Buying and selling electricity with the freedom to choose the supplier
The free energy market is nothing more than the process of buying and selling electricity regulated by agreements made directly between the consumer and the service provider.
In this contracting model, the consumer has the freedom to choose their energy supplier. The main reason for migration is the reduction in electricity costs, which in some sectors represents a significant portion of the company’s total cost.
Who can migrate to the free market?
Basically, two categories of consumers are eligible for migration: In the 1st category are companies with a contracted demand equal to or greater than 500 kW, per unit or sum of units with the same CNPJ.
These companies can only purchase energy generated from renewable sources, such as small hydroelectric plants (PCH), biomass thermal plants, wind sources, among others. The 2nd category of companies are those with a contracted demand equal to or greater than 2,000 kW.
These companies can purchase energy from any generation source, including the country’s large hydroelectric plants and the most modern thermal and wind power plants.
How is the energy market organized in Brazil?
Currently, the energy market is divided into 2 environments: Regulated Contracting Environment (ACR) and Free Contracting Environment (ACL).
The Regulated Contracting Environment (ACR) represents the majority (70%) of the energy traded in the country and includes low-voltage energy consumers, which are residences, general commerce, and companies with consumption below 500 kW, in addition to high-voltage clients who have not migrated to the free market.
In the Captive Energy Market, distributors contract energy from generators through government-authorized auctions. Energy auctions are governed by laws, decrees, and rules established specifically for energy contracting in the ACR.
Thus, distributors acquire electricity at the lowest possible price and pass it on to consumers within their concession area. In the captive market, consumers can only buy electricity from a concessionaire or a permit holder who has the concession to provide the distribution service.
In this way, the captive consumer does not have the possibility to negotiate prices, being subject to the supply tariffs established by ANEEL. In the Free Contracting Environment (ACL), or free energy market, the client can buy directly from generators or trading agents, without the intermediation of distributors, through bilateral contracts, with individually negotiated values, terms, and volumes.
Normally, energy supply contracts establish periods of up to 5 years. In the regulated environment, terms can reach up to 30 years.
The Free Energy Market (ACL) emerged to stimulate free competition and, consequently, seek better electricity tariffs. In this market, energy buying and selling is negotiated through bilateral contracts.
The free consumer has the freedom to buy energy from the supplier they find most interesting, negotiating the commercial conditions (price, term, amount, and indexation) for energy contracting. The free consumer also has the freedom to choose their energy supplier, which can be a Generator Agent or a Trading Agent. However, to receive this energy, the consumer must be connected to a distribution network. Consequently, it is also necessary to pay for the distributor’s service related to network use (wire tariff).
What are the sector rules?
Clients consuming between 500 kW and 2,000 kW can purchase energy from suppliers whose generation is from alternative sources, such as solar, wind, biomass, or even small hydroelectric plants (PCH) with power between 1 MW and 30 MW.
Clients with a load equal to or greater than 2,000 kW, served at any voltage, can choose to purchase electricity from any concessionaire, permit holder, or authorized electricity provider of the National Interconnected System. From 2021, the minimum load will change to a limit equal to or greater than 1,500 kW, in 2022 to 1,000 kW, and in 2023 the limit will change to 500 kW.
By January 31, 2022, the National Electric Energy Agency – ANEEL and the Electric Energy Trading Chamber – CCEE must present a study on the regulatory measures necessary to allow the opening of the free market for consumers with a load below 500 kW.
The entry of more agents into the free energy market generates competitiveness and provides greater benefits to consumer clients.
Who are the agents?
Market agents are divided into categories:
- Generation
- Trading
- Distribution
1. Generation
These are companies that trade energy in both the Regulated Contracting Environment (ACR) and the Free Contracting Environment (ACL). These agents are organized by classes:
- Public Service Generation Concessionaire: agent holding a concession for the exploitation of a generation asset as a public service, granted by the Granting Authority.
- Independent Power Producer (IPP): individual agent, or consortium participant, who receives a concession, permission, or authorization from the Granting Authority to produce energy for commercialization at their own risk.
- Self-producer: agent with a concession, permission, or authorization to produce energy for their exclusive use, being able to sell any surplus energy provided it is authorized by Aneel.
2. Trading
These are agents that buy and sell electricity in the free market. The term involves importing and exporting companies, free consumers, and special consumers, as defined below:
- Trader: agent who buys energy through bilateral contracts made in the Free Contracting Environment – ACL, being able to sell energy to other traders, generators, and free and special consumers, in the ACL itself, or to distributors through adjustment auctions in the Regulated Contracting Environment – ACR.
- Free Consumer: consumer who, meeting the requirements of current legislation, can choose their electricity supplier (generator and/or trader) through free negotiation.
- Special Consumer: one with a demand between 500 kW and 3MW, who has the right to acquire energy from Small Hydroelectric Plants (PCHs) or from special incentivized sources (wind, biomass, or solar).
3. Distribution
Electricity distribution concessionaire companies, which operate with tariffs and supply conditions regulated by ANEEL.
Under current regulations, all distributors have mandatory participation in the Regulated Contracting Environment – ACR, entering into energy contracts with prices resulting from auctions.
How to migrate to the free energy market?
To migrate to the free energy market, some actions are necessary. Below is a checklist of suggested actions for migration.
- Evaluate the amount of energy to be purchased since an inadequate projection can expose the free consumer to short-term prices (PLD);
- Assess the current energy costs with the distributor currently in effect in the captive market;
- Select the Trading Agent in order to seek the best price offer with the best contractual conditions;
- Prepare a comparative study of the proposals offered by each Trading Agent for decision making;
- After analyzing the economic feasibility, the consumer needs to send a notice to the distributor terminating the current contracts. If you want to anticipate the contractual termination, there will be a penalty for early termination of the contract. Normally, the regulated energy purchase contract has a term of 12 months. Termination must be done 6 months in advance;
- If the free consumer wants to return to the captive market, the concessionaire must be informed 5 years in advance. This return period for the consumer may be shorter, at the discretion of the supplying company.
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