Auren Energia SA
BOVESPA:AURE3
Earnings Call Analysis
Q4-2023 Analysis
Auren Energia SA
Auren experienced operational success with its hydroelectric generation, recording nearly a 20% increase in the fourth quarter due to favorable hydrological conditions. The consolidated wind generation also performed strongly, exceeding the P90 by 5.4%, thanks to the full operation of Ventos do Piaui II and an overall better wind resource than in the same period of 2022. Financially, the net revenue grew by 14.7%, primarily due to the new wind farms and an increase in energy sales in the trading segment. Adjusted EBITDA saw a rise of 9.7% in 2023, with actual growth potentially reaching 15.3%, considering nonrecurring effects from the previous year.
Investors were rewarded with a remarkable dividend yield surpassing 20%, from an extraordinary payment of EUR 1.5 billion. Nonetheless, the net result for the year showed negative figures, mainly due to nonrecurring tax payments related to the indemnity for HPP Tres Irmaos. These effects were a consequence of tax obligations fulfilled in 2023 against indemnity amounts recognized in the latter part of 2022.
Auren launched Brazil's first hybrid project and established a joint venture with VIVO to tap into retail market opportunities, coinciding with the market's opening in January 2024. This innovative move introduces a new avenue for growth and positions the company at the forefront of Brazil's energy sector.
The period witnessed affluent energy surpassing the long-term average with 102%, although the stored energy at 77% fell short of the prior year's 85%. The disparity stemmed from uneven rainfall distribution with concentration in the South. This level of stored energy, peaking at 88% in April but closing at 60% by December end, despite being comfortable for external supply, has not seen anticipated recovery in early 2024.
A surge in energy consumption was recorded in the last quarter of 2023, at a rate 12% higher than the corresponding quarter in 2022, with the full year's consumption also rising by 5.5%. This was influenced by increased temperatures and consequently, higher demands on hydro generation capacities, as exemplified by assets such as Porto Primavera, which saw a 19.4% generation increase.
The Generation Scaling Factor (GSF) for the last quarter stood at 84%. The Porto Primavera hydro plant, operated wholly by Auren, produced significantly more than its fiscal guarantee, indicating strong performance in line with increased energy requirements.
While wind resource production was below expectations, as reflected by a 0.5% impact due to turbine performance and other issues, Auren still achieved positive results. Notably, the company projects that 73% of the generation curtailment, an unavoidable reduction in generation, will be reimbursable, thereby minimizing financial impacts.
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Good morning, ladies and gentlemen. Welcome to Auren's conference to discuss results regarding the fourth quarter of 2023. This conference is being recorded, and the replay can be accessed on the company's IR website, ir.aurenenergia.com.br. The presentation is also available for download. [Operator Instructions] Before proceeding, we would like to clarify that any forward-looking statements are based on the beliefs and assumptions of Auren's management and current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists must understand that events related to the macroeconomic environment, industry and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. Here with us at this conference are Mr. Fabio Zanfelice, Auren's CEO; and Mr. Mario Bertoncini, CFO and IRO. The Investor Relations team is also here with us. I would now like to turn the call over to Mr. Fabio Zanfelice, who will start the presentation. You may proceed, sir.
