São Paulo – Once again, the electricity bill will become more expensive. The National Electric Energy Agency (ENEL) and the Ministry of Mines and Energy announced on Tuesday (31) the creation of a new tariff science called Water Scarcity Science.
This flag is above the level 2 red flag, which has been in effect in recent months and was until then the most important flag adopted by Aneel. Anil told the meeting this Tuesday that the flags had been set as “the next twelve months,” and credited the creation of a new flag to the Brazilian water crisis and the need to import electricity.
With the knowledge of water scarcity, the surcharge will rise to R$14.20 from September. The value is applied to every 100 kilowatt-hours (kWh) consumed, and will be valid between September of this year and April 2022. The previous charge, for Red Flag Level 2, was R$9.49. This represents a 49.63% increase in surcharges. Anil estimates that the final impact on the electricity bill will be 6.78%.
All consumers in the captive market will pay distributors the new fees. The exception is consumers in the state of Roraima and consumers who benefit from the social tariff, a subsidized tariff of up to 12 million Brazilians.
What are tariff flags?
Aneel has adopted the energy bill tagging system since 2015, as a way to balance electricity production costs. The flags indicate if conditions are favorable for power generation (green flag) or if there are additional costs (yellow flag and red flags level 1 and 2).
In the yellow and red markings, there is an additional charge for each 100 kilowatt-hours (kWh) consumed in the electricity bill for individual consumers and small businesses. Consumers who are in the free energy market do not participate in the science system.
The flag system was suspended between May and November 2020, as a way to relieve consumers’ pockets during the first wave of the novel coronavirus pandemic. In December 2020, red flag level 2 (an attempt to contain inflation in 2020) returned. Between January and April 2021, the flag was reduced to yellow. In May, it was the turn of the Level 1 red flag. Since June of this year, the country has adopted the Level 2 red flag.
Not only was the banner more important, but the surcharge also went up. At red flag level 2, the charge was R$4.50 per 100 kWh consumed in 2016. The price rose to R$9.49 in July of this year. As we’ve seen, the fee has risen to R$14.20 this Tuesday, with the science of water scarcity creating the new level.
Fuel and electricity will be two components that will occupy more room in inflation in 2021, says André Braz, Economist and Consumer Price Index Coordinator (IPC) for Getúlio Vargas (FGV). Only in August of this year, the index is the national consumer price range 15 (HICP-15), which is a preview of the country’s official inflation, advanced 0.89% from July – above the 0.82% high expected by economists I consulted Refinitiv And the highest result for the month of August since 2002.
Electricity only increased by 5% in the same month, growth is 5.6 times higher than general inflation. “Electricity is up 20% in 12 months, not counting this new decision by Aneel,” Braz says. According to the economist, electricity affects about 4.6% of the family budget. In the poorest families, the income obligation ranges from 6.5% to 7%.
Why is the account becoming more expensive?
Experts estimated that the increase announced by Aneel would leave the surcharge in a range of R$11 to R$20 for every 100 kWh consumed. Aneel himself suggested a 25 Brazilian real limit scenario.
Signage and surcharges are a way to offset the recently increased electricity production costs. Pedro Rio, co-founder of free energy startup Clarke, explains that the country’s 2001 blackout caused the creation of thermoelectric plants as sources of power reserve. Thermal plants prevent loss of supplies in the event of a drought, but produce more expensive and polluting energy. The entrepreneur says the tariff marks bring marginal operating cost closer to selling cost.
The country is facing its worst drought in 91 years, according to the National Electrical System (ONS) operator. This water crisis has forced the adoption of thermal power plants, which produce energy that is more expensive and more polluting than hydroelectric power plants. Brazil also had to increase its energy imports from neighboring countries, a more expensive alternative to domestic production.
“In both thermal plants and imports, a megawatt costs more than R$2,000. By comparison, a megawatt in a regulated energy market typically costs R$400 in energy tariffs. Distributors bear part of this loss, and another part is passed on through the signs,” he says. Rio.” This is because our consumption today is not at pre-pandemic levels. If that were the case, we would be at risk of new blackouts.”
What will the electricity bill look like in the future?
Everything indicates that the electricity bill will continue to put pressure on IPCA-15 in the coming months. Braz and Rio estimate that the pressure will extend for the rest of this year and pollute 2022. Aneel himself confirmed this analysis, with the science of water scarcity continuing into April 2022.
“There will be a gradual increase in rainfall in the coming months, but it is necessary to rain near the reservoirs so that energy production becomes cheaper,” Braz says. “In the free energy market, we see prices that reflect short-term demand. We see prices that are higher than those we see in a regulated market, which is unusual, for the whole of 2022. We don’t see light at the end of the tunnel until the rains have an effect,” she agrees. Rio.
What can consumers, businesses, and government do?
Consumers, individuals and small businesses have little to do: consumption must be reduced. “We have to realize that water and energy are scarce resources, and investments do not have the same speed as depleting these resources,” Braz says.
Another way out is public policies of financial relief. This is a procedure that helps in disciplining people. Just asking for savings is not enough, ”the economist analyzes.
Also on Tuesday, Anil announced a program to encourage voluntary consumption reduction. The program aims to reduce consumption by 15%, with a minimum of 10%. There will be a regulated consumer premium, with a R$50 discount for every 100 kWh discount, up to a maximum of 20% discount. The program will run from September to December 2021.
Aneel made a simulation: a person who consumed 100 kWh per month paid R$64 when Red Flag Level 2 was in effect. Given the scarcity of water, that same bill would go up to R$74. If that person was now consuming 80 kWh, she would have a 20% reduction in her consumption. The value will be reduced from R$74 to R$59 without any bonus. With the incentive program, there is an R$10 bonus and the account drops to R$49.
Another alternative is to move to a free energy market, outside the realm of regulated consumers. Facilities with electricity bills exceeding R$100,000 per month can purchase conventional and renewable energies in a market with smaller contracts based on supply and demand. In the case of an exclusive purchase of renewable sources, the monthly bill can start from R$10,000.
“There are bills who want to move this market to smaller consumers, but this is the category that has benefited from the shift right now. In energy encouraged [exclusiva de fontes renováveis], the average is R$285 per 100 kWh consumed, compared to about R$400 in the regulated market. Remember that there is no flag system in the free energy market,” says Rio.
The government, in turn, should intensify work on diversifying energy sources. Praz and Rio agree that wind and solar have increased their share since the 2001 Brazilian energy crisis – but those segments are still far from ideal.
We have seen good energy modernization movements in the country in the past 10 years, albeit slow. We have doubled our wind and solar energy, and also built thermal power plants as a safe but expensive and polluting source of energy. The solution is to continue investing in wind and solar energy and to replace thermal energy with biomass energy. It is a renewable but constant resource, which allows for automatic activation in the event of a drought,” says Rio.
We should gradually consider increasing investment in energy matrices, with an agenda that will not be interrupted depending on the current government. We can explore Latin America’s massive exposure to the sun, and harness our coastline for wind power. We have enough knowledge and technology to make more use of these resources and, as a result, lower energy costs. Every country needs electricity to keep growing, and renewables allow this growth to be more sustainable,” Braz adds.
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