The Prospects for a Successful World Cup Are Dimming

A drought-ravaged Brazil might have to turn to energy rationing.

Mar 16, 2014 at 12:15PM

Brazil Fans

Source: Wikimedia Commons, Agencia Brazil; Brazilian fans at the 2010 World Cup. 

In just three months, Brazil will kick off the 2014 FIFA World Cup. The soccer tournament is one of the most anticipated international events of all time, but Brazil might be having second thoughts about its sponsorship. Here's why.

Drying out
The glitz and the glamour of the World Cup create a logistical nightmare -- and the onerous tournament organization just got even more awful for Brazil. The country just recorded the second-driest January in 80 years, something that means more than yellow lawns for this South American country.

Brazil relies on hydroelectric power for a whopping 80% of all its electricity generation. Hydro pushed 428,333 GWh to Brazilian businesses and homes in 2011 (the most recent available data). Its secondary source, biofuels, clocked in at 32,235 Gwh, equivalent to just 6% of total production.


For those who've analyzed Brazil's power production in the past, this news should come as no surprise. Increasingly erratic weather has made hydroelectric power riskier than ever before. Once heralded as a steady, environmentally friendly renewable energy, hydropower assets have made energy companies increasingly leery.

Duke Energy Corporation (NYSE:DUK) has been in Brazil since 1999, when it acquired Paranapanema Electricity Generation Company. While the subsidiary currently creates a massive 2.3% of all Brazil electricity, it relies on just 10 plants spread along only two rivers to generate 2,274 MW.

Duke Energy Corporation

Source: Duke Energy Corporation; Capivara hydroelectric dam.

In Duke Energy Corporation's latest earnings report, CFO Steven Young noted that "unfavorable rain conditions" and "lower than expected reservoir levels" affected its Brazilian operations earlier last year. Duke Energy Corporation is using contracts to cut back on volatility, but a financial agreement still won't change when it rains.

International utility The AES Corporation (NYSE:AES) also has hydro operations in Brazil. While its two distribution businesses will be less affected by dry weather, its nine hydroelectric power plants and three smaller projects are all under threat. With 2,658 MW of installed capacity, The AES Corporation's piece of Brazil's energy pie is just as big as Duke Energy Corporation's. In its last earnings report, The AES Corporation noted that its current reservoir levels stand at 39% -- well below the 68% historical average.

Expensive alternatives
Brazil's hydro addiction is hitting it hard. As hydropower doesn't make its mark, the country may have to rely on expensive liquefied natural gas imports to keep its cities up and running.

Electricity demands leading up to and during the World Cup are enormous. The country is spending $14 billion on infrastructure projects -- equivalent to 15,000 new miles of roads. It expects 600,000 foreign tourists and 3.1 million locals to attend games, spending a total of $2.1 billion in-country.

To add insult to injury, Brazilians are currently paying for untapped wind energy from 48 farms. With capacity to power 3 million homes, construction delays have kept these wind farms disconnected from local power grids. Wind power association Abeeolica estimates that this inefficiency is costing Brazilians around $230 million, not to mention the $1.3 billion spent on more expensive fossil fuel generation.

Keep the lights on
On Feb. 4, 6 million people across 11 states were plunged into darkness as supply simply couldn't keep up with demand. If Brazil has to cough up cash for expensive LNG to keep the World Cup whirling, it'll pay a pretty penny. But if the country can't even keep its lights on, it'll be a dark and dismal World Cup, indeed.

Don't be like Brazil
Brazil has put all its eggs in one basket, and that basket is breaking. As a smart investor, you don't have to make the same mistake. One of the dirty secrets that few finance professionals will openly admit is that diversified dividend stocks handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best, and how to diversify your portfolio picks. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Justin Loiseau and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers