Brazil’s electric power prices forecast to remain high in coming months

Brazil’s electric power prices are expected to remain high in the coming months given worsening hydrologic conditions, local experts told BNamericas. 

On Friday, watchdog Aneel activated the ‘level 2 red flag’ – the highest notch – for September, with an increase of 7.9 reais (US$1.4) for every 100 kilowatt-hours (kWh) consumed.

The decision was due to the forecast of below-average rainfall this month, resulting in an expected inflow into the country's hydroelectric reservoirs of around 50% below average. 

This scenario of scarce rainfall, coupled with a month with temperatures above normal throughout the country, means that thermoelectric plants, which are more expensive to run than hydroelectric plants, will be used more. 

A level 2 red flag had not been triggered since August 2021. A sequence of green flags began in April 2022 and was only interrupted in July 2024 with a yellow flag, followed by a green flag in August.

The flag system affects electricity consumers in the regulated market, i.e. those who receive energy from distribution concessionaires. It reflects, among other factors, the variation of the difference settlement price (PLD), which is the main free market reference. 

According to Ingrid Santos, CEO of power trader Indra Energia, the rate flag is likely to remain red in the coming months due to the expectation that 80% of thermal plants will be activated as a result of the drought and high temperatures. 

“This scenario is aggravated during peak hours, which occur at the end of the day, when with the load still high it is necessary to dispatch the thermal plants due to the decrease in solar generation and the start of wind generation,” she told BNamericas. 

As for the free market, prices are likely to increase if the start of the wet season – which usually begins in November – is delayed, Santos said.  

Mayra Guimarães, regulation and market studies director at consultancy Thymos Energia, expects the red flag will remain in force in October. 

For the coming months, there is uncertainty related to the start of the rainy season. 

“In some scenarios of better affluence, the flag would be yellow again. We probably won't see a green flag again until 2025,” she told BNamericas. 

Guimarães predicts high prices in the free market until the beginning of 2025

“With the soil very dry, [water] inflows should take a little longer to rise even with the expected arrival of the rains,” she said.

Alexandre Nascimento, managing partner and meteorologist at the Nottus consultancy, said the context of high energy demand and rapidly falling water levels in reservoirs is likely to mean the need for thermoelectric dispatch. 

However, despite the 20% drop in reservoir levels compared to the same period last year, the situation is still comfortable, he said. 

“The risk of shortages is small for the coming months, as the reservoirs of the national electricity system are still at favorable levels compared to previous years when there was this threat,” Nascimento told BNamericas. 

WATER LEVELS

Hydroelectric power accounts for 53% of Brazil’s installed capacity, with approximately 109GW, according to Aneel. 

According to the national grid operator ONS, the water levels in the southeast/center-west subsystem – where the country’s main reservoirs are located – currently stand at 55.6%. 

The south, northeast and north subsystems’ levels stood at 65.0%, 55.8% and 79.2%, respectively, as of Monday afternoon.