27th August 2020
Leading global supply chain, pricing and financing services company, Czarnikow, announces today that it is entering the ethanol and electricity industries in the Brazilian domestic energy market, expanding its product portfolio to include the entire product mix of Brazilian sugar and bioenergy producers.
The domestic ethanol services, operating in a market over 50% larger than the sugar market, will be run under a newly formed company called ‘CZ Energy’ and will concentrate on providing stock and carry solutions for Brazilian producers, as well as hedging and off-taking.
Czarnikow’s expansion into the energy market comes at a time when the demand is increasing in the Brazilian energy free market, and Czarnikow’s services are expected to enable more participants to join the free market and to enjoy more competitive energy prices. Czarnikow Brasil Limitada has recently obtained all licences to become a “Comercilaizadora de Energia”- Electricity Commercialization Company.
Tiago Medeiros, Czarnikow Director and Head of Brazil says; “We noticed that most of our clients in Brazil on both the sugar production and consumption segments also produce and/or consume electricity to and from the Free Market (“ACL”). The recent market evolution towards an open platform where both producer (generator) and consumer can freely agree the terms of a particular trade including volume, price, delivery period and payment under operational framework provides Czarnikow with a great opportunity to tailor its offering to such products.”
The number of participants in the ACL has grown three-fold in the last 4 years and it is set to continue its expansion due to recent reforms in the regulatory environment, which have focused on the expansion of the free market and on energy trading and financing products. The main changes expected to stem from these reforms are: (i) new hourly spot prices from 2021 onwards; (ii) increasing presence of financial institutions trading electricity; and (iii) the electronic futures exchange platform launch.
Robin Cave, CEO at Czarnikow said; “We see electricity as a complementary product to our portfolio alongside with sugar, ethanol and FI&P – creating a unique service platform for our clients.
“We have identified clear synergies in the ethanol and electricity sectors with our existing business practices, such as sustainability, risk management, finance and market analysis. Since 2010 we have been working within the energy sector supporting our clients working in the free and/or regulated markets.
“Initially, our primary focus will be to leverage on our existing relationships, core competencies, and bagasse cogeneration know-how to develop structured products for this market.”
By entering the electricity industry in Brazil, Czarnikow will access a potential free market of BRL45 billion / USD 8 billion. Czarnikow will be looking to expand the business further into other renewable energy sources, such as wind and solar power, to further diversify its market strategy.