Last Tuesday night (6), the Chamber of Deputies approved, by 260 votes to 83, the bill (n° 2703/22) that extends for six months the deadline for consumers to request access to the network to the install solar panel plates to generate their own energy, failing to pay transmission and distribution bills. The proposal will be sent to the Senate.
The news was well received by those who still intend to install a solar panel, but also by investors in a stock in particular on the Stock Exchange: that of electrical equipment manufacturers WEG (WEGE3) which, among the positive theses, is that of energy transformation.
“If the postponement is also approved by the Senate, WEG customers will have another half year to put solar projects on their feet. Even though the tariff readjustment should be instituted, the postponement should accelerate GTD revenues [Geração, Transmissão e Distribuição de Energia Elétrica] of the company in the next semester”, evaluates Itaú BBA.
WEG estimates that the change in the regulatory framework (which removes the exemption) will reduce the Equity Internal Rate of Return (IRR) of remote solar parks from around 15% to less than 5%. Not by chance, in 2022, there was a significant acceleration in the beginning of projects and a consequent increase in demand for WEG solar kits, which are composed of solar panels, electrical inverters and metallic structure.
As a reference, the company’s domestic GTD revenues accelerated from R$1.2 billion per quarter in 2021 to R$2.0 billion in 2022, mainly due to distributed generation.
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Consensus expectations point to a slowdown in domestic GTD revenues after the implementation of the new regulatory framework. Thus, the six-month extension of the tariff exemption should support revenues in the short term (probably until 2024), as WEG customers should take advantage of the extra time to rush to send more projects with higher returns.
JPMorgan analysts also point to the extension as positive for WEG, as solar generation, both distributed and centralized, has been growing at high rates and should maintain this pace in the short term, as consumers should anticipate their investments during the first half of 2023 (1H23) to take advantage of extended benefits.
“Although WEG does not provide details on what percentage of its revenue comes from solar energy, the company stated that around 25% of revenue is represented by renewable energies, including solar and wind energy”, evaluates the analysis team.
Itaú BBA and JPMorgan have a buy recommendation (outperform and overweight, respectively) for the assets, with respective target prices of BRL 44 (18% upside) and BRL 47 (24% upside).