Electricity bill: energy oversupply worries – 06/01/2023 – Market

The growth in energy generation capacity to serve large consumers has become a problem for the Brazilian electricity sector and authorities are already talking about finding ways to stop the flow of new investments.

With stagnant demand due to the economic slowdown, new projects enter the system to compete with old energy, which has led to a scenario of oversupply of electricity in the country, which further burdens the electricity bill.

According to an estimate by the consultancy PSR, the supply surplus in the regulated market is currently around 27% and should reach 30% in 2025. The scenario reflects both conjunctural reasons, such as the high level of reservoirs, and structural reasons, such as the increase in supply of renewables.

The theme was mentioned as one of the main concerns of the sector at the Brazilian Forum of Leaders in Energy, in Rio de Janeiro. The general director of Aneel (National Electric Energy Agency), Sandoval Feitosa, even proposed to pause the growth of supply.

The explosion of investments in renewables for large consumers responds to the high cost of energy in the regulated market, the one served by distributors. It is also encouraged by subsidies to consumers who opt for these sources of supply.

The president of Abradee (Brazilian Association of Electric Energy Distributors), Marcos Madureira, says that the process generates a vicious circle: the more consumers leave the regulated market, the more expensive energy becomes for those who remain, leading more companies to consider leaving.

“When a consumer goes to the free market, he leaves the account for those who stay”, he says. The situation worsens at a time of full reservoirs and low energy prices, as distributors are obliged to sell the surplus on the free market.

That is, energy that the consumer bought, on average, at R$ 260 per MWh ends up being traded at a loss, at R$ 69 per MWh, the minimum price of the free market currently in effect.

In addition to transmission subsidies, the common consumer still pays the costs of expanding the transmission system to transport the production of new renewable plants built to serve the free market.

“The expansion of transmission is not being done to meet demand, but to make these new generation projects viable”, says Madureira. Hydroelectric projects also lose competitiveness, as they are unable to compete with the R$ 140 per MWh of new renewable sources, he adds.

The executive secretary of the MME (Ministry of Mines and Energy), Efrain Cruz, appealed to the sector’s agents to debate a “great agreement” to reduce these asymmetries, which have been making tariffs more expensive, especially for customers who cannot leave the distributors.

“We cannot let the asymmetries of the electricity sector fall on the most needy”, he said. “We cannot have distortions that make the poorest pay more than those who really can.”

He questioned that large companies benefiting from subsidies use renewables to pass an image of sustainable and compliant with ESG rules, while contributing to distort the market. “We need everyone to reflect on the path we are taking.”

Sandoval stated that Aneel does not have many elements to change the scenario, since subsidies were approved by Congress and that the distributors’ contracts have to be fulfilled, and asked for greater attention from the government and Congress to the issue. “Aneel complies with the law.”