Thank you. Good morning, ladies and gentlemen. It's an honor to have you all here again attending our conference to discuss the results of the fourth quarter of '23 and the full year of '23. Now moving on to the highlights for this fourth quarter of the year. From the operational viewpoint, we have hydroelectric generation, nearly 20% in the fourth quarter of '23, due to the favorable hydrological scenario, especially at the end of the year. Our consolidated wind generation was 5.4% above the P90 in the fourth quarter of 2023, driven by the full operation of Ventos do Piaui II, which was still in the operational phase in the previous quarter and higher wind resource compared to the fourth quarter of 2022. As to the financial dimension, net revenue grew by 14.7%, driven by the generation and start-up of Ventos do Piaui II and III wind farms and higher volume of energy sales in the trading segment, a growth of 9.7% in adjusted EBITDA in 2023, when we consider the nonrecurring effects of EBITDA in the last quarter of 2022, when compared to '23, the EBITDA to grow 15.3%. The result was a bit lower than that, and we would like to draw your attention to the fact that this effect was driven by the [ indemnation ] of the claim of Ventos do Araripe III that happened in the last quarter of 2022 to [ BRL 90 million ], which is not recurrent for the fourth quarter of 2023. And this is when would -- this allow this effect, the EBITDA would have grown 15.3%. We would also like to mention the payment of extraordinary dividends of EUR 1.5 billion with a dividend yield of more than 20%. And the net result was impacted. We ended with a negative net result due to the nonrecurring effect. As you all know, is related to the payment of the income tax and PIS/COFINS taxes related to the indemnity for HPP Tres Irmaos. This happened the, the effect of the receiving those amounts were recognized in the last quarter of 2022. And during the 2023, we paid the taxes, and that caused the impact in the net result for the year 2023. In relation to the growth and innovation of the company, we announced in the end of the year that we would have the startup of the hybrid project. It's the first hybrid project in Brazil, and we are honored to inform that we have a joint venture with VIVO to create the opportunities in the retail market, considering the opening of the market that has just happened in January 2024. Okay. Very well. Now moving on and talking about the energy market. We have some highlights. And we -- as we did in the previous presentation, we discussed the affluent energy in the interconnected system. And also, we will discuss the stored energy. The affluent energy exceeded the long-term average, but we would like to say that in spite of the good performance of the rainfall and the gross effect when we compare the stored energy of the system, which is what we actually can store and there was [ a word ], the performance was not as good as we reported in 2022. We had in 2022 of 98% and stored energy was 85%. We can observe the dotted line. To the left, we can see the levels of the stored energy. In '23, the affluent energy was much higher. It reached 102%. It in fact exceeded the long-term average. However, the stored energy was 77%. And this was due to effect the concentration of rainfall in the South, and stored energy remained at 72%. And along 2023, those works were very full and part of the energy was also used along the year. As the effect, we ended the year of '23 with a storage level of 60%, we started at 58% in December 2022. We reached to 88% in April 2023, and we ended at 60% in December 2023. So it's a very comfortable level of storage in terms of external supply. But as you have noticed, we have seen a unique period, especially in January with a recession in hydrology. And the number is much below compared to what we expected for the medium-term average. And the storage level did not recover the long January or the beginning of February, we stand at [ 61.7% ] at the interconnected system. And the last time we had scenarios in just this was back in 2019. That shows that what period is a bit typical in spite of the fact of El Nino, the effect is a bit different considering rainfall rates. In the following slide, we can see the effects of the higher generation in the hydro dimension as a result of the increase in consumption, especially at the end of the year. Last quarter of 2023 reported a growth of 12% in the consumption of energy when compared to the last quarter of 2022. And we observed the full year, 5.5% higher than the average of 2022, especially driven by the increase in temperatures. And this was also related to El Nino that incorporates the increase in the hydro generation power as we can see the results of [ Porto Primavera ]. Talking about operating performance now and connecting to the information provided in the previous slide. In the last quarter, the generation of Porto Primavera, which is 100% operated by Auren. We had an increase of 19.4% in relation to the fourth quarter of 2022, the reservoir level is very high, and it's also connected to the greater energy demand. GSF, as we have observed in the last quarter, was 84%. Porto Primavera had generation much higher than its fiscal guarantee, as we can observe on the graph that we present on this slide. In the following slide, we can talk a little bit about this effect. So we prepare the presentation with more information showing the effect of the hydropower connected to the disconnection of the spot price in the past 4 months of 2023. You can observe that along the past months, we had a mismatch in the results, and we show the comparison of the generation profile on average on a daily basis of the hydropower plants in this month when compared to the spot price. And as we can see on the right, we see the comparison between the average spot price and the settlement price as observed by the hydropower plants. So we observed a gain, which is still marginal when we consider the average levels. But it shows that there is a positive effect of the hydro generation in the system. And we can also see that it was an extraordinary even though it's small in the increase, in the increase when we see that there is this mismatch of prices. In the following slide, we can see the performance of the wind assets in the previous quarter, especially in December. The wind generation was much higher than expected, much higher than the P50 and that helped us to end a year in a positive result. Even though we had August whose performance damage the rest of the result, and we had a generation 2.4% above the [ 90% ] for 2022. It was a very positive performance in terms of wind generation in our complexes in Ventos do Piaui, Pernambuco. In the following slide, we show as we usually do, we show the performance of our asset, our project, and we show the performance [ in blue ], the P50 that we observed in the last quarter that comes from