Demarest Advogados in São Paulo look at the Brazilian Energy Sector
This article has the aim to briefly present the overview of the Brazilian Sector, its players and roles.
2. Institutional Overview of the Brazilian Energy Sector
Brazilian Energy Sector is composed of various agents playing different parts: they engage in political, regulatory and certain "special" activities. The chart of this agents can be represented as the following:
As the highest agent of the energy sector, the National Council for Energy Policy - CNPE has the main role of CNPE is to set out guidelines for the industry, indicate specific measures to promote a rational use of the country's energy resources, and ensure power supply throughout the country.
Subordinated to the CNPE, the Ministry of Mines and Energy - MME is responsible for outlining and enforcing policies on the industry in pace with CNPE guidelines.
Still in the political role, linked to MME there is the Electric Power Committee - CMSE which
aims mainly to ensure that electricity is supplied throughout the national territory and to put forward solutions and changes on a preventive or remedial basis, subject to analysis by CNPE.
Moving to the regulatory field, the National Agency of Electric Energy - ANEEL was created to be an technical and independent agency with the purpose of regulating and inspecting generation, transmission, distribution and trade of energy pursuant to government set policies and guidelines.
As operator of the sector, there is the National System Operator - ONS which coordinates the National Interconnected System (Sistema Interligado Nacional - SIN). ONS is subject to and inspected by ANEEL and must be comprised of economic agents concerning the basic distribution system.
To coordinate the commercialization of energy was created the Chamber of Electric Energy Commercialization - CCEE which is also a non-profit civil association, CCEE is in charge of making power trade feasible either in a Free Trade Environment (Ambiente de Contratação Livre - ACL) or a Regulated Trade Environment (Ambiente de Contratação Regulado - ACR). All economic agents (generators, distributors, traders and some consumers) must become associated to the CCEE in order to obtain license to trade power.
Finally, in the research branch there is the Energy Research Company - EPE. EPE is a state-owned enterprise that has the main purpose to conduct studies and research in order to offer technical support for all governmental activities in the field of energy planning.
3. Economic Activities in the Brazilian Energy Sector
As worldwide the Brazilian Energy Sector is divided in the 5 steps of the chain involving energy usage, which are: (i) generation, (ii) transmission, (iii) distribution, (iv) trading and (v) consumption.
Generation agents render power generation services defined as "electric power production services consisting in the transformation into electricity any form of energy, irrespective of the provenance thereof".
Electric power is produced in Brazil in four regimes:
a) Public Service
In basic terms, the public service regime is used to power plants exploring hydropower potential of over 1.000 kW and thermal power potential of over 5.000 kW.
This regime is established by a concession, which can only be granted after a public bidding process.
b) Self-generation (Autoprodução)
A self-generator includes any person, legal entity or company together in a consortium that has been given a concession or authorization to produce electric power intended for an exclusive use.
c) Independent Power Production (Produtor Independente de Energia Elétrica)
An independent power producer is a legal entity or companies together in a consortium that has been granted concession or authorization to produce power intended for trade, doing so at its own expense and risk.
d) Generator Registered with ANEEL
For hydropower potential below 1.000 kW or thermal power potential below 5.000 kW, neither a concession nor an authorization is required. Whomever is interested in exploring such activities needs only to communicate the ANEEL its intention to do so.
Transmission agents render, upon a concession, a public service of power transportation basically from the generation grid to the distribution substation, or at the interconnection between two or more generating grids.
The transmission agent is paid with the so-called Annual Permitted Revenue (Receita Anual Permitida - RAP) that is set on an annual basis by ANEEL.
The distribution agents supply high- and medium-voltage power to consumers which is provided directly by the generation agents or from the transmission grids.
The revenue of distribution agents comes from rates set by ANEEL: the power supply rate and the rate for the use of the distribution grid. The first rate is received for the power supplied to final users and the second is paid by the users of the distribution system, even if they do not use the power that is made available to them.
Trading agents buy and sell electric power; they neither produce nor consume power. They only buy and sell it. Trade agents play an important role in the market: to reduce transaction costs, setting a more competitive price.
To engage as a power trader one requires authorization from ANEEL that is given upon fulfillment of certain conditions.
Traders are allowed to sell power both in the Free Trade Environment (ACL) and the Regulated Trade Environment (ACR).
Consumers are divided into 4 categories:
a) Free Consumers (Consumidores Livres)
To become a free consumer, a consumer must demand at least 69 kV of power with a load of at least 3.000 kW.
In choosing to be a free consumer, a consumer will purchase its power in the Free Trade Environment (ACL) and is able to negotiate the power price and supply conditions on a free basis.
b) Potentially Free Consumers (Consumidores Pontencialmente Livres)
Potentially free consumers are those meeting conditions to be a free consumer but instead choose to buy power in the Regulated Trade Environment (ACR).
c) Special Consumers (Consumidores Especiais)
Special Consumers are those consumers gathered in a group sharing factual and legal interests, with a load of 500 kW or higher, allowed to buy power in the Free Trade Environment (ACL), but they are required to purchase fifty-one percent (51%) of such power from a power plant which uses an incentivized energy source (solar, wind and biomass power with potency lower than 30.000kW, Small Central Hydropower Plant (PCH) and hydropower potentials between 1.000 kW and equal to or lower than 50.000 kW).
Special consumers are offered a reduction of at least fifty percent (50%) of the rates for the use of power transmission and distribution grids regarding the power purchased from power plant which uses an incentivized energy source.
d) Captive consumers (Consumidores Cativos)
Captive consumers cannot freely choose to buy power from other market agents other than the local power distribution company at the rate ANEEL sets.
The Brazilian energy sector is comprised of many institutional agents which perform different, but complementary roles. Such roles have to be in tune in order to lead the sector in a coordinate manner.
Regarding the economic side of the Brazilian, the regulatory framework regulates the five classic division of the energy production (generation, transmission, distribution, trading and consumption) giving it specific and unique features.