Itaú creates structure to operate in power market
Itaú Unibanco will enter the power sector, eyeing greater opening of the free electricity market in coming years. Its plans are ambitious. Brazil's largest bank is setting up a trading operation, wants to develop related products and doesn't rule out in the future selling electricity directly to its individual customers through an app.
The first concrete step is the opening of a power-trading desk, the bank confirmed to Valor. This move still depends on Brazilian Electricity Regulatory Agency (Aneel) authorization and on a communication to the Central Bank, but Itaú expects the unit to become operational by the end of the first half.
To conduct the strategy, Itaú hired Oderval Duarte, an energy expert who assembled and led for 15 years the trading desk of BTG Pactual. He joined the bank last week to become head of the recently created department of power trading, which will be tied to trading.
"The short-term goal is for the bank to be a relevant counterpart of our clients in transactions or purchase and sale of energy," Mr. Duarte says.There is much price volatility in the free electricity market and, according to the bank's diagnosis, an inadequate structure of guarantees. That is where Itaú intends to enter, using its balance sheet to mitigate client risks. "At the end of the day, it's a market with credit risk," says Christian Egan, executive officer of global markets and trading at Itaú BBA.
The executives bet on financial and power markets getting closer over the coming years in Brazil. The idea, Mr. Egan says, is for Itaú to be important part of this process. "We believe this market will develop, the same way we saw with other markets, such as of government bonds. We want to contribute. We have deep industry knowledge, strength of balance sheet and experience in risk management."
The free market trades more than R$130 billion a year and represents 30% of the electricity purchased in the country, but trading still is unsophisticated, made over the counter. There is no screen price nor an offering of derivatives. Yet there are discussions in the government and at the Aneel to improve the system of guarantees, which would help create a more favorable environment. In case this moves forward, the natural is to have in the future an exchange and a clearinghouse operating as central counterpart, mitigating financial risks.
Meanwhile, the regulation already is changing...
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