the wind resource, which was below than expected. And we consider the electrical system and also the turbines. And we had an impact of 0.5% of the wind turbines and also other items such as 0.3% of the P50 average generation. And here, we would like to share a piece of information that we also shared in the previous call, showing the generation divided by the states in the Northeastern region. We had 1.5% of curtailment and 1.1% can be reimbursed. So considering everything that was observed in the last quarter, 73% of the curtailment will be reimbursed with this reduction of generation. When we look at the distribution of the curtailment, we can see that the geographical region where we operate is the region where the curtailment affects the least, which is in the Northeastern part of the country, so 0.8%. And for 2023 as a whole, 1.5%. That was also impacted by the effect that happened in August last year, the blackout that also changed the operation of the system in that particular region, and there was some reflect on the assets of our end but was much lower than the average reported in the region. In the following slide, as we had announced beforehand, in relation to Sol do Piaui, it started operating at the commercial -- the test is started in November 2023, and it started -- it's a commercial operation in January 2024. So we can see a large gap of time, nearly 1 month for this complex to start operating. But this is part of the characteristic of innovation of the test that requires more testing during this period. So we took 1 month to do all the necessary tests or the automation of Sol do Piaui, so that the solar and the wind systems could communicate, and we could have the total generation of the parks considering all the amounts that we have hired in the region. On the right, we can see the average of the profile of both assets operating together along the hours of the day, and this is actual performance. And Sol do Piaui was already in commercial operation. So we had 14.1 of average megawatts of generation, 15% above the P50 for the period. In the following slide, we can discuss some of -- we have to say about our energy balance. This is all connected with the previous slides. We can observe the high level of contracting level remains in the first 3 years, but we can see that it's lower than we used to present in the previous quarter. And this is why -- this is because the company understood that the -- we started to see some changes. The market prices were depreciated on the short and medium terms. So the company decided to start purchasing energy from the market. And we said its position. And from July to December 2024, we purchased about 120 megawatt average, and the price was [ BRL 100 ] from January to December 2025. And what we have observed in the past 30 days is that those prices are 70% higher than the prices that we acquired the energy. So we changed the strategy of the company. So not to have the long position, considering the hydrological scenario, as we mentioned when we talked about the market conditions, when we see that the storage level is about to recover and we can see the effects on the short and medium terms. Now let's talk about the financial performance. So I would like to turn the call to Mario, who will discuss the financial results. Mario, over to you.
Thank you, Fabio. Good morning, everyone. Let's start talking about the financial performance on Page 17. From the viewpoint of revenue, net revenue of the company, and considering everything that was explained by Fabio, we had growth quarter-on-quarter of nearly 50% of our net revenue. And this was driven by the positive win performance as described by Fabio, which is our highest volume for the trading of energy. So we ended the year of 2023, at the first -- the #1 trading company in the country, generating the highest level of energy. This is also reflected in a better EBITDA. In the full year of 2023, our EBITDA grew 9.7%. And even in the fourth quarter of 2023 when compared to the same period of the previous year, we can see that the adjusted EBITDA would have grown a little bit more than [ 16%, 15.5% ]. If we take into consideration, or if we do not consider that extraordinary effect due to reimbursement of insurance that was received in the fourth quarter of 2022. It's an operational amount. You are recomposing potential operational loss, but that was diluted in different periods and the receipt was concentrated in the fourth quarter of '22. If we discipline all this factor, which seems to be the best way to see it, it shows a growth of EBITDA of 15% to which I referred. The net income of 2023 takes a lot of consideration. The taxation of income tax, social contribution, PIS/COFINS taxes of Tres Irmaos. And we ended -- we executed the agreement of Tres Irmaos at the end of 2022. And the gains related to the correction of this [ indemnification ] was accounted for in December 2022. So it impacted favorably the result for 2022. However, because there was a natural mismatch of the payment of the taxes. The collection of those taxes were accounted for in 2023. And it refers to [ BRL 1.37 billion ]. So it damages the result of 2023, but there is a revenue of -- that was received, which is positive. On Page 18, we show the capital structure of the company and the cash flow. In terms of capital structure, the company has a structure, which is very solid, very healthy. We ended the leverage at 1.8x net debt over EBITDA. The same as we verified in previous year. And we started with a higher diversification of our debt profile considering that from now on, we have increase in installments of BNB, which is the largest financer in an isolated manner. And it becomes -- it starts to have a higher share in the net -- gross debt of out amortization schedule is very comfortable, 7.2 years is the average debt to maturity with a cash position of BRL 3.2 billion. In relation to the free cash flow that we can see at the lower part on Page 18, I would like to make some comments about this graph. Our rate of cash conversion. This is when we measure the FCO, the operating cash flow according to the EBITDA. This is presented in an annualized way. It was 44% for the full year of 2023, which is a metric lower than the metric is at our end which is usually higher than 55%. But there is an explanation for that, and this is a one-off effect. The income tax and social contribution and the cash effect that we can observe in this graph of BRL 788 million is driven by the collection of income taxes and social contribution of -- related to Tres Irmaos. So the [ indemnification ] of indemnity of is contained in this amount of BRL 788 million. And this is why it's below the average. If it were not for this effect, I can say that our cash conversion would be even higher than the average presented by Auren on a recurrent basis. I would like to turn the call back to you for you to continue the presentation.
