SAO PAULO, April 5 (Reuters) - Brazilian electricity distributors said they have signed contracts to purchase more power than they need from generators, threatening big financial losses for them as the deepening recession eats into demand for energy in Latin America's largest economy.
Abradee, the association that represents the electricity distribution sector, said on Tuesday the excess supply of electric energy could undermine demand for future energy from generation projects to be sold in auction on April 29.
Brazil's steep economic slowdown combined with a sharp increase in electric energy rates in 2015 has quashed demand, leaving distributors with contracted energy supplies that could lead to billions in reais in losses, Abradee President Nelson Fonseca Leite said.
The association estimates that distributors now hold supply contracts that represent 113.3 percent of expected demand in 2016, up from contracts representing 107.1 percent previously.
"There was a very accentuated deterioration in the recession... we are seeing a drop in demand that is greater than seen in December," Leite said.
The association has 51 companies as members and accounts for 95 percent of Brazil's electricity distribution market.
The government's energy research company Epe said in late March that energy consumption in Brazil fell by 5.1 percent in February from a year earlier, with a decline in all sectors.
The April 29 new energy auction for generation projects that are expected to be completed by 2021 may be called off by the government due to lack of interest, Leite said.
"As this question of oversupply of energy contracted by distributors will carry on for the coming years, it (the auction) will be unnecessary... (Demand) ought to be weak," he said. (Reporting by Luciano Costa; Writing by Reese Ewing; Editing by David Gregorio)