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Generation Sector

GENERATION

Brazil’s physical characteristics, in particular its size and the abundance of water resources, were the key factor in the choice of hydroelectric power as the predominant element in the country’s electricity generation system.

The power plants are operated under concession, authorization or registration, depending on their classification, installed capacity or proposed use of the energy. Depending on the proposed use, power plants can be classified as:

  • Producers with concession grants specifying that the energy produced is intended for the public electricity service;
  • Independent producers (they assume the risk of selling electricity to distributors or directly to free consumers); and
  • Self-producers (producing electricity for their own use; surpluses may be sold subject to authorization).

The generating companies can sell their energy to distributors at public auctions arranged by ANEEL and operated by the Electricity Trading Chamber (CCEE), in what is called the Regulated Market (ACR). In the Free Market (ACL), electricity can be sold at prices negotiated freely with sales companies, distributors with markets below 500 GWh/year and consumers who are entitled to purchase energy in the free market.

ENERGY RELOCATION MECHANISM – MRE*

The MRE is a financial mechanism for sharing the financial risks associated with the operation of the National Interconnected System (SIN). It covers all the hydroelectric power plants subject to centralized orders from the National System Operator (ONS).

In operating terms, the MRE ensures that, in the CCEE accounting process, all participating plants receive their levels of physical guarantee, irrespective of how much electricity they actually generate, provided that the total generation in the MRE is not lower than the total physical guarantee of the SIN. The system involves reallocating surpluses from generators that produce more than their physical guarantees to those that produce less.

OPTIMIZATION ENERGY TARIFF*

The hydroelectric power plants that supply energy to the MRE are financially compensated by the agents that receive electricity from the mechanism, whether by covering the physical guarantee or by the allocation of secondary energy, through the Optimization Energy Tariff (TEO).

The TEO covers the variable operational costs and pays for the use of the water in relation to electricity generated and reallocated within the MRE.

These payments are made by means of adjustments to accounts with the CCEE.

SECONDARY ENERGY*

If the electricity generated in the MRE exceeds the total physical guarantees of the mechanism, the participating power plants will be entitled to secondary energy, with the surplus being allocated in proportion to the corresponding physical guarantees.

GENERATION SCALING FACTOR (GSF)

Now referred to as the MRE Adjustment Factor, this is the ratio between the total generation and the total physical guarantee of the mechanism. If the ratio is more than “1”, it means that secondary energy was generated during the period. If the ratio is less than “1”, this is the adjustment factor to be applied to the physical guarantees of the plants in the MRE, to cover their levels of generation.

RENEGOTIATION OF HYDROLOGICAL RISK

Provisional Measure No. 688/2015 provided for the renegotiation of hydrological risk in electricity generation. It took into account the low level of rainfall in the country since the end of 2012, added to operational decisions and other factors that influenced ONS generation orders.

MP 688 was converted into Law No. 13.203/2015, permitting the renegotiation of the hydrological risk borne by the hydroelectric generators participating in the MRE, subject to the consent of ANEEL and payment of consideration, with effect from January 1, 2015.

ANEEL regulated the provisions of the law through Public Hearing No. 32/2015 and the resulting Normative Resolution No. 684/2015, setting the terms and criteria for eligibility for the hydroelectric generators in the MRE to renegotiate hydrological risk.

Agents who join the mechanism, which is optional, can transfer the hydrological risk to the consumer, through payment of a risk premium in the Centralizing Account for Tariff Flag Revenues (CCRBT) for certain classes of product, depending on the amount of risk they propose to transfer due to insufficient generation in the MRE. In the ACR, payments due by hydroelectric power plants participating in the MRE are eligible for renegotiation if the generating agent has entered into electricity sales agreements for the plant with distributors. The amount eligible will be calculated as the physical guarantee of the hydroelectric power plant, related to the center of gravity, or the amount of electricity in the sales agreements, whichever is the lower.

The amount of GSF losses for 2015 will be reimbursed to the generators by exemption from payment of the risk premium as from January 2016 until offset in full. If the contracts are not long enough for full reimbursement, the grant period may be extended.

In the ACL, hydrological risk is renegotiated by payment of a risk premium equivalent to the assumption of the rights and obligations of the existing reserve energy capacity.

In either case, the generator must indicate to ANEEL its decision to renegotiate in any year by September 30 of the previous year.

 

 

*Source: Electricity Trading Chamber (CCEE), Trading Rules, Energy Relocation Mechanism module – version 2018.1.0