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The imminent onset of Brazil's wet season is unlikely to bring relief to the country's troubled hydroelectric generators, according to credit rating agency Moody's.
Prolonged drought has forced generators to rely on spot market orders to provide about 12% of their supply contracts until December, the agency said on Tuesday.
"We expect hydro generators to continue to incur higher than normal operating costs in the second half of 2014 and potentially in 2015, given the increased dispatch of thermal power at the expense of hydropower," Moody's senior credit officer Jose Soares said.
Dams in Brazil's southeast and midwest were at 30% capacity at the end of August, down from about 55% a year ago.
The figure is expected to drop to 20% at the end of November, according to national grid operator ONS.
"Should the drought continue through the November-April rainy season, the federal government could implement an energy rationing program with material credit-negative consequences for the whole electricity sector, including distributors," Moody's added.