Brazil considers opening free energy market

RIO DE JANEIRO, BRAZIL – Seen as a step towards modernizing the electrical sector, the opening of the free energy market, where consumers can choose their suppliers, may not guarantee improvements for everyone and lower prices. The diagnosis appears in a study by the Acende Brasil Institute.

When reviewing the experiences in other countries, the conclusion is that, although free choice brings good results for some customers, there are challenges for a successful opening, such as greater customer participation. The evaluation aligns with the National Agency of Electric Energy (Aneel), which defends a broad awareness campaign on the subject.

Today, in Brazil, only large consumers, such as industries, have the right to choose from who they buy energy. On the other hand, residential consumers have no option and are served by distributors, with tariffs set by Aneel.

Two texts determine a schedule in Congress, but they are still blocked. The issue is also advancing in the Executive branch. Last week, the regulatory agency and the Chamber of Commercialization of Electric Energy (CCEE) forwarded studies on the subject to the Ministry of Mines and Energy (MME), which will hold a public consultation on the measures for opening the market. The Ministry estimates that the discussion should be concluded by the end of the first quarter.

While the Brazilian electric sector is still in its infancy, other countries have taken the lead and allowed consumers to choose their suppliers. In this list are the United States, Australia, United Kingdom, Norway, Sweden, Finland, and Denmark, for example.

The president of Acende Brasil, Claudio Salles, says that free choice is no guarantee of improvement for the consumer.

The study conducted by the entity points out that market opening alone will not guarantee more innovation, efficiency, and cheaper rates. “The development of the retail market needs to be fostered. The market needs to be monitored, and measures must be taken to facilitate price comparison between the various retailers, ensure market security and minimize transaction costs,” says Acende Brasil.

Low consumer engagement limited the benefits in the UK, one of the first countries to open the free market. Still, there were advantages for those interested in analyzing the possible alternatives for buying energy.

The low engagement was also observed in Nordic countries, even with regulatory changes. The experience in Australia, on the other hand, shows that with regulatory adjustments, there can be benefits over time. There is also an analysis that consumers often end up not choosing the cheapest option.

The conclusion is that liberalization tends to benefit the most engaged consumers, those who try to seek the best alternatives. In this sense, the institute highlights the need for measures to arouse the population’s interest in choosing a supplier.

On the other hand, the entity recognizes that several factors make it challenging to evaluate the alternatives, such as the possible lack of information about all the available options and the consumption profile. Besides, of course, the complexity of making direct price comparisons.

Aneel sees the same obstacles. In a technical note sent to the government, the agency places the realization of clarification and awareness campaigns for consumers about migration and operation in the free market as one of its priorities.

The recommendation shows that it will be necessary to explain to families what this is all about since the vast majority is unaware of the topic and is used to receiving energy at home, without knowing its origin, and paying the bill each month. Another point established by the agency is indicating a standard product to be advertised on the internet by the suppliers to facilitate comparison.

But, despite the analysis concerning the scenarios in other countries, the institute points out in its study that the opening may benefit Brazil. According to the document, some distortions and inefficiencies in the Brazilian electricity market can be reduced with the opening, such as decentralizing energy contracting.

“There are some things in the Brazilian market that are distinct compared to other countries that the opening of the market tends to bring improvements. One of the main ones is the issue of risk management in energy contracting. Today, the contracting of the distributors is plastered, centralized by the federal government, which holds auctions. To some extent, the consumer is harmed by not having active management of this risk,” says the director of economic and regulatory affairs of Acende Brasil, Richard Hochstetler.

The opening would also be a way to avoid the weight of the growing charges on electricity bills. Data from Acende Brasil, prepared in collaboration with PwC, show that, in 2020, the share of costs and taxes in energy tariffs would represent almost 50%.

“Today, we have cross-subsidies, many decided by Congress, and, for now, there is no intrusion in free trade. The measure that opens it to all consumers is also a way to escape. It is a relevant element because the portion that has grown the most in tariffs in recent years has been charges and taxes.

There are, however, some requirements for a successful opening, which require a series of regulatory changes and changes in the structure of the electricity sector operation, according to Acende Brasil. Such as, for example, the treatment of the distributors’ long-term contracts, which are based on a market of consumers that can choose to migrate to the free environment.

And more precise legislative definitions on the retail commercialization of energy and the strengthening of market security mechanisms. “We need to learn from international lessons but pursue the potential benefits. There remains a huge challenge for a successful opening,” assesses Claudio Salles.

With information from Estadão