As we always do, we like to share the ESG initiatives of the company. And in this results call, we showed the experience that we had and we continue to have this in Serra do Inacio and Chapada do Araripe and where we have our wind complexes and also the solar now, solar complex now. When we started the construction of the complexes, one of our concerns was the food security. And this is why this project was created, and we contribute to the community where we operate in association with the program to provide assistance to provide better diversity of the food for the local communities. This -- we are very proud to share this project and increase by 85% for the production by the farming families. So 143 families are being served with productive gardens. We offer more than 130 social technologies related to management of food, and we also provide training to the local communities for them to harvest water because this is a big problem that the region is facing. And this is the pillar for us to build this project for the production. So more than [ BRL 492,000 ] products are sold at the company. So food security was the main challenge. And today, in addition to being able to produce those food products, those families are being able to grow those projects. So we had an investment of BRL 3.4 million, and we counted on the Banco do Brasil and BNDES, financing, 45% of this investment, and we are very proud of the results of this project. On the next slide, we would like to talk about the closing remarks, and these are the highlights for the fourth quarter and also for the full year of 2023. So we are glad to announce the start of Sol do Piaui project and delivery of 100 megawatt p in commercial operation for Sol de Jaiba. So we have 2 units already in operation. The complex continues its ramp-up process for all the assets that comprise the project. Again, we'd like to mention the resilience of our assets considering the challenges faced by the sector. It's a geographical position and the high availability of our assets that contribute to the results of the company. Another highlight for the year was the association that we had with VIVO, this partnership, and we are very proud of this partnership so that we can explore the opportunities in the market, especially looking at the client whose demand is lower than 500 kilowatts. And still talking about the results of the company. We announced the distribution of BRL 400 million in dividends to be paid in March this year next month. So I would like to thank everyone for attending our call, and we are now going to open the Q&A session.
[Operator Instructions] Our first question comes from Andre Sampaio with Santander.
I have a question related to the potential exit of AES from Brazil. I would like to know if you're interested in the assets and the potential synergies that you're probably considering this asset.
As you well know, we are very active in our M&A initiatives. We are looking at the opportunities. And it's also a tradition of the company not to disclose or not to make any comments really about the M&As. What I can say is that we evaluate all the possibilities, opportunities that we see in the market. And if there is anything that can be disclosed in relation to the process, the company will do that. I would like you to understand that we usually do not make any comments about those processes.
No problems. If I could ask you another question related to results. We saw that there was a volatility in the dividend payment this year. I would like to understand if we can expect anything similar going forward? Or if we are likely to have seasonality of this.
The seasonality came from the repression of the reservoirs, which was much higher, and this was consolidated along 2023. I think that this is a result of what we saw in 2023. We are likely to see a normalization and -- but there will be seasonality effects at all times. It has always been like this in the hydroelectric sector. And this is something that is going to continue because of the renewables. Yes, this is a seasonality that happens with incentivized energy. So we are going to continue observing, but we understand that this is a standard that is the characteristic of the source. In relation to the storage levels, we can say that due to the transformation, natural transformation that the grid has undergone, we are not likely to expect any volatility so high, so big.
