Brazil renewables navigate rainfall surge, weak winds amid strong El Niño

Excess rainfall across Brazil's main hydropower regions is keeping electricity prices under pressure, but increasingly extreme weather patterns are raising uncertainty over the outlook, market participants and weather experts say.

An unusually strong El Niño is driving rainfall patterns in the Southern and Southeastern regions of Brazil, where most of the country's hydroelectric plants and reservoirs are located, but its interaction with other weather anomalies is adding volatility to Brazil's power market.

"The climate is facing changes in a planetary scale, and global warming is intensifying the effects of El Niño," said Marcely Sondermann, meteorologist at weather prediction company Climatempo, said Oct. 28 during the Brazil Windpower conference.

While the anomaly in the Pacific Ocean was already expected to affect weather, rainfall levels in Brazil have been unusually high even by El Niño standards. Part of it is due to this El Niño's unprecedented strength, with sea surface temperature anomalies exceeding plus 4 degrees Celsius in some regions of the Pacific, according to the US National Oceanic and Atmospheric Administration. NOAA estimates a greater-than-83 % chance that El Niño will remain strong or very strong throughout the first quarter of 2027.

But the Brazilian weather is at the same time affected by unusually high sea surface temperatures in the Atlantic Oceans and an increased frequency of Antarctic cold fronts moving towards the country.

Higher rainfall in the country's Center-South region has allowed hydroelectric companies to operate at full capacity, reducing the need for more expensive thermal power. As a result, spot energy prices are pressured, an effect that spills over into forward power prices.

"All models are showing excess rainfall for the next weeks," a power trader said.

Opportunities and risks

In October, the Brazilian power spot price, or PLD, remained at the regulatory minimum of 57.31 reais/megawatt-hours ($10.60/MWh) for several days due to lower thermal power usage. The trend has been affecting demand in future contracts.

"Consumers need to be careful not to delay contracting simply in the expectation that prices will fall further," said Alan Henn, CEO of energy management company Voltera. "Waiting may bring opportunities, but it also involves risks."

Platts assessed Brazil's Southeast/Central-West power January 2027 forward at 200 reais/megawatt hour ($37/MWh) on Oct. 29, up 6 reais/MWh from the previous day but down 28 reais/MWh from Oct. 23. Platts is part of S&P Global Energy.

The increase in renewable generation has also coincided with pressure in Brazil's renewable energy certificate market. The assessments for vintage 2026 wind and solar International Renewable Energy certificates were assessed at 0.91 real/MWh (17 cents/MWh) on Oct. 29, steady from the previous day, but down from 1.01 reais/MWh on Aug. 29.

Limited reservoir capacity means price trends could shift quickly if weather conditions change. In the Brazilian southern region, a high concentration of small hydro plants means lower reservoir capacity, limiting the ability to store energy for the future. During periods of heavy rainfall, small hydropower plants tend to increase water spillage, meaning some of the available water is not used for power generation.

"Hydropower plants in southern Brazil are currently spilling significant volumes of water," said Pedro Kurbhi, vice president of retail at energy generator Comerc.

Brazil's largest hydroelectric plant, Itaipu, has allowed water spillage for 26 consecutive days in October to control the reservoir level amid excessively high flows in adjacent rivers.

Transmission plans

Besides increasing rainfall, the El Niño is also reducing wind intensity in the country, including in the Northeast and South, where most wind farms are located.

"Wind intensity has been below average since the beginning of the year, with significant impacts on power generation," Sondermann said.

While less relevant to power prices than hydro, low wind generation could cause price volatility, especially in the early evening hours when solar generation fades. Meanwhile, Brazilian policymakers have been increasing plans for the effects of extreme weather events on transmission lines.

"We have intensified studies of the energy grid and transmission lines to avoid interruptions," according to Marcos Farinha, deputy head of power transmission at the Brazilian Energy Research Bureau.

More uncertainty is expected in the future, with weather events becoming more extreme. Current Climatempo models are pointing to a wet summer from January to March, but there is low visibility afterwards.

"The strong El Niño causes an increase in the probability of La Niña in the 2027-28 period, with entirely different weather conditions than what we are seeing now," Sondermann said.