Passing a bill to modernize Brazil’s electric power sector is among the top priorities of congress this year.
Authored by senator Cássio Cunha Lima, of the pro-government PSDB party in Paraíba state, the proposed legislation seeks to improve the regulatory and commercial model of the electricity sector with a view to expanding the free market.
Long discussed by policymakers and industry representatives, the bill is considered a mature proposal, properly addressing key topics such as a schedule for the migration of consumers from the regulated to the free market and the creation of retail traders.
But there are points that will still have to be dealt with in detail, probably through another bill.
BNamericas spoke with three local experts about the subject.
Bernardo Bezerra, Omega Energia’s innovation, products and regulation director
“The main point of the bill is the possibility for consumers to choose their own energy provider.
“It defines an opening schedule of up to 42 months [from promulgation, regardless of the consumption range] and creates the legal framework for the treatment of legacy contracts [that is, those closed by power distributors with generators to assure supply in the regulated market. With more consumers migrating to the free contracting environment, utilities face growing over-contracting risks].
“The main benefits are related to increased competition among energy suppliers, generating more innovation and reducing costs for consumers.
“We are changing the current model, of monopoly, of compulsory contracting with the distributors, with a lot of energy policy intervention, opening space for more decentralized decisions, with the market adopting better supply conditions for the country.
“The beauty of the bill is that it manages to achieve a middle ground: it opens up the market and lets consumers choose their provider, who should guarantee to meet demand. But if the government identifies that this will not be possible, it can step in as a provider to correct any deviation in this security of supply, promoting an auction to contract additional energy.
“The market will always seek the lowest cost solution, which, today, is the portfolio of renewable sources. And, over time, to the extent that the planner [the government] identifies that there is a lack of energy or potency, it can contract auctions to deliver this. And the market may bring, for example, battery-powered wind, among other solutions.”
Alexei Vivan, a partner at law firm Schmidt Valois
“The bill brings many important points, such as the provisions on the retail trader, which is the company that will represent consumers who decide to migrate to the free market.
“It also provides new rules for self-producers of energy [i.e., those who consume part of what they produce and sell the rest], making it possible for companies that have a stake in a self-producer to also be considered self-producers.
“But there are points that need attention, such as the situation of power distributors. It’s necessary to be careful with the liberalization of the market so that it doesn’t harm them. The bill foresees that they can sell their surplus energy bilaterally, to the extent that consumers migrate to the free market. It’s a reasonable solution, but it may be that they have no one to sell to.
“Another concern is that our captive [regulated] consumer is not prepared to be free. Today they pay for what they consume. When they become free, they will buy energy from a third party and, if they consume more than they bought, will be exposed to the free market. And, today, the captive consumer doesn’t have the mentality of strictly controlling their consumption.
“There’s also the risk of generalized default. For this, the retail trader was conceived, which will represent captive consumers in the free market, including being responsible for eventual defaults. But this could end up breaking up smaller power traders, which are unable to bear this responsibility. The alternative would be for this risk to be built into the price of energy in the free market, in the form of insurance that would have to be paid by the consumer.
“And the question of ballast [potency] would need to be a little more detailed. The bill brings some improvements, but doesn't go into the details of the legacy contracts, and there’s no clear rule for ballast valuation. One thing is what a plant generates; another is how much this plant provides in terms of security and reliability to the system, and this is not properly priced. This is an issue that perhaps will have to be addressed in a future bill.”
Editor’s note: What is known in Brazil as ballast corresponds to the physical guarantee of a power plant or the maximum that the plant can sell, and is therefore a reliability product. Energy, in this context, refers to the load actually consumed. Despite being distinct products, ballast and energy are sold in Brazil in a single contract, which has provoked debate about energy prices.
Gustavo Paixão, a partner at law firm Villemor Amaral Advogados
“The possibility of migration from the captive market to the free market brings an incentive to the generation of renewable sources, which, besides being cheaper, are considered sustainable sources that preserve the environment. Undoubtedly, these changes will make the market more competitive, with a reduction in the price of electricity.
“One of the points that still deserves attention is the proposal to reduce subsidies for incentivized [energy] sources, which can generate some distortion in the charges, which will fall on the poorest part of society, who will not migrate to the free market and will not benefit from the subsidies. However, there are already some discussions to get around these distortions, so that all consumers bear the costs of the incentivized generation.
“Another highlight of the bill is that it gives the sector more transparency in the electricity bill, allowing the consumer to know, clearly and objectively, the exact amount of energy consumed and other fees, all itemized.
Post time: Apr-21-2022
