Brazil is approaching the start date for the liberalization of its power market for high- and medium-voltage consumers on 1 January 2024, when consumers will be finally allowed to choose electricity suppliers and distributors. Argus spoke to Guilherme Esperidião, client acquisition and business transformation vice president at retail power provider Esfera Energia, on expectations for the change. Edited highlights follow.
What are Esfera Energia's expectations for the market's liberalization next year?
There is a regulatory rule that requires clients to take from six to a 12 months to transition into the liberalized market. Therefore, we already started signing contracts since January in order to start operating in next year, due to the given regulatory timeline.
We expect a migration boom in 2024, more intensively in the beginning of the year, to reach a plateau with 1,000-1,500 consumers migrating each month until reaching 85pc of the high- and medium-voltage consumers in the free market by 2030. These are estimates based on other countries' experiences, which also had a few years window for the migration of the market.
Are there any regulatory gaps that need to be addressed before the opening?
There are many. The authorization for the liberalization was published as an ordinance, which is still quite vague. One example is the issue with the replacement of existing meters: distribution companies claim that the bilateral market requires online meters. But at times these clients would need to spend hundreds of Brazilian reais to build the necessary structure to make the substitution, which disincentivizes them from migrating. This would not be required as the meter for high- and medium-voltage clients is already online.
However, it lacks the right regulation to state that distributors will be responsible for measuring electricity consumption and be paid for that service with the existing meters. Currently, Brazil's electricity regulator has an open public consultation for this specific matter.
There are also concerns with the binomial power bills in the free market, in which consumers are charged separately for power grid infrastructure and power. Inexperienced consumers might not understand the dynamic. The ideal format would entail a unified bill, where an agent would receive payments and distribute them accordingly to suppliers, distributors, and transmission companies.
In short, many aspects still require further discussion but none of them make the migration impossible. What they can be accounted for is to make the process harder and more expensive.
Esfera Energia also works in the distributed generation business. Do you believe these consumers will opt to migrate to bilateral contracts, once this is a possibility?
We lease distributed generation assets and act almost as a trader. We have partners and investors that will put these plants together and we re-sell that power. For high- and medium-voltage consumers that already have distributed generation contracts there are options. They can either use it as off-grid generation, only to self-supply their demand, or inject it in the power grid and become what is called a "self-producer".
Considering power consumption and generation separately there would be viability for both [distributed generation and migrations to the liberalized market], but it is necessary to develop the right regulations to allow these clients to migrate and sell their spare distributed generation power or discount it from their consumption bill.
What are the main challenges for the market's opening?
There is a concern with regulation but the main challenge for Esfera and other companies is educating the market. We need to explain to consumers that they can now actually choose their electricity suppliers and that there are different contract options. There is a huge need to invest heavily in marketing to have commercial force and reach consumers outside the large centers.
We need to grow from a wholesale, very private to large companies' market to a retail model focused on volume and massification. We need to focus on pro-client initiatives for the coming years to allow the migration to happen.
