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How expensive is your company’s energy?

It's in the newspapers and on the invoice we receive monthly: energy in Brazil is very expensive! It seems a consensus, as well as the argument that this cost reduces competitiveness or, perhaps, makes industrial activity in Brazil unfeasible. It is frightening to see this argument come true, as has been the case with the country's energy-intensive, primary aluminum industry. We start to imagine what is the next industry that will become unfeasible? Also, what industries will replace these that are closing? They must be industries that depend very little on energy.

However, as "expensive" and "cheap" are subjective concepts, not absolute, we are comparing them with something. So, how about comparing with actual and current data? After all, it's no use just comparing with the past, as technologies evolve, as well as demands.

The FIRJAN (Industry Federation of the State of Rio de Janeiro) System, which constantly monitors the progress of the Brazilian economy, has generated a very in-depth study of our two main energy sources: electric power and natural gas. Both are presented on the following websites: www.quantocustaenergia.com.br and www.quantocustaogasnatural.com.br.

In the case of electric power, the user can, for example, compare among distributors, among states and among countries. So, how about we compare these numbers to China, the United States and Germany?

We humiliate our competitors, don't we? If it were a case of the larger number, the better! But it isn't. We are expensive. More than twice the international average. The USA is a separate case, portrayed in more depth in the article "Made in USA", by economist Ricardo Amorim.

In the case of natural gas, our position changes. We are more competitive than China and we are 10% above the international average, tied with Germany. Again, the US is an outlier, with natural gas almost 4 times cheaper there!

Thus, in a macroeconomic analysis, these two websites can help managers. But what about your reality, looking at the microeconomics, the daily routine?

As for electric power, the first step is determining its cost for the factory, in R$/MWh. For a quick calculation, it is worth taking the amount paid with taxes (R$) and divide it by the energy consumed (in MWh). The website also informs the amount without taxes when comparing among states, for example: 391.45 R$/MWh national average, with Espírito Santo being the most expensive state (444.30), and Roraima the cheapest (222.99). Several components constitute the price of electric power, so a deeper analysis is required to understand where the cost can be reduced. Some examples: peak hours, contracted demand, reactive load.

As for natural gas, through its calculation we can obtain the amount in R$ and consumption in m3. Dividing one by the other, we have the amount with taxes in R$/m3, which will be used for several comparisons, such as between states. If you want to know how expensive or cheap natural gas in your factory is in relation to other countries, just multiply the value in R$/m3 by 15.1 to obtain it in US$/MMBtu, according to the methodology proposed by FIRJAN. That is, if your natural gas costs you 1.50 R$/m3, this represents 22.65 US$/MMBtu. That is, more expensive than in Germany.

If your plant uses LPG, you can compare the price of this fuel with natural gas. To do so, divide the LPG amount in R$/kg by 1.26. That is, if its price is 1.89 R$/kg, this represents 1.50 R$/m3 of natural gas or 22.65 US$/MMBtu.

Therefore, this information provides a considerably easier assessment to understand if the energy your factory consumes is expensive or cheap compared to other states, distributors and countries. Furthermore, it allows a practical analysis of economic viability for changing the energy matrix. For example, converting electric furnaces to natural gas, subject that we will address in another article.

Just to introduce this issue, I suggest equating the units, converting the price of natural gas to R$/MWh. To do so, multiply the natural gas price by 97.75 or LPG by 77.48. That is, 1.50 R$/m3 of natural gas or 1.89 R$/kg of LPG represent 146 R$/MWh. This means that your electric power should be between the range of 336 to 438 R$/MWh. If electric power is below 336, it means that your electric power is cheap in relation to gas. On the other hand, if it is above 438, it means that your gas is cheap in relation to electric power.