Free energy market will be accessible to small and medium-sized companies

From January 2024, small and medium-sized companies connected with medium and high voltage energy will be able to enter the free energy market, a business environment where it is possible to negotiate directly with generators and traders anywhere in the country.

The expectation is that the reduction of intermediaries, such as local distributors, and competition in the supply of energy can generate a reduction of close to 30% in the electricity bill in relation to the regulated market tariff, also called captive.

The free market already exists for companies linked to high voltage, with a demand contract exceeding 500 kilowatts (KW). These are generally factories and other large enterprises.

The estimate is that opening up to smaller businesses will create a market of at least 100,000 new companies with monthly bills between R$10,000 and R$60,000.

For former Minister of Mines and Energy Adolfo Sachsida, who headed the ministry in 2022, the opening of the energy market should result in more competition, efficiency and lower prices. He defends that this opening is complete by 2028, when the choice of supplier would finally be allowed to residential consumers – as he proposed in a draft presented just over a year ago, when minister.

“The simple signaling of market opening could have beneficial impacts even in the very short term via regulatory improvements and increased investments in the sector”, pointed out Sachsida in his column on People’s Gazette.

This projection of a new audience has attracted traders and generators, especially since changing the contract from the regulated to the free market takes 180 days.

The demand for exchange grew so much that the number of migrations reached record numbers in the first eight months of the year. Until August, there were more than 4.8 thousand consumer units. The volume exceeds that recorded in the entire year 2022, according to data from the Electric Energy Trading Chamber (CCEE).

Urca Trading, an associate of the Urca Energia Group, for example, invested R$5 million in human resources and process automation to enter the retail sector and not lose its timing.

The company’s forecast, focused on small industries and retailers, is to reach around two thousand customers by the end of 2024. The company’s commercial and marketing director, Roni Wajnberg, calculates that the savings for the consumer could be equivalent to two to three bills per year.

“The free market can make your bills cheaper by around 20%, on average. The measure should benefit small and medium-sized industries and services, which are currently in the so-called captive market, being forced to consume from the local concessionaire. They can use this money to reinvest, become more competitive, hire more people”, says the executive, remembering that the migration process can now begin even if it only comes into force in 2024.

What about the residential consumer? Forecast is to be chosen in 2028

In the free energy market, the consumer can decide which will be their supplier or generator, as well as the energy source, which can be hydro, photovoltaic, wind, biogas, coal, among others.

The expectation is that by 2026 the free market can also be released for low voltage, with the exception of homes and rural areas. From 2028 onwards, access would also be released to residential consumers and the rural class.

These deadlines are set out in a draft ordinance from the Ministry of Mines and Energy (MME), opened for public consultation in September 2022 by the then minister, Adolfo Sachsida. Bill 414/2021, which was approved by the Senate but has been stuck in the Chamber since 2022, also provides for full release in 2028.

The prospecting of the low voltage market for legal entities works with numbers between 10 million and 12 million units, according to Wajnberg. In residential, it fluctuates between 80 million and 90 million consumers.

“The idea is to make it easier for those who want to buy and negotiate. We are looking at this potential market, and design as needed. Eventually it will be a larger group”, analyzes the Urca Trading representative.

In Europe, the energy-free environment is already a reality in homes. One of the bets on the free market is that flexibility includes the consumer’s decision on the type of source, encouraging the use of renewables.

“The consumer can hire the supplier or generator and say which source they want – wind, solar, for example. But, if they want energy generated specifically from a place, for example, from a specific wind farm, they can check which is the trading company or generator that sells this company’s energy and get in touch with them”, explains Gabriel Mann, director of energy trading at French Engie.

Around 62% of the energy produced by Engie is contracted on the free market. And hiring is growing especially among small businesses, according to Mann. The volume of energy for this niche grew 23% between the second quarter of 2022 and the same period this year.

Currently, in Brazil, there are 35,542 consumers in the free market. The segment, which in 2019 accounted for 30% of national energy consumption, now reaches 37%. The sectors that consume the most are commerce, followed by services, and the main regions, Southeast and South, where the level of industrialization is most intense.

For Talita Porto, vice-president of the CCEE Board of Directors, interest in joining the free market has increased on both sides. From the consumer, because negotiations are quite competitive. “In addition, we see a commitment from sales companies to reach smaller audiences, with an eye on the opening scheduled for January 2024”, she highlights.

How the free energy market works

In the regulated market, energy must be purchased directly from the local distributor, which holds a public concession – companies such as Copel (Paraná), Light (Rio de Janeiro), Enel (SP) and Cemig (Minas Gerais).

In the free market, the consumer can choose who to buy from. Thus, it migrates from the contract with the distributor to a direct contract with a supplier, which forms the bridge with the energy generating company. Traditional companies in the sector, such as Copel and Cemig, also have energy trading arms.

“Migration can reduce the cost of electricity by up to 35%. For the customer, the free market is an opportunity to reduce costs and guarantee renewable energy”, says João Acyr Bonat Junior, superintendent of energy customers at Copel Market Livre . According to him, all energy negotiated by the supplier is renewable.

Cheaper prices come from greater supply and competition. Copel is moving to capture a potential of 10 thousand customers in Paraná, its headquarters, and another 100 thousand in 23 other states.

According to the trading company Esfera Energia, through the free market it is possible to choose the type of energy and its supplier, as well as negotiate the contract term. The consumer is not affected by tariff flags, but their adjustment is annual in line with market indexes, such as the Broad Consumer Price Index (IPCA).