Executive Summary / Key Takeaways

• Eletrobrás is undergoing a profound post-privatization transformation, shifting towards increased predictability, stringent cost control, and strategic growth, underpinned by a robust capital allocation framework.
• The company's core investment thesis is built on its dominant position in Brazil's essential electricity generation and transmission sectors, leveraging extensive hydroelectric assets and a growing focus on renewables.
• Significant financial improvements are evident, including a BRL 4 billion dividend payout in Q2 2025, a substantial reduction in compulsory loans to below BRL 12 billion, and a commitment to further lower PMSO expenses to BRL 5.5 billion by 2026.
• Eletrobrás is aggressively expanding its investment program, with CapEx for reinforcements and improvements projected to exceed BRL 4 billion in 2025, alongside successful participation in new transmission auctions, demonstrating a clear growth trajectory.
• Technological advancements, particularly in AI and IoT for asset monitoring, are enhancing operational efficiency and predictability, while strategic initiatives in green hydrogen and battery hybrid systems position the company for future energy transitions.

A New Dawn for Brazil's Energy Giant

Centrais Elétricas Brasileiras S.A. – Eletrobrás, incorporated in 1962, has long been a foundational pillar of Brazil's electricity sector. Following its privatization, approved by the Brazilian Chamber and Senate, the company embarked on a transformative journey. This new era is defined by a relentless pursuit of operational excellence, financial discipline, and strategic expansion, moving away from a historically bureaucratic structure to one focused on client service and shareholder value. Eletrobrás' core business encompasses the generation, transmission, and commercialization of electricity, primarily through its vast hydroelectric infrastructure, which is increasingly complemented by wind and solar assets.

The broader Brazilian energy landscape is characterized by inherent volatility, driven by hydrological conditions, fluctuating demand, and the growing integration of intermittent renewable sources. This environment necessitates a robust and adaptable strategy, which Eletrobrás is actively implementing. The company's strategic responses include a focus on increasing predictability of results, aggressive cost reduction, proactive liability management, and targeted investments in both existing and new infrastructure.

Technological Edge: Enhancing Predictability and Efficiency

Eletrobrás is not merely adapting to the evolving energy landscape; it is actively shaping its future through technological differentiation and innovation. The company is rapidly modernizing its infrastructure, integrating advanced technologies such as artificial intelligence (AI), machine learning, and the Internet of Things (IoT) for highly efficient management of its extensive equipment base.

A tangible benefit of this technological adoption is the enhanced predictability of operations. Approximately 90,000 assets are monitored with AI and IoT, significantly improving operational foresight and reducing risks. This proactive monitoring is crucial in a system increasingly reliant on intermittent sources and susceptible to climatic events. Furthermore, Eletrobrás is investing in cutting-edge research and development. It has pilot plants for green hydrogen, having spent BRL 125 million to produce 5.7 tons of green hydrogen. The company is also actively exploring battery hybrid systems to better understand their operation and enhance network service, aiming for greater grid resilience and stability. These technological initiatives contribute directly to Eletrobrás' competitive moat by improving asset availability, reducing operational costs, and positioning the company at the forefront of sustainable energy solutions, thereby bolstering its long-term growth strategy and financial performance.

Competitive Dynamics in a Transforming Market

Eletrobrás operates within a competitive yet fragmented Brazilian energy market, facing both direct and indirect rivals. Direct competitors include major utilities like Companhia Energética de Minas Gerais (CIG), Companhia Paranaense de Energia (ELP), AES Brasil (AESB3.SA), and Engie Brasil (EGIE3.SA). Eletrobrás maintains a dominant market position, primarily due to its unparalleled scale and extensive national infrastructure, particularly its hydroelectric and transmission assets.

Compared to CEMIG, Eletrobrás' broader national footprint and diverse energy mix, including nuclear, offer a qualitative edge in scale and market positioning, enabling greater efficiency in power delivery across vast regions. While CEMIG's regional focus may allow for faster localized innovation, Eletrobrás' integrated approach provides superior strategic adaptability for national-scale operations. Against COPEL, Eletrobrás' larger portfolio and nuclear capabilities offer greater energy diversity and reliability, particularly during supply disruptions. While COPEL might show faster innovation in wind and solar, Eletrobrás' scale allows it to pursue large-scale transmission projects that smaller rivals cannot match.

Eletrobrás' established regulatory licenses and national infrastructure provide a unique value proposition, potentially leading to stronger customer loyalty and recurring revenue in transmission services. However, it faces challenges in innovation speed compared to globally backed players like AES Brasil, which may have access to more advanced technologies. Engie Brasil's strong push into renewables also highlights a segment where Eletrobrás, despite its own renewable ambitions, must remain agile. Eletrobrás' competitive advantages, such as its extensive transmission network and diversified energy sources, translate into enhanced reliability and potentially superior margins. Its network counters regional competitors by enabling broader market access and improved pricing power in national projects. Barriers to entry, such as high capital requirements and complex regulatory approvals, further solidify Eletrobrás' entrenched position. The company strategically positions itself by actively participating in auctions, focusing on greenfield projects, and leveraging its scale to secure long-term equipment contracts, mitigating upward cost trends in the market.

Operational Excellence and Financial Reinvigoration

The post-privatization era has seen Eletrobrás embark on a significant financial transformation. The company reported a net loss of BRL 1.3 billion in Q2 2025, primarily due to the regulatory remeasurement of transmission contracts. However, adjusting for this and other IFRS effects, net income would have been BRL 1.4 billion, a 40% increase year-over-year. This underscores the underlying operational improvements.

