When investing, it is important that you learn analyzing different sectors. In the previous article, we looked at some factors that you should look for in general in all companies. Now, we will look at specific sectors and how to analyze them. We begin by looking at the utilities sector.
Analyzing Utilities Sector
Over the years the Utility industry has changed a lot. Earlier, this industry was considered safe but now, following large scale regulatory changes, demand generation, price volatility, and increase in competition-the industry has changed. Few years back we saw only few behemoths monopolies controlling the industry. However, with deregulation there has been a dramatic change in the industry. But the changes are different from country to country. For example, high deregulation in the US has seen many private players entering the industry. But in Brazil, electricity production and distribution is dominated by state owned companies.
Brazil is the 10th largest energy consumer in the world. In South America Brazil is the largest energy consumer. Rapid economic development and surge in Brazilian exports meant that government had to frame regulatory policy in a way that pushed energy production, increased foreign investments in energy sector, and increased competition. Government has also taken several measures to improve energy efficiency both in industrial and residential sector.
Oil: Brazil is the 15th largest oil producer in the world. Petrobras a state owned company with an estimated output of 2 million barrels a day is the major distributor of oil in the country. Deregulation has meant that there are about 50 companies that are exploring oil opportunities in Brazil.
Electricity: The major power company in Brazil is Eletobras. Eletrobras alone covers about 60% of electricity demand in Brazil. In order to meet the growing demand of electricity due to economic expansion, the government framed new regulatory framework in 2004 that encouraged competition thereby increasing productivity and production.
Hydropower: Brazil is the third largest hydroelectricity producer after China and Canada.
Bio fuels: Brazil is rich in natural resources. It is world’s biggest producer of sugarcane crop. Ethanol fuel is produced from sugarcane. As a result it is also an important source of energy to Brazil. By 2015 it is estimated that production and consumption of biodiesel will be 5% of diesel fuel.
In this article, we have given you a basic structure of the utilities industry. Generally, the utilities sector is seen as recession proof i.e. it can survive a downturn in the economy better than most other sectors. However, on the flipside, the sector will lag behind when there is an upward trend in the economy.
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If you want our team to write articles like these for you, please get in touch with us. Email Shas at indogeniclegal[at]gmail.com and we will respond within 24 hours.