Electricity resellers' association Abraceel's president Rodrigo Ferreira spoke to Argus about the group's main goals once the Brazilian power market is open and other important changes it considers priorities. Edited highlights follow.
In Abraceel's view, what should the next federal administration prioritize for the free energy market?
The power trading sector's main agenda continues to be the full opening of the market to all consumers.
The market remains as liberalized as it has been for the last 20 years. It hasn't opened up any further. Until that happens, the opening of the market remains Abraceel's number one concern. We have two other main items on the agenda, which are market security and improvements in price formation processes.
We hope that the opening can be addressed later this year, either through a decree carried out by the mines and energy ministry or through the PL 414 bill, which is being discussed in congress, more specifically in the lower house. If the bill is approved this year, our goal will be to prepare the market so that it can be open in four years, with all the regulatory instruments in place so that this happens in a balanced way, respecting contracts and with legal security. If the opening is not yet approved by the end of this year, we will continue to fight for consumers in Brazil to freely choose their power provider.
At what stage is the power sector's modernization with regard to all consumers being free to choose their power provider?
It is advanced.
Today, we have a public consultation [running in parallel to the PL414] to extend the opening of the market to all consumers with voltages above 2.3Kv, regardless of their contracted demand. The government has signaled that after defining this first opening, it will work towards building a new public consultation for all residential consumers. Our expectation is that by the end of the year this topic can advance to the executive branch.
And in the legislative, lower house president Arthur Lira promised during a plenary session last week that he would put the PL 414 to a vote in October, with or without revisions to the text.
The country faces a sensitive issue regarding subsidies, with a high Energy Development Account (CDE) bill burdening all consumers. What is the future of Brazil's subsidies?
Abraceel is very concerned about this rise in subsidies in the sector.
The CDE is now at R32bn ($6.19bn) per year. Our understanding is that there are several distortions being charged to energy consumers. Moreover, there is a misallocation of costs. Free market consumers are paying R25bn a year in CDE costs to comply with regulated market policies.
There are several costs at the CDE today aimed at the regulated market, which are also paid by the free consumer. We need to carry out an urgent reform and the government needs to play its role [carrying the burden of paying for public power policies]. The energy consumer is currently having to take on these responsibilities, instead of the taxpayer and the government, through the budget that is annually deliberated in congress.
Are there other paths for the complete opening of the market besides PL 414?
There are alternative legal measures.
In 1995, Law 9,074 was approved allowing the power regulation agency Aneel, the mines and energy ministry and other governmental entities to open the market to all levels of voltage, demand and consumption, eight years after the enactment of the law — therefore, in 2003. Opening the market by means of decree from these entities is nothing more than following Law 9,074.
Are capacity tenders to allocate energy reliability a good solution for everyone to pay for thermal power?
Capacity auctions are a good option to address energy reliability, with the cost shared among all consumers.
Abraceel advocates that this mechanism should be adopted from now on. It is very important that it is not used to create market reserves or to contract energy that does not meet very specific safety criteria, and that the government discloses the necessary security attributes that are being hired in each auction and the motivations for hiring them.
Can a new offer-based price model be established in Brazil? Would that be a positive development? Is it on the horizon?
It is possible, but it is far away.
This discussion is very incipient in Brazil. Brazil's Chamber of Electric Energy Commercialization (CCEE) signed an agreement with the mines and energy ministry to study the adoption of an offer-based price in Brazil. These studies should take 30 months.
In the meantime, we need to improve the price-to-cost models, which is what we have today. It is evident that there is a decoupling between the planning and operation of the system. This mismatch needs to decrease, this information asymmetry needs to be reduced and we still have a lot of work to do before we can think about implementing an offer-based price, in improving model-calculated prices. This is Abraceel's position. Abraceel does not see any problem with buying a product at cost. The problem is calibrating these models exactly to cost value.
