A 120-year old market in constant evolution

Back in the middle of the 19th century, the coffee culture was the activity that generated most income in Brazil and the profit obtained triggered the urban sectors of the economy. The growth of the cities favored the first initiatives in using electric energy in the country at the same time that they occurred in Europe and in the USA.

The initial landmark happened in 1879, when the electric lighting was inaugurated at the railway station Dom Pedro II (Central do Brasil), in Rio de Janeiro, whose source of energy was a dynamo. In 1881, it is installed the first public lighting still fed by dynamos, in a range of the garden of the Campo da Aclamação, currently Praça da República. In the same year, electric energy was used to light quarters of the building of the Transportation Ministry during an event.

In 1883, Brazil inaugurated its first generating station: a thermoelectric unit with 52 KW in capacity, run by wood, that fed 39 bulbs in the city of Campos, RJ, thus inaugurating the provision of public lighting service in South America. The preference for the hydroelectric model is also old: the first Brazilian hydroelectric company was also built in 1883, in Diamantina, MG.

In the beginning of the century, there was a lot to be done to improve the structure of the Brazilian cities and, in 1904, Canadian and American investors establish the Rio de Janeiro Tramway, Light and Power Company with the objective of exploring practically all urban services: transportation, public lighting, production and distribution of electricity, distribution of piped gas and telephony. In this context, the first attempts come up toward regulating, on the part of the state, the still incipient employment of electric energy in Brazil.

In the 30's, the Federal Government takes on its intervening role in the management of the water and electric energy sector with the formalization of the Code of Waters (Decree 24.643, dated July 10, 1934). As of then, the Union starts to legislate and grant concessions of public services, which previously were ruled by regional contracts. The new sectorial policy reviews the criteria for the establishment of prices so as to warrant to the service renderer, the coverage of operating expenses and quotas of depreciation and reversion and the fair remuneration of the capital invested.

In the course of the 40's, following the tendency of other strategic sectors, the state expands its role and starts to act directly on production. The first investment in this regard was the establishment of Companhia Hidro Elétrica do São Francisco (CHESF) in 1945.

Decades later, the government would promote important changes in the Brazilian tariff legislation. One of the laws from 1971 established the guarantee from 10% to 12% of return over capital invested, to be computed in the tariff. The measured aimed at providing financial support to the sector and also served to finance its expansion. There was, in addition, the easiness with which funding could be obtained from Eletrobrás and the entry of foreign loans. It was a period in which the sector developed solid financial bases There were, however, huge differences in the cost of generation and distribution among the several regions. In the attempt to relieve this disparity, the government established, in 1974, the tariff equalization, kept

 

The 90's – Reform begins

The 90's were a period of deep changes. The first step was taken in 1993 with the extinction of the tariff equalization and the creation of the supply contracts between generators and distributors, starting to prepare the market to become independent from the state. Afterwards, bids came for new generation projects; the creation of the image of the Independent Energy Producer; the establishment of the free access to the transmission and distribution systems, and the freedom for the large consumers to choose where to acquire their energy supplies.

In 1995, the Programa Nacional de Desestatização finally reaches the electric sector.

In 1996, the Ministry of Mines and Energy implements the Project for Re-structuring of the Brazilian Electric Sector (Project RE-SEB). One of the major consequences was the deverticalization of the productive chain: generation, transmission, distribution and commercialization of electric energy then became independent business areas. The generation and commercialization were progressively deregulated so as to stimulate competition, transmission and distribution (which constitute natural monopolies) continued being handled as regulated public services.

In face of this new configuration, the Federal Government establishes, still in 1996, the Agência Nacional de Energia Elétrica (ANEEL) [National Electric Energy Agency], whose role is to regulate the activities of the sector. Other changes were implemented with the objective of organizing the market and the structure of the Brazilian energetic matrix, with highlight for the creation of the Sistema Nacional de Gerenciamento de Recursos Hídricos [National System for the Management of Hydric Resources] in 1997 and of the Mercado Atacadista de Energia (MAE)and the Operador Nacional do Sistema (ONS), in 1998.

 

The Two Thousands – A new posture.

With a model of generation that is essentially hydroelectric, Brazil was caught in an emergency situation while crossing a period of scarce rain that considerably reduced the reservoirs of the plantsum In May of 2001, the government was forced to adopt emergency measures to avoid a collapse in energy offer. The rationing period delayed the growth of the sector. The crisis called the attention to the need of introducing new ways of generation in the national energetic model.

Emphasis was placed on the thermoelectric companies that operate with fuels such as sugar cane bagasse (biomass) and natural gas (its participation in the offer of energy in the country leaped from 2.2% in 1985 to 6.6% in 2001). The government also adopted measures supporting the development of projects of small hydroelectric power plants (PCHs), non-conventional sources and energy conservation.

Between 2003 and 2004, the Federal Government took a few more important steps toward making the national electric sector less vulnerable. The Empresa de Pesquisa Energética (EPE) was created to plan the electric sector in the long term, the Comitê de Monitoramento do Setor Elétrico (CMSE), responsible for evaluating permanently the safety in the supply of electric energy in the country, and the Câmara de Comercialização de Energia Elétrica (CCEE), replacing old Mercado Atacadista de Energia (MAE), to organize the commercialization energy activities in the interconnected system.