The Electric Sector

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​​​​​​​​​​A large network of independent companies - energy generators, transmission line operators, electric power distributors and traders - compose the electric power industry in Brazil. At the end, this industry caters to two types of markets: the captive market – of people and businesses served by the electric power distributor that necessarily serves alone a geographical area -, and the free market, businesses that buy directly from energy traders, representing generation companies. 

Without the possibility of storing the produced energy, the whole system shall operate in constant balance between production and demand. And respecting the principle of tariff reasonableness. 

In Brazil, there are agents for monitoring and control to ensure the supply of energy, the universalization of the system, fair rates and financial return for the power distribution concessionaires. This role is played by the government planning and regulatory agencies and sector control entities that the companies participate in. 

The Government is responsible for permanently monitoring the continuity and safety of the energy supply, identifying short-term imbalances between supply and demand. For this, the Ministry of Mines and Energy (MME) is responsible for the planning and formulation of public policies, in addition to exercising the grantor power.​


The current model defines three institutions that support the public management of the sector, to which the power distribution companies shall answer:​


* The Energy Research Company (EPE) is responsible for the planning of long-term actions according to MME guidelines;

* The Electricity Sector Monitoring Committee (CMSE) assesses the security of energy supply;

* The Electric Energy Trading Chamber (CCEE) records sale and purchase transactions in the National Interconnected System (SIN).

* The National Electric System Operator (ONS) coordinates and controls the operating activities of generation and transmission. The agency is formed by generation, transmission and distribution companies, large-size free consumers, importers, exporters and the MME. 

The work takes place under the supervision and regulation of the Brazilian Electric Energy Agency (Aneel). Aneel, in turn, has the mission of providing favorable conditions for the electric energy ​market to develop in equilibrium between the agents and for the benefit of society. 

Under the terms of the Brazilian Association of Electric Powerity Distributors (Abradee), the Brazilian electric power sector has the following features:

* Vertical divestiture of the electric power industry, with segregation of activities of generation, transmission and distribution;

* Coexistence of public and private companies;

* Centralized planning and operation;

* Regulation of the transmission and distribution activities for incentive scheme, instead of the "cost of service";

* Regulation of the generation activity for old projects;

* Competition in the generation activity for new projects;

* Coexistence of captive and free consumers;

* Free negotiations between generators, traders and free consumers;

* Regulated auctions for procurement of energy to the energy suppliers, which provide energy to captive consumers;

* Electric power prices (commodity) separated from its transmission prices (wire use)

* Different prices for each concession area, replacing the former tariff equalization;

*​ Contractual regulation mechanisms for sharing of productivity gains in the areas of transmission and distribution; 

 Accordion | The Energy Matrix

Although most (2,884) of the 4,486 generating projects of Brazil are thermal power plants (natural gas, biomass, diesel oil, fuel oil and mineral coal operated), the hydroelectric power plants account for 64.8% of the installed power and 78% of the generated energy (2015 data). The thermal power plants occupy a distant second place, with 27.8% installed power. Of the hydroelectric power plants, 203 are large-size projects, 457 are small hydroelectric power plants and 553 minor hydroelectric generating plants. The wind power is growing and, according to the report of Management Information from Aneel of March 2016, it already represents 6% of the installed capacity and 3.5% of the energy generated in Brazil. In addition to biomass, 82% of the energy generated in the country is from a renewable source. 

On the other hand, the hydroelectric supply for large and medium-sized power plants suffers significant impacts on transmission costs by being located increasingly far from the major centers. In addition, due to the social and environmental impacts, the hydroelectric power plants are subject to restrictions for environmental licensing.

 Accordion | Distribution and Commercialization

On the side of the energy suppliers and free consumers (with a demand equal to or greater than 3 MW), there is the obligation to contract from power generators the total of their load, in order to ensure the supply of the region being served. Therefore, it is required that each contract for the sale of energy have a physical generation ballast. The energy distributors, however, are encouraged to contract a volume up to 103% higher, having the right to pass on to end consumers the exceeding cost. 

Even with the concern to ensure the supply, the legislation provides that energy distributors exercise only the provision of the public distribution service, without accumulating any other activity. It is the process called de-verticalization. 

As for tariff reasonableness, this is guaranteed by the electric energy purchase auctions in the regulated environment. So, it is possible to offer lower rates for consumers. For the same reason, self contracting of energy on the part of energy distributors is prohibited.​​

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