Our next question comes from Fillipe Andrade with Itau BBA.
I would like to understand audience vision in relation to a topic. We see that the prices for 2025, '26 and '27 increased a lot for the future. I would like to see if Auren saw any liquidity in the market, considering the specific window. And if its final consumers are looking for you to close for longer [ PPAs ]?
I think some of the effects that we see in the market is way back to normalcy. In other events, we always say that we didn't believe that the long-term price was affected. We always understood that the price would be aligned with expansion course. And there was a time when it would go back to the metrics. So part of the volatility comes as part of the recession of the hydrology, natural hydrology, as I said, the last time we had a dry January such as this was back in 2019. But there is a recognition by the market that maybe the pricing was much lower. So the market believed that we would have periods that would be much better. Yes, we understand that there's an over offer in the system, but the hydrology has a very important high. We understand that there would be a correction some time. So it's a bit of the quick effect of the hydrological effect. So the -- the system has undergone some frustration of expectations of brain that do not materialize. The market is beginning to notice this frustration. And there was an underestimation of the prices in the market. And I think that the correction comes from those 2 factors. There is demand. The trading market, the retail area is strong, but we haven't observed consumers looking for long-term agreements. This is a movement that usually takes longer. So usually, we see the effect in the retail market so that in the future, this is going to be reflected in the consumption.
Our next question comes from Daniel Travitzky with Safra.
I have 2 questions on my side. First, I would like to start with a follow-up on the question on energy balance. You said there has been a change in the company's strategy. When you acquire a contract, I would like to see how broad is this change? How much is it worth to be in the long position and also in relation to prices to -- up to what moment it would be good. And if I could ask another question. We also saw momentum in the cost line for the quarter. I would like to understand where it comes from. I understand this is related to the expansion of the company. But if you could provide more detail related to this increase of how much this is related to the expansion? And what would be the recurring level as of now.
I'm going to share the question with Mario. I'm going to answer the easy part of the question, and the difficult part is Mario's responsibility. Now connected to the question that I gave to Fillipe and still consistent with what we thought. When we started to observe the prices, we saw that it's close to the regulatory level. And in 2025, we saw that the prices were a bit low. And at the end of the end of the third quarter and the beginning of the fourth quarter of last year, we changed the strategy and we observed that there was a good opportunity for us to add margin by purchase energy from the market, and this is what we did. And we saw the average price that we used, it was a reversal of the strategy. We purchased the volume that adds to the company. And the question you asked was the following. We understand the purchasing price has already gone its history. And now what we are going to do is to hold this position and observe the market direction because what happens with the El Nino years, it's -- the situation is never defined in relation to the level of the reservoirs. We understand that the wet period ends in March. So if we are at this -- we are facing this recession in February and February would be a month that the reservoirs level will not be recovered. So we -- because I believe we are going to have a level of recovery but not so significant. And we believe that the level will stand at 6%. And we are going then to entering the dry period. We still believe that the price will go a bit higher considering the scenario, but we do not believe that we should have a long position as of now. So I believe that we should have taken the decision along the last quarter.
In relation to costs, I believe that we have to be a bit careful. The first aspect is that in the last quarter of '23 and the full year of 2023, we had no cost increase related to loss of efficiency. I think this is a very important piece of information. I'm going to address the full year of '23 and the fourth quarter of 2023. If you consider the fourth quarter, if you consider the PMSO, expenses with personnel, material, services and others. In the fourth quarter in relation to the same quarter of the previous year had an increase of BRL 32 million. Out of those BRL 32 million, half of this amount, BRL 15 million were connected to the growth that was associated to the full start-up of Ventos do Piaui II and III in the year of 2022 compared to the fourth quarter of 2022. But we also had an initiative of other programs, growth programs, growth projects, which are in the pipeline that required some additional expenses. And one-off revenues that were reported in the fourth quarter of 2022 that was not verified in the following year. That explains half of the reason. Half of the other half of the growth of the PMSO, BRL 70 million explains, is explained by the increase of personnel and also the inflationary effect on the payroll, because we are talking about a nominal variation. And the other half, it has nothing to do with the number of employees or headcount, but the adjustment of variable compensation, considering the higher -- better performance of the company. When we consider the full year of 2023, we can see on the Page 38 of our release, we can see clarify information out of the growth of PMSO of BRL 73 million. I refer to the [ data ] of PMSO of the full year of 2022 and the full year of 2023. Most of it, 3/4 of this [ data ] is connected to the effect of initiatives growth and some adjustments in the maintenance agreements for our wind complexes. Inflation will explain part of it and a lower share that could also have -- could also be seen in the third quarter, which is connected to a better performance and a better variable compensation, a lower share, much lower, considering this BRL 73 million. All things considered, everything is explained by initiatives for growth and expenses related to pipeline projects. And what all improvements in the variable compensation that disconnected to better performance.
