‘Lobbies are working to increase energy costs and the consumer is paying the bill’

It is quite common to hear that Brazil is a country with cheap energy but expensive power rates, but Carlos Faria, CEO of local energy consumers' association Anace, disagrees with that.

“You can’t say our energy is cheap because everything is incentivized,” he says in this interview with BNamericas. He criticizes subsidies in the sector and explains why urgent changes are needed in the national electricity contracting model.

BNamericas: What are the main reasons for Brazil being a country of cheap energy but expensive power rates, if such a statement can be made?

Faria: I don’t agree that energy in Brazil is cheap, as is commonly said. Just look at the ‘subsidy meter’ from [Brazil’s power watchdog] Aneel. In 2024, 45bn reais [US$7.8bn] was allocated to the CDE [energy development account], including 12.5bn reais for incentivized sources, 11.6bn reais for distributed generation and 10.5bn reais for the CCC [fuel consumption account].

In other words, 60% of the CDE value was used to benefit generation. So, you can’t say our energy is cheap because everything is incentivized. And who pays for this? All consumers, especially the small ones, who can’t migrate to the free market [where incentivized energy, such as solar and wind power, can be contracted].

We're opposed to subsidies. It doesn’t make sense to subsidize sources that are already competitive.

BNamericas: Do you see Brazil's historical social inequality reflected in the country's electricity system?

Faria: Absolutely. Lobbies work and have influence. A good example is the bill concerning offshore wind farms. So far, consumers have succeeded in having President Lula veto the jabutis inserted into the bill. If the national congress overturns the vetoes, consumers will have the burden of 20bn reais annually for the next 25 years.

One of the absurdities they tried to insert into the bill is to contract backup capacity [thermal plants] with 70% inflexibility [i.e., generating 70% of the contracted period]. These thermal plants would have to be activated for over 6,000 hours per year, removing the power of the ONS to turn these plants on or off when needed.

Lobbies are working to increase energy costs and the consumer is paying the bill, especially in the regulated market, which pays for system security.

BNamericas: Why are power rates so high in Brazil? Is this related to subsidies?

Faria: Yes. They consist of generation, transmission and distribution costs, sectoral charges and taxes, which are federal, state and municipal, such as PIS/Cofins, ICMS, public lighting, etc.

BNamericas: Will the tax reform reduce the impact of taxes on electricity rates?

Faria: We have to hope it stays as it is so it doesn’t worsen through the regulation of the PEC [constitutional amendment proposal that instituted the reform]. Electricity is essential and shouldn’t be taxed. Currently, 6% of household budgets for captive consumption go to electricity bills. It makes a big difference.

BNamericas: How can this situation be changed?

Faria: [Mines and energy minister] Alexandre Silveira has been saying for two years that we need a new model. It’s legitimate for lobbies to defend their sectors, but we’ll only really reduce electricity bills if there's political will to promote a complete reform of the current model.

Today, we can ensure electricity for 98% of the population, but updating the model is essential to guarantee safe and clean energy. The matrix has changed – there are renewables, thermal power and hydroelectric plants. We need to reduce our volatility with a contracting model where sources don’t receive so many incentives. 

Wind and solar don’t sell ‘cheaply’ because when there’s no wind or sun it’s firm energy [thermal or hydroelectric] that comes into play, which comes at a cost. So, the new model needs to define that renewables are contracted with a guarantee of compensation for their intermittency, being associated with batteries, hydroelectric plants or thermoelectric.

BNamericas: Is this contracting you’re referring to generally in the regulated environment or in the free market?

Faria: In general. First, it’s important for all consumers to be able to migrate to the free market. Only then can we have competition and falling prices.

BNamericas: What is Anace’s assessment of the backup capacity auctions?

Faria: They're a necessary evil because we don’t have enough capacity to meet demand when we need it. They're needed to ensure system security.

BNamericas: Aneel has given the government another 15 days to resolve the Itaipu hydroelectric rate deficit. What’s your view on this issue?

Faria: We’re already frustrated with Itaipu’s rate. Today, as a fully depreciated asset, it should be costing less than it currently is for the consumer. It’s an asset that’s already been paid for by the consumer, so there’s no sense in having another rate increase.

BNamericas: Why should the CDE decrease in 2026 after reaching a peak of 40bn reais this year, according to Anace’s data?

Faria: Mainly because of the CCC issue, as we’re promoting the interconnection of Roraima state, so there’s a trend to spend less on fuel, as well as on assets we’re stopping paying for, being depreciated, and leaving the CCC.