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Brazilian Energy market, shallow dive and business opportunities

image credit: Ricardo Jorge Polero Baraldi , AuroraStarChain CTO
Ricardo Jorge Baraldi's picture
CTO, AuroraStarChain

• Large international “hand on” experience in people management, financial, projects, enterprise architecture, processes and methodologies for systems Development, Pre Sales and implementation of...

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  • Oct 2, 2020

Energy Industries is one of the most needy and tied to regulation from the Govermment.There is no doubt that an important step in selling a proposal is getting to know the market to whom you are going to offer your product. But when it comes to the Brazilian electric sector, the particularities of this market can cause doubts and bring challenges for those who want to undertake in this scenario.

How does the Brazilian electricity market work?

Our story begins back in the day, when in 1879 Dom Pedro II hired Thomas Edison to develop the use of electricity in public lighting. And so, the first permanent electric lighting installation in the country was inaugurated, at Central do Brasil, located in the city of Rio de Janeiro.

Four years later, the first hydroelectric plant in the country, located in the city of Diamantina, Minas Gerais, also started operating. In the same year, D. Pedro II inaugurated in the municipality of Campos, the first municipal public service of electric lighting in Brazil and South America.

Since then, hydroelectric plants have positioned themselves strategically for the generation of Brazilian electric energy, representing more than 60% of the installed generation capacity. With the increase in demand and the consolidation of electricity as the main source, the market was created, which today is one of the most important in the country.

In the path of electric energy, we have generators as the starting point, producing energy, which will be transported by the transmitters to the distributors, which ensure the supply to homes, businesses and industries.

Trading environments

As of 2004, the sale of electric energy started to have two negotiation environments: the Regulated Contracting Environment - ACR, with energy generation and distribution agents; and the Free Contracting Environment - ACL, with generators, distributors, traders, importers and exporters, in addition to free and special consumers, who work by buying and selling energy.

Investors operate in the market through licenses, concessions or authorizations, given on a temporary basis, with the possibility of renewals. To have the right, they must submit to and comply with the sector rules arbitrated by various institutions, with emphasis on the National Electric Energy Agency (Aneel).

Marketing rules

Let's go a little deeper into each of the environments. In the case of the Regulated Contracting Environment (ACR), buyers and investors participate in auctions and formalize their participation through registered and monitored contracts.

Auctions play a fundamental role as an instrument for the purchase of energy by distributors. They are carried out and regulated by the Electric Energy Commercialization Chamber (CCEE), based on Aneel's norm, and use the lowest tariff criterion, in order to guarantee the reduction of the electric energy acquisition cost passed on to captive consumers - known principle as low tariff.

But who are the captive consumers? They are all those who pay a monthly energy bill, with tariffs regulated by the government, without the possibility to choose the purchase or supplier, that is, the great part of Brazilian consumers.

Do we already understand better how the regulated environment works, and the free one? In the Free Contracting Environment (ACL), negotiations are carried out directly with generators and traders, through bilateral commercial contracts, with previously negotiated conditions, such as: price, contracting terms, volume of energy purchased, among other aspects deemed relevant. in the negotiation. These invoices belong to the supplier or energy supplier with whom the deal was made.

However, not just any consumer can trade on the Free Energy Market. Only those with energy consumption above 500 KW, ie companies and industries, are suitable. The residential consumer would be out of this market.

Understanding these two environments, we can talk about another possibility that exists in the Brazilian electricity market: the Short Term Market.

Short Term Market

CCEE is responsible for operating the electricity market in Brazil. Accordingly, all contracts for the purchase and sale of electricity, whether in the free environment or in the regulated environment, are registered by the institution.

The CCEE has the important task of accounting for the amounts of electricity sold in the National Interconnected System - SIN, that is, it inspects the amount of energy consumed and produced by the actors in the electricity sector.

With the closed account of the differences in the amounts of electricity, CCEE promotes the financial settlement of the amounts resulting from the purchase and sale of electricity in the Short Term Market (MCP).

To determine the values of the amounts settled in the MCP, the Price for the Settlement of Differences (PLD) is used, which will be determined by the CCEE on a weekly basis. The calculation basis are mathematical models also used by the National Electric System Operator to define the system schedules, starting from a minimum price and a maximum price, which are established by ANEEL, on an annual basis.

Previously mentioned, the National Electricity System Operator (ONS) is another actor that plays an important role in the electricity market, being responsible for the operation of the generation and transmission facilities in the Brazilian interconnected systems.

As an example, ONS controls the stock of hydroelectric plants, forecasting the flow of rivers, and if water production is below what is necessary, releasing sources of thermal generation to supply demand.

If you want to delve deeper into the subject of rules of commercialization in the Brazilian electric energy market, we recommend accessing the website of the Electric Energy Trading Chamber (CCEE) and the National Electric Energy Agency (Aneel).

In this shallow summary it is easy to distinguish that this area is very deep but with countless opportunities for implementation using modern tools such as Blockchain, IA, IOT and of course Cloud Tokenization. 


Originally published on LinkedIn

Matt Chester's picture
Matt Chester on Oct 2, 2020

But when it comes to the Brazilian electric sector, the particularities of this market can cause doubts and bring challenges for those who want to undertake in this scenario.

Do the unique aspects of Brazil's energy markets provide advantages or opportunities not afforded elsewhere? Or is it all challenges that could be addressed if we overcame the inertia to make changes?

Ricardo Jorge Baraldi's picture
Thank Ricardo Jorge for the Post!
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