Cost reduction remains a central pillar of the strategy. Eletrobrás is committed to a downward trend for its PMSO (Personnel, Material, Services, and Other) expenses, targeting figures below BRL 7 billion for 2024, below BRL 6 billion for 2025, and approximately BRL 5.5 billion for 2026. This is supported by the Furnas merger, which streamlined corporate structure, and a new collective bargaining agreement linking compensation to performance. In Q1 2025, operational costs dropped 28% quarter-on-quarter and 8% year-on-year, yielding R$143 million in personnel savings.

Liability management has also been a key focus. Compulsory loans, a significant legacy burden, have been reduced from BRL 24 billion in 2023 to below BRL 12 billion by Q2 2025. This reduction, along with other liability management efforts, has significantly de-risked the balance sheet. In September 2025, its subsidiary Eletronorte approved a R$700 million debenture issuance, with Eletrobrás acting as guarantor, further diversifying funding sources and benefiting from tax incentives.

Strategic Investments and Shareholder Returns

Eletrobrás is aggressively pursuing growth through strategic investments. Investments grew 116% in Q2 2025 compared to Q1 2025, with a strong focus on reinforcements and improvements in its transmission network. Total investments in generation and transmission, including auction successes, reached BRL 14 billion in 2024, with an allowed annual revenue (RAP) of BRL 6.4 billion. The company projects CapEx for reinforcements and improvements to exceed BRL 4 billion in 2025, with ambitions for continued growth in subsequent years. Notable project completions include the Coxilha Negra Wind Farm in Q1 2025 and the Caladinho transmission project, delivered on time and within budget. The Transnorte Energia line, interconnecting Roraima, involved a BRL 3.3 billion CapEx, an increased RAP from BRL 395 million to BRL 561 million, and an extended concession term from 17 to 27 years.

This robust financial health and de-risked profile have enabled significant shareholder remuneration. Eletrobrás announced a BRL 4 billion dividend payout in Q2 2025, following a BRL 4 billion declaration for 2024. The company's dividend methodology considers a five-year horizon, assessing capital structure and leverage against optimal targets (3-3.5x for generation, 3.75-4.25x for transmission). This approach, combined with strong liquidity (raising BRL 32 billion in 2024 and expecting approximately EUR 37 million in cash by Q3 2024), allows for predictable and frequent dividend payments, balancing shareholder returns with attractive future investment opportunities. The partial sale of Amazon thermal plants, yielding R$2.9 billion in cash in Q1 2025, further supports this capital allocation strategy and aligns with the company's net-zero commitment by 2030.

Market Volatility and Risk Management

The energy trading segment highlights the inherent volatility of the Brazilian market. In Q2 2025, generation contributed BRL 1.6 billion to margins, up from BRL 1 billion in Q1 2025, demonstrating the impact of strategic positioning. However, the "submarket risk," a mismatch between sales in the Southeast and uncontracted energy in the North/Northeast, impacted Q1 2025 results. Eletrobrás' strategy has evolved from hedging risks in Q1 2025 to leaving energy uncontracted from Q2 2025 onwards, anticipating higher prices. The company is actively expanding its client base in the free market, which saw a 35% year-on-year increase in Q1 2025.

Despite market volatility, Eletrobrás maintains a conservative approach to leverage, particularly in the generation segment, due to price uncertainty and the increasing impact of "modulation" – hourly fluctuations in hydropower generation and spot prices. The company asserts zero exposure to defaults from public traders and employs a robust risk analysis for all operations. Key risks include general economic, regulatory, and political conditions, fluctuations in interest rates and inflation, and changes in rainfall patterns. However, the company's improved risk profile and proactive management of these factors mitigate potential impacts.

Outlook: Sustained Growth and Enhanced Predictability

Eletrobrás' management is building a budget for 2026, aiming to fully complete its turnaround phase. The outlook is for sustained growth in investments, with a projected BRL 4.5 billion for 2025 and expectations for continued increases in subsequent years. The company anticipates the capacity auction to materialize in 2025, offering further growth opportunities given its broad portfolio. PMSO expenses are targeted to reach BRL 5.5 billion by 2026, reflecting ongoing efficiency gains.

The company's commitment to its ESG agenda is strong, with validated net-zero goals by 2030 and the approval of its first human rights policy. These initiatives, coupled with technological advancements in green hydrogen and battery systems, position Eletrobrás for a sustainable future. The company's focus on client solutions, operational efficiency, and a prudent financial strategy is expected to yield more predictable results and consistent shareholder returns.

Conclusion

Eletrobrás stands at a pivotal juncture, having successfully transitioned through privatization into a new era of strategic focus and financial discipline. The company's core investment thesis rests on its indispensable role in Brazil's energy infrastructure, its robust operational transformation, and its commitment to predictable shareholder returns. Through aggressive cost reduction, proactive liability management, and a growing investment program, Eletrobrás is demonstrating a clear path to enhanced profitability and efficiency. Its technological leadership in AI-driven asset management and pioneering efforts in green hydrogen and battery systems provide a critical competitive edge, ensuring operational resilience and positioning for future energy transitions. While market volatility and regulatory dynamics present ongoing challenges, Eletrobrás' strategic responses and conservative financial management underscore its capacity to deliver sustained value. The company's consistent dividend payouts and ambitious growth targets, particularly in the transmission segment and new auctions, signal a compelling opportunity for discerning investors seeking exposure to a revitalized and strategically positioned energy leader in Brazil.