Brazil power tariff trials closer to start

Brazilian regulators are another step closer to testing out new tariff concepts that they hope will modernize the country's electricity sector.

Electricity regulator Aneel is now choosing between 14 projects state distributors presented in a recent call for proposals, using a ranking created by power distributors association Abradee. Abradee is coordinating the governance of the trial, or sandbox process, and has set up objective criteria to recommend which would be the best projects for Aneel to approve.

The tariff sandbox project will allow distributors to test new power tariff compositions in the low voltage market with a small number of consumers. The results from these tests will serve as a basis for Brazil to choose one or a basket of new tariffs in the future, according to Ricardo Brandao, Abradee's executive director of regulatory affairs. Aneel will choose between three and five projects this year, but the initiative will continue for five years, he said.

Most of the propositions are looking at alternatives that include time or location features to the tariffs. Including a time component to tariffs would help create more uniform power demand throughout the day, since consumers would receive a price signal encouraging them to use electricity at cheaper rates at times when there is more capacity available. Flattening the current demand peaks is a main goal of creating more modern tariffs, according to the managing director of power efficiency company Volt Robotics, Donato Filho.

Changing the tariffs' composition is not the only change necessary to modernize the power sector, according to Filho. It will also be important to review the way the government pays distribution companies. Distributors currently receive revenue proportional to the new infrastructure they install, which is often designed to handle brief moments of peak demand. A new model should pay distributors according to the quality of their service, he said. It would also be important to improve power price models, which currently do not reflect variations in generation or demand during the day, he said.

The new tariffs will also need to be in line with the Brazilian reality, according to Abradee's Brandao, such as long work days that deny Brazilians the flexibility to do electricity-intensive activities such as wash their clothes during off-peak demand hours.

A new tariff model will also be an important step to reduce distortions once low voltage customer migrations to the free power market are allowed. Today, many consumers sign bilateral agreements and leave behind certain costs to the regulated market, since tariffs take into account factors such as time or location. Once there is more transparency and each consumer is charged more accurately based on their use of the grid, it would be easier to separate which costs consumers should carry over to the free market.

Aneel will announce the chosen projects for this year on 18 April.

By Rebecca Gompertz