Brazil: Government expands access to free energy market; distributors could lose customers

On Wednesday, September 27, Brazil’s Ministry of Mines and Energy published a decree allowing all consumers connected at high voltage to join the free electricity market.

It is the most significant advance since 1995 for the liberalization of a market currently restricted mainly to large and medium-sized companies.

With the measure, viewed with caution by distributors likely to lose customers, approximately 106,000 new consumer units will be able to join the so-called “ACL” market.

In this free contracting environment, where consumers negotiate prices and energy purchase conditions with a supplier, they can obtain savings of up to 40% over the values practiced in the captive market served by the distributors.

This group of benefited consumers, who will be able to migrate as of January 1, 2024, is mainly composed of companies with monthly energy bills of more than R$10,000 (US$1,870), according to the Brazilian Association of Energy Commercializers (Abraceel).

In a note, the entity celebrated the measure, classifying it as the biggest market opening promoted since 1995, when Law 9074 took the first steps towards creating the ACL.

According to Abraceel’s data, the free energy market currently serves almost 30,000 consumers, equivalent to 0.03% of Brazil’s nearly 89 million consumers.

Large companies demand large volumes of electricity, which is why the ACL accounts for 38% of national electricity consumption.

Abraceel calculates that if all 106,000 consumers decide to migrate, the free market could reach 48% of Brazil’s energy consumption in the next few years.

The entity’s president, Rodrigo Ferreira, says that Wednesday’s decree confirms the expectations created with the proposal that was put out for public consultation in July of this year.

“It is the most daring step so far for the urgent and necessary structural reform of the energy sector, placing the consumer as the protagonist, free to decide their own directions and able to benefit from a cheaper and competitive energy,” Ferreira said.

IMPACTS ON DISTRIBUTORS

The opening of the free market to a new universe of consumers tends to further reduce the market of electricity distributors, which has already been shrinking in size in recent years with the flow of migrations to the ACL and the advancement of distributed energy generation.

In a statement, the government said that studies and market projections indicate that the opening to high voltage will not impact consumers in the captive market.

Abraceel said that its analyses “demonstrate that there are conditions to address hypothetical episodes of over contracting (of distributors) with legal security and respect for contracts.

It also reinforced that the opening “reduces costs and subsidies, including captive consumers.”

During the public consultation on the issue, Abradee, the association that represents the distributors, said that the opening of the market for medium and high voltage consumers would be “hasty” and should only occur after the approval of measures that prevent the increase of costs for consumers who will remain in the captive market.

“In this sense, the over contracting to result from legacy contracts and the migration of consumers in this new window proposed by the MME will bring, in 2024, R$5.5 billion (US$1 million) of additional costs for the remaining regulated consumers,” said Abradee, in a document delivered in the public consultation.

The government has not yet started opening the market to all consumers in the country but has already indicated its expectation to do so soon.

“The next step, of total market opening, will allow access to the free market for all electricity consumers. Soon the theme will be discussed in a specific public consultation for the treatment of low voltage consumers,” the government said Wednesday.

With information from InfoMoney

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