Executive Summary / Key Takeaways

• Companhia Paranaense de Energia (Copel) is undergoing a profound transformation, shifting from a state-controlled entity to a corporation focused on its core electricity business, marked by strategic divestments and a renewed emphasis on operational efficiency.
• The company demonstrates robust financial performance, with Q2 2025 recurring EBITDA growing 4.2% year-over-year to BRL 1.3 billion, underpinned by significant cost reductions and strategic asset optimization.
• Copel is committed to enhancing shareholder value through an attractive dividend policy, including an 86% payout and 8.4% dividend yield for 2024, and a planned migration to the Novo Mercado to boost liquidity and governance.
• Technological advancements, particularly its smart grid program with 1.5 million smart meters, are driving operational efficiency and improving customer service, providing a competitive edge in its distribution segment.
• While facing regulatory uncertainties and energy market volatility, Copel's integrated business model, strong hydro generation portfolio, and disciplined capital allocation position it for virtuous growth in 2026-2027, with a clear outlook for future investments and value creation.

A New Current: Copel's Strategic Re-Energization

Companhia Paranaense de Energia (Copel), founded in 1954, has long been a cornerstone of Brazil's energy infrastructure, particularly in the state of Paraná. Its journey from a state-owned enterprise to a corporation without a defined controller in 2024 marks a pivotal moment, signaling a sharpened focus on its core electricity business encompassing generation, transmission, distribution, and commercialization. This strategic pivot is unfolding within a dynamic Brazilian energy landscape characterized by increasing demand, the rise of distributed generation, and persistent energy price volatility.

Copel's foundational strength lies in its integrated business model and its significant hydroelectric generation capacity, which provides stability to the system. The company is also making strides in technological differentiation, notably through its smart grid program. With 1.5 million smart meters deployed by the first half of 2025, Copel boasts one of Brazil's largest smart grid initiatives. This technology enables tangible benefits such as remote energy shut-down and rapid reconnection upon payment, significantly enhancing operational efficiency and customer service. The strategic intent behind these technological investments is to drive efficiency, streamline processes, and leverage emerging advancements like artificial intelligence, thereby strengthening Copel's competitive moat and improving its financial performance through lower operating costs and better service delivery.

In the broader competitive arena, Copel operates alongside national giants like Eletrobras (EBR), and diversified players such as Engie Brasil (EGIE3) and AES Brasil (AESB3). Copel's regional regulatory licenses and extensive infrastructure network provide distinct advantages, fostering stronger customer loyalty and recurring revenue streams, particularly in Paraná. This localized dominance offers better pricing power in its core distribution areas, countering the national scale of competitors like Eletrobras. Furthermore, its diversified infrastructure network contributes to cost leadership and efficient energy delivery, potentially leading to superior capital efficiency. While direct quantitative comparisons for all competitors are not always publicly detailed, Copel's TTM P/E ratio of 2.86, P/S ratio of 0.39, and P/B ratio of 0.34 suggest a potentially more attractive valuation compared to Eletrobras, which has a TTM P/E of 9.65 and P/B of 0.82. However, Copel faces vulnerabilities related to regulatory dependencies and potential technological gaps in rapidly evolving renewable energy segments, where competitors like Engie Brasil might hold an edge in innovation speed.

Strategic Evolution and Operational Discipline

Copel's strategic transformation is a story of disciplined capital allocation and relentless pursuit of efficiency. Following its follow-on offering, the company has delivered on key promises, including the crucial renewal of concessions for its three main power generation plants for an additional 30 years, involving a BRL 4.1 billion grant bonus payment. This secures a significant portion of its generation capacity for decades.

The company has also systematically optimized its portfolio through strategic divestments. The sale of Compagas and UEGA in Q3 2024, recognizing BRL 170 million, aligned with its decarbonization strategy and focus on the electricity core. This was followed by the sale of Copel G&T's non-core real estate for BRL 286 million, contributing approximately BRL 175 million to net income and eliminating BRL 5 million in annual maintenance costs. Further enhancing its asset base, Copel completed an asset swap with Eletrobras in Q2 2025, consolidating HPP Maua and the Mata de Santa Genebra transmitter, which also allowed for offsetting approximately BRL 170 million in tax losses from Colider. The recent conclusion of small hydro asset sales in July 2025, with the Figueira plant expected to close in Q3 2025, further underscores this commitment to a streamlined, high-value portfolio.

Operational excellence is a core tenet of Copel's strategy. The company initiated a voluntary severance program in 2024, leading to a reduction of 1,258 employees by August 2024 and a 1,415 employee reduction in Q4 2024, which resulted in a 26.2% decrease in personnel costs. This program contributed to an overall 3.7% reduction in PMSO (Personnel, Material, Services, and Others) expenses to BRL 708.3 million in Q2 2025, primarily from a nearly 15% drop in personnel and administrative expenses and a 13% reduction in pension and assistance plan costs. Management emphasizes that these efficiency gains are not merely about cost-cutting but are aimed at improving customer service and overall competitiveness, supported by ongoing digital transformation and process revisions.

The company's commitment to sustainability and excellence was recognized with the "best ESG Award for the Electrical sector" from Exame Magazine and its third consecutive first-place ranking in Aneel's Ombudsman Award in Q2 2025.

