Brazil closing in on proposal to restructure electric power sector

Brazil's federal government expects to present its proposal to restructure the electricity sector the national congress by September, mines and energy (MME) minister Alexandre Silveira told reporters. 

The aim is to correct distortions which, according to Silveira, have led to increased energy rates, as well as to provide security for investments in generation, transmission and distribution. 

"We're getting close to a collapse in rates. So it's important to put on the brakes and sort out the sector," the minister said. 

The proposal could come in the form of a bill or provisional measure. 

"It will depend on the subject matter, the urgency and relevance," said Silveira. 

He underlined that it is unfair that only 2% of the country's energy consumers can choose their own electricity supplier 

Currently, only large energy consumers, such as industrial companies, are allowed to contract on the free market, where they have access to incentivized (subsidized) sources, such as wind and solar power.  

Other consumers in the low-voltage group are obliged to buy energy from power distribution concessionaires. These, in turn, purchase energy in auctions held by the sector’s watchdog Aneel, where hydroelectric and thermal power plants are contracted, which are more expensive but guarantee security for the system, since their generation is not intermittent. 

Studies are underway to allow all consumers to migrate to the free market in the next few years, but this needs to be done in a way that does not leave distributors "over-contracted" with their legacy contracts and without losing sight of the issue of supply security. 

"We have to give this freedom to the consumer and sustainability to the sector," said Silveira. 

Among the ideas considered by the government is to use financial resources from the sale of oil from Pré-Sal Petróleo (PPSA) to finance the public policies of the energy development account (CDE). 

Created in April 2002, the CDE is a sectoral charge aimed at promoting the country's energy development. 

"We need the CDE's resources. It's important to resume public policies in this sector and they have to fit into the budget," said Silveira. 

He once again criticized the privatization of Eletrobras, where the government is currently trying to increase its voting power, and with which it is negotiating the payment of liabilities owed to the CDE.

"Eletrobras [as a state-owned company] was important because it helped the Brazilian electricity sector in more dramatic moments, especially in times of climate change and energy transition, such as the current one. It would be important that, in addition to formulating public policy and regulating, there was an operational arm of the government," said Silveira. 

DISTRIBUTION

The minister of mines and energy emphasized that the decree renewing distribution concessions has already begun to bear fruit. 

"The plans being presented practically double investment in distribution in the country. We expect to go from 58 billion reais [US$10bn] to around 115bn reais by 2027," said Silveira. 

According to Abradee, which represents the distributors, the investment forecast for the next four years is 130bn reais. 

HYDROGEN

On Friday, President Luiz Inácio Lula da Silva signed into law the bill that creates the regulatory framework for green hydrogen. 

The law includes a series of initiatives to develop the industry in Brazil. Among them is the special incentive regime for low carbon hydrogen production (Rehidro). The incentives will be valid for five years, starting on January 1, 2025.

Silveira stressed the importance of forming a local chain, and not just importing electrolyzers to produce green hydrogen and then exporting it.

"At first, it will be a chain to anchor investments in fertilizers, I have no doubt. It's much simpler than importing 95% of fertilizers, with ships running on polluting fuels," argued the minister.