Okay. It was very clear.
Our next question comes from Marcelo Sa with Itau BBA.
I have 2 questions. You showed a very interesting graph relative to the mismatch of prices and the impacts of the [ hydroelectric ] results. And since the energy price was very low, we see that the impact is not as relevant as this. But when the energy is at a higher level, this impact will become more relevant when we look at 2025, when we look at the market price at [ 170 ]. What do you think this mismatch will -- how will -- do you think this mismatch will play out? And even hourly simulation and also in relation to the price model, do you think there will be any relevant changes considering risk could impact the results, even considering how this will impact the system since we see a lot of dispatch out of the merit?
Yes, try to estimate the mismatch for the future is a bit more difficult, because it will depend on how this evolve, especially the storage levels. So those abrupt mismatch that lasted a few days, but they were very significant, where we have a lot of start energy, and this is something we're going to miss when we need -- because of the demand. And sometimes because of the [ temperature ], you have no capacity to meet the demand. When the levels reach the level, the average of the spot price will increase. And this mismatch will be different in terms of percentage. But in absolute values, this can also -- can still be relevant. So it's a level that will depend on the configuration of the system and will also depend on the configuration of the demand at the edge. It's difficult to estimate in the long term, how this value will be like. And there's not variable that is related to the change in the grid. When the solar becomes more relevant, this mismatch will be higher because we have a higher offer during the day and less during the night. So we are going to keep monitoring. We'll keep monitoring those effects. In relation to the models, I'm going to talk about -- about my experience of the analysts. We observed that ENA has been affected. There was a recession. So this is going to affect the MLT. So this is the model and the risk aversion. What we observed that the recession continues, we are going to live out good ENA, we're going to include good ENAs, and the impact will be more relevant in the future months because the -- if you have a bad hydrology, you see that according to the model, there is an aversion to risk. And this is what we have observed. In the past, we used to have the model, and there was no mismatch along the year. But we see that during the year, we can see those mismatches of prices in relation to the floor level. And this is what we have observed in terms of prices. And in terms of the compliance to the real world and the model, it's always a challenge when we see the models. This happens not only in the electrode sector in the comp, we had a weekly model, and we may -- used to have averages. And on average, you could be able to meet the demand, and we would also use our half and our models so that we could be compliant when we -- where we decide on the prices in the real world because there are times when you need to dispatch the thermal power plants and this is very challenging. And we are going to undergo a perfecting process, and this is natural when we see that we have a lower granularity when we established the pricing. And we are likely to reduce those changes. So we understand that this process involves a learning curve.
Our next question comes from Antonio Junqueira with Citi.
My question has to do with Marcelo's questions. Just a little bit, he mentioned the mismatch. And my question has not so much about the mismatch, but the spot price. So we have dispatching the ENA. And we -- Brazil did not recover the reservoir levels in the expected period. So we are not reaching the -- we are not recovering the levels. Some time ago, we talked, and you mentioned that sometimes there was a reaction -- there was an episode in 2021 when the Brazil where levels were very low. But we had 2 weeks of rainfall and the spot price was affected. Shouldn't we see the spot price above the lower level. Today is February 8, and we are burning the average long term of the period. Shouldn't we be more conservative? I'm not sure if there was any influence for -- to include the restriction of water in the model. My second question has nothing to do with it. So [ with better weight ].
