The Brazilian Energy Sector
The fundamentals of the New Model for the Brazilian Electric Sector seek to ensure security of electricity supply, reduce prices, and promote social inclusion through universal supply programs
The Brazilian Energy Sector
Between 2003 and 2004 the Federal government laid the foundations for a New Model for the Electricity Sector, based on Laws No. 10847 and 10848 of March 15, 2004 and Decree No. 5163 of July 30, 2004.
In institutional terms the New Model defined the creation of an entity responsible for long term planning in the electric sector (the Energy Research Company - EPE); an institution whose function is to continuously assess the security of electricity supply (the Electric Sector Monitoring Committee - CMSE); an institution to provide continuity to the activities of the Wholesale Energy Market (MAE); and an institution dealing with commercialization of electricity in Interconnected System (the Chamber for the Commercialization of Electric Energy - CCEE).
Other important changes included the definition of the Ministry of Mines and Energy (MME) as the Conceding Authority, and expansion of the autonomy of the National Electric System Operator (NOS).
With regard to energy commercialization, two environments were established for contracting energy sale and purchase: the Regulated Contracting Environment (ACR), with the participation of energy generation and distribution agents, and the Free Contracting Environment (ACL), in which Generation Agents, Traders, Importers & Exporters and Free Consumers participate.
The New Model for the electric sector aims to achieve three main objectives:
- Ensure security of electricity supply
- Moderate tariffs
- Promote social inclusion in the Brazilian Electric Sector, in particular through universal supply programs.
The model includes a set of measures to be observed by agents, such as the requirement for distributors and free consumers to contract all demand, a new methodology for calculating guarantees for sale of generation capacity, contracting hydroelectric and thermoelectric plants in proportion to ensure better balance between supply security and cost, as well as permanent monitoring of the continuity and security of supply in order to detect cyclical imbalances between supply and demand.
In terms of tariff moderation, the model provides for the purchase of electricity by distributors in the regulated market through auctions, subject to lowest cost criteria, aiming to reduce the cost of acquisition of electric energy that is re-passed to captive customer tariffs.
Social inclusion seeks to promote universal access and use of an electricity supply service, creating conditions such that the benefits of electricity are made available to citizens who do not yet have an electricity supply, and to guarantee a subsidy for low-income consumers so they are able to afford the cost of their electricity consumption.
Ministry of Mines and Energy