Financial Performance and Shareholder Returns

Copel's financial performance reflects its strategic initiatives and operational discipline. In the second quarter of 2025, the company reported recurring EBITDA of BRL 1.3 billion, representing a 4.2% year-over-year increase. This growth was largely driven by stronger results in its Generation and Transmission (GeT) segment, particularly from short-term market transactions and lower generation deviation in wind complexes, despite some pressure from increased energy purchase costs in distribution. The GeT and Commercial segments collectively contributed 58.4% of the consolidated recurring EBITDA, with GeT's recurring EBITDA rising 12.6% to BRL 761.4 million. The Distribution segment, Copel Distribuicao, contributed 42.6% of the consolidated recurring EBITDA, achieving BRL 569.3 million, a 0.6% increase year-over-year, supported by tariff adjustments in June 2024.

For the full year 2024, Copel delivered an adjusted EBITDA of BRL 5.1 billion and a net income of BRL 2.8 billion. The Distribution segment was a standout, achieving an EBITDA efficiency almost 46% above the regulatory level in Q4 2024. Despite a 9.5% year-over-year decrease in Q2 2025 recurring net income to BRL 452.4 million, primarily due to a 38.7% rise in financial expenses from increased debt for investments and higher CDI rates, the company's overall performance remains sound.

Copel maintains a healthy liquidity and leverage profile. As of Q2 2025, its leverage stood at 3.1x net debt over EBITDA, which is expected to normalize to 2.9x after the planned divestment of Baixo Iguacu in Q3 2025, aligning with its optimal capital structure and dividend policy. Total net debt was BRL 16.6 billion, with a diversified composition and a reconfirmed AAA rating. The company is deeply committed to shareholder returns, proposing BRL 2.3 billion in total dividends for 2024, representing an 86% payout and an approximate 8.4% dividend yield. A share buyback program, initiated in November 2024, has already seen BRL 120 million executed.

Outlook, Guidance, and Strategic Growth Drivers

Copel's forward-looking strategy is anchored by several key initiatives designed to unlock further value. The company projects a robust CapEx of over BRL 3 billion by the end of 2025, with BRL 975 million already invested in Q2 2025, and an updated CapEx for 2025 announced at BRL 3.29 billion, including over BRL 200 million for Copel G&T improvements. These investments are strategically concentrated in assets that expand the remuneration base, enhance service quality, and modernize infrastructure, particularly in the distribution company during the final year of its tariff cycle.

A significant governance initiative is the migration to the Novo Mercado segment of B3, Brazil's stock exchange. This move aims to unify share classes, increase liquidity, and attract new investors, especially foreign ones, by aligning with stringent corporate governance standards. Despite a temporary 15-day deferral from CVM in August 2025 due to a minority shareholder's request, management remains confident in concluding the migration by the end of 2025, viewing it as a critical step to unlock value for all shareholders. The deadline for dissenting common shareholders to exercise their right of withdrawal regarding the equalization of preferred shares passed on September 24, 2025, with no shareholders exercising this right.

Copel is also actively preparing for the upcoming capacity reserve bid (LRK), with an announcement for the ordinance expected in the coming weeks and the auction likely in Q1 2026. The company plans to offer its Foz do Areia (840 MW) and Segredo (1.2 GW) hydropower plants, which it believes will be highly competitive. Hydropower is positioned as the lowest-cost, renewable, and nationally sourced option to address the urgent need for power in the system, which is projected to require over 12 GW.

The company's energy trading strategy is opportunistic and agile, leveraging market volatility. For 2025, Copel's revenue is "completely locked." For 2026 onwards, management anticipates increased volatility, creating opportunities to lock in energy sales at favorable prices, with sales for 2026 above BRL 260, 2027 around BRL 250, and 2028 around BRL 275. This disciplined approach, combined with a restrictive credit policy, mitigates risks in a turbulent market. Looking further ahead, Copel Day on November 19 will outline growth avenues from 2025 to 2035, with a focus on organic growth and extracting more value from its current asset base, rather than immediate large-scale M&A.

Risks and Challenges

Despite a compelling growth narrative, Copel faces several pertinent risks. The regulatory and political environment in Brazil remains "highly contaminated, very controversial," leading to unpredictable outcomes regarding tariffs and legislative developments. Provisional Measures 1,300 and 1,304, expected to merge and be approved, carry the risk of introducing more subsidies, which could negatively impact the tariff environment and technical planning.

Operational challenges include curtailment, particularly affecting wind power generation, which was 13.1% in Q4 2024 and 23% in Q3 2024 for wind assets. While new transmission lines entering service in October 2024 have improved energy transfer and are expected to reduce curtailment levels, it remains a persistent issue for the sector. The energy market's inherent volatility, described as the "new normal," necessitates continuous vigilance and agile trading strategies to manage price fluctuations and submarket differences. Furthermore, credit risk in the trading market, evidenced by rumors of financial difficulties for some traders, requires Copel to maintain its restrictive credit policy and focus on robust counterparties.

Conclusion

Companhia Paranaense de Energia (ELP) stands at a transformative juncture, having successfully transitioned to a privately controlled corporation and sharpened its focus on its core electricity business. The company's disciplined strategy, marked by strategic divestments, a robust CapEx program, and an unwavering commitment to operational efficiency, underpins its strong financial performance and compelling investment thesis. With recurring EBITDA growth, a healthy balance sheet, and a generous dividend policy, Copel is actively creating value for its shareholders.

The planned migration to the Novo Mercado, coupled with its advanced smart grid technology, positions Copel for enhanced liquidity, improved governance, and sustained competitive advantage. While the Brazilian energy sector presents regulatory and market complexities, Copel's integrated business model, significant hydroelectric capacity, and proactive management of risks, including curtailment and trading volatility, provide a resilient foundation. The outlook for virtuous growth in 2026-2027, driven by price recovery, a new tariff base, and continued efficiency gains, suggests that Copel is well-positioned to solidify its standing as a leading player in the Brazilian electricity sector, offering a compelling long-term investment opportunity.