The new wave answers were a bit different because the parameters and the risk aversion changed and the profile changed a little bit when we form the scenarios, long-term scenarios. So we may undergo to the process to understand how the model responds. In relation to leaving the flooring prices, I agree with you. But we have to consider the storage level is still high. 60% is not something negligible considering the scenario that we have today, where we still have an offer. We see the capacity of the system, and we see that this is not negligible. And so looking into the future, we see that those renewables will affect this. And a, history is still very high, and we are replacing by more recessive ENAs, and we understand that the model does not respond to the oversupply situation that we see today. So I understand that I can understand, I can understand the price, the price still in the flooring level. We are likely to see this mismatch after February. And if we start using the models as of March, we can see that we are going to see this shortening because February is the highest in absolute value. February is disappointing. This is going to be -- we're going to turn the key because things are changing are going to change dramatically. So you -- so we're going to see that there is another additional historic data, which is very pessimistic considering the historical level. So theoretically, so if February ends the way it is now, so the mismatch may have a curtailment. So we are going to get close to a situation, which is a bit more discomfort, not so comfortable, in terms of storage level, [ some ] information. Purchase new wave used to be run, and it's much easier because we have 2 models whose granularity is much higher. So the granularity is much lower. So the price changes is a bit different. So there was a way of looking at the prices in an easier way. With this thing, we can observe on effort would happen last year. You can observe maybe the lower level, but in some moments of the day, there may be a mismatch so there is a challenge that is much -- needs to be much more complex than we saw in the previous year.
Of course, people have many concerns, especially in the peak hours. What have you heard about the capacity reserve auction in terms of the calls for auctions? So when do you think anything material will happen?
We haven't heard anything official about this. We thought that may be an auction of capacity reserve as public hearing. We have to work to make efforts so that hydro energy can be included in the auctions. This is the moment to add capacity without adding physical guarantee because the offers are very considerable. If after the year you have a lower demand -- in the future, you may confuse the necessity of capacity and the demand. And this is when the thermal power plants will come into play. I'm not against it, but I understand Brazil is more flexibility than energy. So if we do not take advantage of this positive scenario that you see today and see those hydroelectrical capacity into the system that will help the system in the future years. And we have different challenges. So the edge demand will not be sold by any technology. I think the chippers technology is still the hydroelectric energy. If we do not make these changes, we may find more expensive solutions. But just to answer your question, what we've heard is that there will be a public hesitation related to the capacity auction that will include the hydro energy in the auction.
Our next question comes from Gustavo Faria with Bank of America.
I have a specific question related to the actuarial deficit of the pension fund that you reported. You report a reduction of about [ BRL 300 million ]. And I understand that there would be 2 factors that influence the increase of the discount of the deficit that seems to be small and the yield of the assets of the actuarial deficit. Do you have a breakdown of this reduction of the BRL 300 million, which would be the main factors.
In relation to PREVIC accounting, which is not the accounting, but this is one that is valid for cash disbursement and equating and this is the purpose of your question. In fact, we ended the year with a position of BRL 1,384 million in deficit. And I refer to the deficit of 100% of the sponsor. And therefore, there is -- there was a reduction of this deficit of BRL 325 million. I would say to you that there were some joint effects. According to PREVIC effect, it's a movable average of rates. And there was a movement of increasing the rates in relation to the spot rates, for example, coupon. So the closing of rates in a structured way, it help us in the net effect and the deficit of PREVIC and all the other years, they should capture this benefit. So the main factors have to do with the asset portfolio, but it also has to do with another factor, which is the change of the indexer. I don't know if you remember, but along 2023, we've -- after a very exhaustive process, we replaced or we swapped the indexers. So there's no longer a mismatch between IPCA and IGPM, and this allowed us to make some changes, qualitative changes to manage the asset portfolio in a better way. And that favored better result in this position. The breakdown is not provided to the market. These are data which cannot be disclosed to the market. But the main factors have to do with the performance of the assets, which is also reflected in the change of the indexer. And so we freed up more room, more flexibility for the management. And there was also an increase in the rate. But in the long term, the rate decrease improves the position of the assets for the years to come.
The question-and-answer session has come to an end. I would like to turn the floor back to Fabio Zanfelice for his final remarks.
Ladies and gentlemen, thank you very much for attending our call. It's an honor to have you here with us. I think it was clear that the company is monitoring the movements of the market and some movements that were expected have really materialized. And we are available should you have any questions should you require any additional clarification that we're not able to be covered during the presentation. Our IR team is available. Have a good day, everyone.
Conference has come to an end. We would like to thank everybody for attending the call, and have a good day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]