After more than 2 years, Brazil changes electricity rate flag

After more than two years, Brazil has changed its electricity rate flag due to worsening energy supply conditions. 

According to sector watchdog Aneel, the rate flag for July will be yellow, which means an increase of 1.885 reais (US$0.34) for every 100kWh consumed.

Experts interviewed by BNamericas said there was a risk of the red flag being activated by the end of the year. 

The electricity flag system indicates generation conditions and costs for consumers. When the production of hydroelectric plants – whose energy is cheaper than that of thermal plants – is favorable, Aneel activates the green flag, but when there is less availability of water, the yellow or red flag (level 1 or 2) can be activated, increasing prices.

In 2021, in the midst of the worst drought in more than 90 years, Aneel created a flag in addition to the red one, called "water scarcity."

The yellow flag was activated for July due to the forecast of below-average rainfall until the end of the year (by around 50%) and the expectation of growth in load and energy consumption over the same period, combined with above-average temperatures. 

Ingrid dos Santos, CEO of energy trader Indra Energia, does not rule out the possibility of a red flag in 2024. 

"The current scenario of scarce rainfall, combined with winter temperatures higher than the historical average, means that thermoelectric plants, which generate more expensive energy than hydroelectric plants, will be activated more frequently," she told BNamericas. 

Santos said the increase in power rates could boost consumer demand for options such as distributed generation, with the installation of solar panels or through subscription programs, or the free energy market. 

In the free market, consumers can negotiate contracts directly with generators and energy traders. 

"This allows for more competitive and predictable prices, unlike the regulated market where prices are set by the distributor and can be impacted by power rate flags," she said.  

Mayra Guimarães, regulation and market director at Thymos Energia, said Aneel’s procedures for deciding on the rate flag aims to anticipate costs that would be passed on to regulated consumers in the next rate review period. 

"Therefore, as it is an anticipation, the final cost to the consumer should be the same, regardless of the existence of the power rate flag," she told BNamericas. 

Guimarães believes there is a possibility of adopting a yellow or red tariff flag from August to December. 

"However, the triggering of these flags is very close to the regulatory triggers, making it very dependent on weather conditions, especially at the beginning of the wet period between October and November."