Brazilian Utilities: Big Book 2025

The utilities sector in Brazil features a unique blend of operating stability and structural challenges. In 2025, the sector is at the epicenter of a macroeconomic dilemma: on one hand, an economy burdened by high interest rates; on the other, infrastructure in need of intense investment. The inherent predictability of segments such as transmission and sanitation continues to attract investors, while the deteriorating economic environment amplifies risks. This paradox underscores a key characteristic of the sector: its resilience amidst crises, supported by inflation-indexed revenue and long-term contracts. However, rising financial expenses and potential macro-driven delinquency risks cannot be ignored.

We think the key regulatory events this year will be energy distribution concession renewal, transmission and sanitation auctions, and tariff revisions, each carrying significant strategic implications. The tension between ANEEL (the national electricity agency) and the federal government highlights a known issue: political interference in technical regulations. This introduces uncertainty that could impact investors' confidence. Additionally, themes such as energy modulation and the impact of extreme weather events on the sector's vulnerable infrastructure are recurring. We think the future of the sector will depend on a blend of technological innovation and a more robust regulatory framework.

This year, we believe the sector's evolution will be shaped not only by internal decisions, but also by national economic policy and regulatory developments. The cost of debt will continue to test companies' financial resilience, while infrastructure expansion will remain a strategic imperative. Ultimately, Brazil's utilities sector encapsulates an economic paradox: while macroeconomic challenges threaten its stability, structural opportunities position it as a cornerstone of long-term development.