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End of quota system at Eletrobras could make the free market more dynamic

End of quota system at Eletrobras could make the free market more dynamic

The fact that Eletrobras’ power plants sell energy at market prices will make the Brazilian electricity market more dynamic, but could also drive up energy prices, Alexei Vivan, CEO of the local association of electricity companies ABCE and partner at CGM Advogados, told BNamericas.

Since the approval of Provisional Measure 579 in 2012, Eletrobras’ power plants operated under a quota system, selling energy at prices below the market price. With the end of the quota system, which is provided for in the company’s privatization law and is set to apply until 2026, the company will be able to sell energy at free market prices.

“The more energy there is for sale, the more dynamic and competitive the free market is. The concern is that an actor with large amounts of energy can influence prices,” says Vivan, who is also president of the Energy Association in the state of São Paulo (SindiEnergia SP).

Under the quota system, Eletrobras has a physical guarantee (that is, the maximum amount of energy that can be sold) of around 7.5 GWa (average gigawatts). To prevent this amount from entering the market at once, it was decided to reduce the quota by 20% annually from 2023.

Vivan said the price of energy under the quota is usually much lower than the price of energy on the market because it takes into account the depreciated generation assets.

“However, given the current low energy prices on the free market, the impact on the 20 percent excluded from the agreement is unlikely to be so severe,” said the lawyer.

The price of energy in Brazil depends, among other things, on the fluctuations in water levels in hydroelectric plants, which are currently favorable. The energy sector regulator, Aneel, recently announced that the tariff flag for August will be green, which means that captive consumers, those in the regulated market, will not be charged any additional costs.

In addition to the free energy market, Eletrobras can offer part of its freely available energy on the regulated market through auctions conducted by Aneel.

Some analysts believe that the delegation of large amounts of energy – such as that supplied by Eletrobras – could put downward pressure on energy prices, given the country’s structural energy surplus.

LEGAL ACTION

Vivan said the talks in the Federal Conciliation and Arbitration Chamber (CCAF) to find an amicable solution to increasing the government’s voting share in Eletrobras had the advantage of being a faster and less costly way to end the government’s accusation of unconstitutionality against the company.

According to the lawyer, this accusation creates legal uncertainty and damages the country’s image and attractiveness for investments, since the reduction of the government’s voting share in Eletrobras was approved by Congress.

“This was a prerequisite for the successful privatization of Eletrobrás,” stressed Vivan.

In addition to the government’s participation in Eletrobras’ Board of Directors and Financial Council, the ongoing negotiations also concern the payment of the amounts owed by Eletrobras to the Energy Development Account (CDE) and the sale of the company’s share in Eletronuclear.

By Olivia

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