Viewpoint: Brazil power market opens with loose ends

Market: Electricity
02/01/24

The start of the new year marked the first day in which all Brazilian high-voltage consumers were allowed to choose their power supplier, but the market's long-awaited liberalization occurred as some last-minute adjustments and other regulatory challenges are yet to be addressed.

Electricity regulator Aneel voted on 12 December to approve changes aimed at simplifying market liberalization rules. The main adjustment was loosening the requirements to change meters in order to migrate to the free market. This was a major concern for market participants as exchanging the meters may be costly and discourage change.

Still, the high-voltage market opened without the definition of a last instance supplier for cases in which free market clients cannot be supplied by their contracted provider. Before the opening of the market, this role was played by distribution companies, but as the volume of clients migrating increases, clear rules to decrease the risk of power shortages have become more important. This definition, among other priorities for the power sector, will need to be determined through a law, which has been a sore point for the market in the last few years.

Passing a bill to address the main issues of the Brazilian power market has proven politically challenging. The sector's latest effort, the PL 414 bill — which originated from a 2019 public consultation and has been under discussions since then — seems to have been scrapped in favor of an upcoming bill.

Another issue that relies on the advancement of a bill for the electricity sector is the low-voltage market liberalization, according to Luiz Fernando Leone Vianna, chief executive for the power generation division at electricity trader Delta Energia. "I do not believe in the low-voltage market's liberalization via an ordinance because we will need to create some kind of transition surcharge for consumers who migrate, so that these costs are not left at the regulated market with the remaining consumers," he said.

Brazil's heavy surcharges are also among the main concerns of the power sector that need to be faced through legislation, according to Vianna. "We need to face the issue of subsidies in 2024 through a bill because it has become a heavy weight on power costs," he said. "At some point this needs to start going down."

The power sector expects its spot power market clearing price (PLD) to remain at its regulatory bottom throughout 2024, as Brazil's rainy season — which began in November-December and will end in April — will happen with full reservoirs, despite the expected El Nino weather pattern that brings drier weather. This should foster the development of these more structural discussions during the year, as no drought-derived power crisis, such as the one in 2021, is expected.

By Rebecca Gompertz

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