrobras, which have been keeping more of their energy uncontracted to benefit from higher spot prices.

A second industry executive suggested that liquidity constraints mainly affect smaller firms with weaker credit profiles. “For large generators and banks, the market is normal. This is a natural shakeout,” the source said.

CHINESE MAJORS RETREAT

CPFL told Reuters in a statement it is focused on selling electricity from its generation assets, reducing exposure to risks in Brazilian trading.

CTG said it closed its dedicated trading subsidiary in the second half of 2024 in a “strategic” decision aligned with its market positioning, while adding that commercial activities are expanding as new wind and solar projects come online.

Capitale has operated “consciously smaller” since 2024 and expects to cut its traded volume by 30% in 2026, CEO Daniel Rossi said.

“With the current restrictive price model and volatility at these levels, it’s impossible to operate the way we used to. We would be taking on far too much risk,” Rossi said, adding the company has been focusing only on “small opportunities.”

Trinity Energia, which once traded an average of two gigawatts per month, now handles roughly 10% of that, according to CEO Joao Sanches. Urca Trading similarly decided to reduce exposure in 2025 to avoid “systemic risks,” it said.