Opinion: Energy inequity in Brazil – low energy production costs versus high consumer tariffs

(Opinion) A baffling paradox in Brazil’s energy sector warrants critical introspection.

Despite being among the lowest-cost electricity producers worldwide, Brazil has saddled its consumers with notably higher tariffs than most countries.

Brazil imposes on consumers an average tariff 5.5 times higher than Argentina, almost double that of Mexico and South Korea, and, striking, nearly equivalent to the United States.

This disparity results from policies initiated two decades ago, compounded by a myriad of charges, taxes, and subsidies imposed on consumers.

The fallout from the 2001 blackout shaped Brazil’s energy policies.

The emphasis shifted to grid expansion and diversification of energy sources to reduce dependence on hydroelectric power.

This shift gave rise to incentives and subsidies for wind and solar energy, which currently comprise 16% of the electricity matrix, and the proliferation of distributed generation (DG) that accounts for 9%.

Meanwhile, hydroelectric power’s relevance declined from 68% to 52%, and nuclear power held steady at 1%.

Over the past two decades, Brazil’s electricity infrastructure has increased by 1.5 times.

Installed capacity skyrocketed from 81 GW to 212 GW, and transmission lines lengthened from 70,000 to 179,000 km.

But these accomplishments beg the question: why are the consumers paying a hefty tariff?

Taxes and numerous sectoral charges constitute a significant part of the final bill.

These charges, imposed to finance the incentives and subsidies within the system, account for almost 25% of the final electricity bill.

Furthermore, a considerable chunk of the cost was levied on the captive market consumers.

Despite the costly subsidies, sectors like solar energy claim they will provide systemic benefits worth over R$86.2 (US$18) billion to society by 2031 through job creation, tax payments, emissions reduction, and decreased electricity bills.

The wind energy sector, benefiting from R$8 billion in subsidies in 2022, insists that this won’t impede potential projects.

Distributed generation (DG) continues to enjoy enduring incentives, with the electricity bill subsidy reaching R$2.8 billion in 2022.

This has resulted in a surge of consumers turning to DG to circumvent the waiting period for migration to the free energy market.

While subsidies may be necessary for the growth and diversification of the energy sector, the burden should not be on consumers.

It’s time for the Brazilian Congress to devise a sustainable and equitable system that balances the needs of the energy sector with the financial strain on consumers.

The current paradox is not merely intriguing; it’s deeply problematic and cries out for immediate resolution.

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