Why Brazil’s electric power bills may rise in the coming months

Brazil may experience an increase in electricity bills in the coming months due to a relatively dry summer.

Mayra Guimarães, director of regulation and market studies at Thymos Energia, pointed out that although the rainy season started with good precipitation, volumes have decreased since the second half of February, especially in the southeast and northeast regions.

Furthermore, the forecast for March, the end of the rainy season, is for below-average rainfall, while the following months are expected to remain within normal levels.

"The PLD is already responding to this new hydrological scenario, and as a result, some estimates already indicate a yellow flag starting in June and a red flag for July and August," Guimarães told BNamericas.

The PLD is the main benchmark in the free market and for the regulator Aneel's power rate flag system, which indicates generation conditions and costs for power consumers. Another key reference is the generation scaling factor (GSF), which reflects the relationship between hydraulic generation and the energy available in the system.

When production at hydro plants – which produce cheaper energy than thermal plants – is high, Aneel activates the green flag and when less water is available, the yellow or red flags may be activated, which leads to higher rates for consumers.

On February 28, the regulatory agency announced that the rate flag for March 2025 will be green, meaning that electricity consumers will not have any additional costs in their energy bills.

Since December 2024, the rate flag has remained green, reflecting favorable energy generation conditions in the country. 

"With the rainy season, reservoir levels have improved, as have the generation conditions of hydroelectric plants. As a result, the activation of thermoelectric plants, which generate more expensive energy, becomes less necessary," Aneel said in a release. 

Mauricio Crivelin, CEO of Kinsol, underscored that, if the current humid weather persists, Brazil may continue to see lower rate flags. 

"However, climate variability is a crucial factor that could change these expectations," he told BNamericas. 

Meanwhile, Fernando Borborema, energy studies manager at Delta Energia, says there is a strong chance that the rate flag will be yellow as early as May. 

"From June onward, the expectation is that the red flag will be activated," he told BNamericas.

Daniela Alcaro, founding partner of Stima Energia, explained that historically, a lack of rainfall was the main factor causing hydroelectric plants to generate below their assured energy capacity (garantia física in Portuguese) – a benchmark that defines how much energy each plant can sell.

When this occurred, thermal power plants were activated to meet demand, increasing energy costs and justifying the implementation of higher rate flags. However, with the growing share of renewable sources such as wind and solar, hydroelectric plants are now being displaced even without prolonged droughts, impacting the determination of rate flags.

"Today, even in a favorable rainy season, we can have a red rate flag because the rate level no longer depends solely on rainfall. The GSF is influenced by other factors, such as the integration of renewables into the system, which reduces hydroelectric dispatch and can lead to higher costs reflected in rate signaling," Alcaro told BNamericas.

Alexandre Nascimento, managing partner and meteorologist at Nottus, predicts at least two or three cold fronts over the next 15 days, with rainfall becoming more regular – particularly concentrated in the southeast and center-west – at least until April 10.

After that, more consistent rainfall will occur only in the far north and south of the country.

"The key message for the coming weeks is the return of rain and the expectation of improved water inflows in the southeast and center-west subsystems," the expert told BNamericas.

Federal decree

The federal government published a decree on March 5 to improve the management of the commercialization account for electricity generated by Itaipu Binacional, the largest hydroelectric plant in the country. 

Under the new regulations, it is now possible to create a financial technical reserve whenever there is a surplus in the account. The goal is to prevent unnecessary fluctuations in Itaipu's transfer power rate. 

The new decree amends a decree from March 2022, which previously required an increase in the transfer rate paid by consumers in the south, southeast, and center-west regions whenever a deficit occurred at the end of the fiscal year. 

On the other hand, surpluses were entirely distributed as bonuses to residential and rural consumers nationwide with a monthly consumption of less than 350kWh.