The market is basically organised as a highly integrated system through transmission lines connecting generation facilities and consumers in Brazil’s five regions, covering most of its population and industries, forming the SIN. A few areas are not integrated and are deemed isolated systems, subject to specific features and regulations.
The SIN allows a mechanism for reallocation of energy whereby the hydrological risk is shared by hydropower generation companies, as a general rule. Such mechanism permits the sharing of upsides resulting from excess of hydropower generation as compared to the contracted energy as well as the downsides in case of shortfall, through the generation scaling factor (GSF). As regards the GSF, see question 36.
There are three types of legal entities responsible for power generation:
- ones holding a concession of public service;
- IPPs, which receives concessions or authorisations to generate power for commercialisation; and
- self-producers, which receive concessions or authorisations to generate power for their exclusive use.
Subject to applicable regulations, however, IPPs may also use the energy produced and self-producers may sell the excess energy to qualified third parties.
Sale of power shall depend on the assurance of energy, which may be evidenced by the physical guarantee of the power plant or PPAs with other agents.
The National Electric System Operator (ONS), as the independent operator of the SIN, is responsible for determining when each generator shall generate power and provide to the system.
As to electricity sources, Brazil still relies upon hydropower as its main source of energy - it forms approximately 66.5 per cent of the installed capacity and the power generation - with thermal power as an important supplementary source of energy, accounting for approximately 25 per cent of the installed capacity and 24 per cent of power generation. The participation of wind power plants is around 7.5 per cent of the installed capacity and 8 per cent of power generation, while solar power installed capacity is around 0.5 per cent.
Transmission facilities may be designed to integrate with the SIN or be restricted to a certain area applicable to a specific distribution agent, or to a certain area applicable to a specific generation agent.
The transmission system integrating the SIN is also operated by ONS and public services related to the transmission system are remunerated through tariff policies approved by ANEEL based on the annual permitted revenue (RAP) of each transmission company.
Sale of power
Two trading environments apply for sale of power in the SIN:
- ACR - power sale-and-purchase transactions carried out between agents selling power (holders of concession, permission or authorisation to generate, import or commercialise power) and distribution agents, as purchasers, through public auctions conducted by the government, whereby the sellers compete by the lowest bid price (Brazilian real per megawatt (MWh)) and shall also observe terms and conditions established by applicable legislation and auction rules. The winning generation company enters into long-term (10-30 years, depending on the source) regulated power purchase agreements (ACR PPAs); and
- ACL - sale and purchase transactions carried out through bilateral agreements freely negotiated by both parties, subject to commercialisation rules and proceedings. As a mechanism to reduce exposures, the distribution companies were also recently authorised to sell power in the ACL, specifically in case of excess of power contracted to meet the demands of their market as discussed above.
Consumers that do not meet requirements to be eligible as ‘special consumers’ (which have a load of 500kW-3MW and may purchase power from renewable sources) or ‘free consumers’ (load equal or higher than 3MW) shall be deemed as ‘linked consumers’ and may purchase power only from the applicable distribution company.
Existing generation companies may participate in ‘existing energy’ auctions, by which they execute PPAs whose terms may vary from one to 15 years. Those companies may also choose to sell their plants’ output within the free market, where electricity is freely traded among generation and trading companies, as well as free consumers and special consumers.
As a general rule, ACR PPAs may have the following modalities: quantity or availability. The costs related to hydrological supplying risks shall be assumed by the selling agents in ACR PPAs in the quantity modality, while purchasing agents shall assume such costs in ACR PPAs in the availability modality. Financial exposures in the short-term market shall be assumed by distribution agents, to guarantee the final electric energy repass to final consumers. As a result of consecutive droughts, the government has established specific rules for transfer of hydrological risk among users.
PPAs have to be registered with the Electric Power Commercialisation Chamber (CCEE), also created by Law No. 10,848/2004, which consists of a non-profit, private entity authorised by the granting authority. PPAs are also subject to registration, approval or ratification by ANEEL, as applicable.
Compliance with contracted obligations is verified on a monthly basis by CCEE and failure to comply therewith shall result in penalties to be paid by the applicable CCEE agent (power producer, consumer, commercialisation agent or otherwise) in accordance with the Commercialisation Convention, which is a body of rules and procedures approved by ANEEL to regulate the commercialisation of power in Brazil.
The Commercialisation Convention provides for general rules on the commercialisation of power, such as:
- obligations and rights of agents of the electricity sector;
- financial guarantees;
- penalties; and
- ules and procedures for commercialisation, including those with respect to the international exchange of power.
The Rules of Commercialisation and the Commercialisation Procedures have a more technical and operational nature, being proposed by CCEE and then approved by ANEEL.
The settlement among power generated, contracted and consumed in the ACR and ACL is carried out by CCEE in the short-term market and shall result in the settlement price (also known as PLD).
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