SAO PAULO, Dec 3 (Reuters) - In a sign of the distortions plaguing Brazil's stagnant economy, a wide range of companies are sharply cutting back output of their main products to instead sell electricity back into the national grid because it is more profitable.
The trend includes sugar, ethanol, steel, aluminum and chemical companies, a Reuters analysis of company earnings statements and other guidance shows.
Tax incentives and historically high electricity costs mean Brazilian factories are more likely than their peers in many other countries to produce their own energy. They sometimes burn biomass or use gas or even privately built hydroelectric dams.
Under normal circumstances, the companies direct as much of that energy as possible to production of their core product, while selling whatever excess they have into the national grid through the spot market.
That hasn't been the case lately, though.
Usiminas, Brazil's biggest producer of flat steel, said in its latest earnings report that revenues from electricity sales reached 288.4 million reais ($112 million) in the first nine months of 2014, up from just 13.6 million reais in the same period last year.
The company's raw steel production, however, fell 10 percent over the same period.
Brazil's slow economy partly explains why.
Growth has mostly been flat in the past four years under President Dilma Rousseff, and manufacturing has suffered for even longer because of high taxes, input costs and infrastructure bottlenecks.
Meanwhile, the average spot price for electricity rose to 687 reais ($267) per megawatt-hour through October this year, more than double the 253 reais/MWh in the same period of 2013. It has fluctuated from 450 reais to 823 reais/MWh since January.
That's due mostly to a severe drought impairing power generation at the main hydroelectric dams, and to Rousseff's attempt in 2012 to force electricity prices lower, which backfired and ultimately helped send them higher.
There is no official data to show exactly how many companies are increasing electricity sales but anecdotal evidence abounds.
Biosev SA, the sugar and ethanol group of French commodities conglomerate Louis Dreyfus, recently said its 11 cogeneration plants that produce electricity from burning bagasse increased energy sales by 27 percent to 626,000 MWh from April through October, compared to a year ago.
To do this, Biosev cut output of its core product - anhydrous ethanol - by 42 percent so that the steam required to produce the biofuel could instead be used to run turbines to generate and sell more power.
Most of Brazil's roughly 200 cane mills with cogeneration capacity are trying to boost electricity sales, analysts in the sugar and ethanol sector said.
For ethanol producers, the trend has been accelerated by the industry's own troubles. Rousseff's policy of keeping gasoline prices artificially low in recent years to help control inflation has made ethanol less competitive.
"We are burning bagasse (leftover cane after processing) and even rice husks and sawdust when we can find it," said Vasco Dias, the chief executive of Raizen Energia, a joint venture between Brazil's biggest sugar and ethanol group Cosan SA and Royal-Dutch Shell PLC.
In the aluminum sector, industry leader Alcoa recently shut down its Pocos de Caldas smelter for the first time since it was opened in 1965 and said it is selling its now excess energy, "even though it (energy sales) was not the focus of the business."
Brazil's aluminum production has fallen by a fifth in the past year due to weak manufacturing demand.
Economists say the trend of companies selling more electricity into the national grid could run for a while.
"The market will return to normal when the economy recovers or exports pick up and when the rains refill the hydroelectric reservoirs, but none of that looks likely to happen in 2015," said economist Sergio Vale at the MB Associados think tank.
High energy prices have become such a concern that local regulators announced in late November they will intervene to cut the upper limit on the spot market by half in 2015, altering the model that has been in effect for a decade.
Spot prices will have a ceiling of 388 reais/MWh next year after peaking at 823 reais/MWh for several weeks this year.
However, that decision is likely to create new distortions, said Paulo Pedroso, head of the association of large energy consumers Abrace - and will likely face legal challenges from companies as well.
Fearing Brazil's drought could continue, some companies had prudently bought energy supply contracts for delivery in 2015 at current market prices. When regulator Aneel intervened, lowering next year's ceiling price, it essentially penalized those companies for planning ahead while rewarding those that didn't.
Investors often complain that Rousseff's interventionist policies are unpredictable, send the wrong message and often cause unexpected losses.
"Price is the hand of the market. If it is high it signals companies to reduce consumption and conserve, which helps ease the delicate state of the lower hydroelectric levels," said Cristopher Vlavianos, president of local energy trader Comerc.
"If you come in and lower the price of spot energy, you are changing that signal."
$1 = 2.56 reais Reporting by Reese Ewing, Editing by Brian Winter and Kieran Murray