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Brazilian Electricity System

Organisational Model of the Electricity System

The New Electricity Law introduced significant changes to the regulation of the Brazilian power industry to provide incentives to private and public entities to build and maintain the country’s generation capacity and to assure the supply of electricity within Brazil at low tariffs through competitive electricity public auctions.  The key features of the New Electricity Law include:

> Creation of two parallel markets for the trading of electricity:
 

1. The regulated contracting market for the sale and purchase of electricity destined for distribution companies, which is operated through electricity purchase auctions, and

2. The free contracting market for the sale and purchase of electricity destined for generators, free consumers and electricity trading companies;
 


> Requirement that distribution companies purchase electricity sufficient to satisfy 100% of demand;

> Creation of an electricity reserve for all electricity traded through contracts;

> Restrictions on certain activities of electricity distribution companies to ensure they focus only on their core business to guarantee more efficient and reliable services to their customers;

> Restrictions on self-dealing to encourage electricity distribution companies to purchase electricity at lower prices, rather than buying electricity from related parties;

> Continued compliance with contracts executed prior to the New Electricity Law in order to provide stability to transactions carried out before its enactment;

> Prohibition on sales of electricity by distributors to free consumers at non-regulated prices; and

> Prohibition on distributors engaging directly in electricity generation or transmission operations.

Regulators

The MME (Ministério de Minas e Energias) is the Brazilian government’s primary regulator of the power industry, acting as the granting authority on behalf of the Brazilian government and empowered with policymaking, regulatory and supervisory capacity.  Following the adoption of the New Electricity Law, the Brazilian government, acting primarily through MME, undertook certain duties that were previously the responsibility of ANEEL, including granting concessions and issuing directives governing the bidding process for concessions relating to public services.

The Brazilian power industry is directly regulated by ANEEL.  Since the enactment of the New Electricity Law, ANEEL’s primary responsibility has been to regulate and supervise the power industry in Brazil pursuant to the policies adopted by the MME.

Generation

 Electricity generating plants are subject to contracts, authorisations or registry according to the type of plant, the capacity to be installed and the energy's destination. In terms of energy destinations, the generation plants may be classified as:

> Electricity generators for public service distribution;

> Independent generators (who take on the risk of supplying electricity to distributors or free consumers);

> Auto-producers (who generate electricity for their own consumption and may also supply excess capacity if they are authorized to do so).

Transmission

The Brazilian transmission system, carrying a load of 230 kV and higher, is divided into transmission and sub-transmission networks, according to the level of desegregation of the consumer's market. The primary network is responsible for the transmission of electricity to the major consumer centres and for the supply of energy to large consumers. The secondary network is basically an extension of the primary network, aimed at transmitting electricity to smaller consumer centres and providing energy to large industrial clients.
 

Distribution

Public service electricity distribution contracts are granted by tender and define clauses relating to tariffs, regularity, continuity, safety, updating and quality of the services and supply provided to consumers and network users. They also set out penalties for any irregularities.

In most states, mainly in the North and Northeast, contracts correspond to specific states. However, and mainly in São Paulo and Rio Grande do Norte, distribution contracts cover areas smaller than the state itself. There are also cases where, in geographical terms, contracts cover more than one area of the distribution company's home state.
 

Supply

The Electricity Supply Agents, not owning electricity systems, are authorised to act exclusively in the electricity purchase and sale market for distribution companies, authorised agents or liberalised consumers. Prices are fixed freely.