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Energy’s free price formation need a control authority, says EPE’s CEO

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The president of the EPE (Energy Research Company), Luiz Augusto Barroso, told the agency about on the new sector model, which is about to be sent to Congress.

Barroso defended the free formation of prices under the new framework, but said it will be necessary to create a control mechanism of abusive market practices. This body could be set up along the lines of Cade (Administrative Council for Economic Defense), or, ultimately, this function could be performed by the regulator (ANEEL).

Another novelty, for the president of EPE, would be to create a trading market clean energy certificates, which would bring an extra prescription for renewable sources (SHP, biomass, wind and solar). “The projects have a financial award for the fact that produce clean energy,” said Barroso in an interview.

What is the backbone of the new model?
The goal is decentralized risk management. The agents will be responsible for their decision-making, and the consequences. Centralization is the cause of legalization that exists today in the energy industry, as the prices are formed by ONS (National Electric System Operator), based on computer models. With pricing by offers of the agents, they will be responsible.

How will this auction pricing by agents?
Instead of the ONS to calculate the price of water centrally, and thermal energy with an offer audited costs, the agents will do their own amount of bids and the price they are willing to sell energy. Then the operation (made by ONS) will cross these bids with demand in an order of merit, just as is done today.

What is the purpose of this change?
Each should have more control of their application, which in the case of hydropower is your reservoir. Today, the reservoir empties, and the guy has a problem GSF (acronym for hydrological risk), he blames the government. In the formation of prices by supply, who is responsible for controlling the reservoir is the agent itself. If he emptied, he will have to pay, it was his decision.

From when would occur this new pricing system?
As of January 2022, according to the text of the bill (bill), after a year of testing.

But to meet this timeline the project would have to be approved this year, no? It has not even been sent to Congress …
Assuming that the bill (bill) was magically approved today, the agents would know when each event happen – this is explained there. We put in the text the dates we think appropriate. This is important: the project provides dates for Brazil to take the important decisions.

This pricing by agents would be totally free, would have no kind of control?
Yes there are concerns in the formation of prices by supply. We must ensure that any agent can control prices, and the creation of a market monitoring body would be ideal for this, to curb anti-competitive practices. This body has to be studied. It can be independent, that is how we would like. It would be like a Cade (Administrative Council for Economic Defense). And, ultimately, would be to the regulator function, as in many countries.

Auctions for new energy (A-6, A-4) remain as they are?
Auctions give revenue assurance to generators to have funding. That’s why the auctions give long-term contracts. This process must continue to ensure that the new power has resources. But today the generator sells two products within the same auction – which is the energy and the ballast to generate this energy. We will separate these products.

As this separation will be made?
It will be a ballast auction and other energy, all in the long run. The energy of the most ballast income will be sufficient to pay the total capital and repay the financing. But there is one detail: the ballast will pay all consumers, both the regulated market and the free.

What exactly is “ballast” in this new model?
Ballast is the physical guarantee of the project; the ballast ensures that the project is built. But if it is built and produce no energy, stand it? So he did not produce energy, although there the plant. Then you agree that energy is a different ballast product?

That all consumers will pay for ballast?
Ensuring the construction is something that has to be paid for the entire market. Because the energy of this project can meet the regulated market or free. But if a project fails to pay only the ballast revenue, plus the sale of energy through contracts, or even in the spot market, then he will be able to participate in pure energy contract auctions in the spirit of the A-3 auction , A-5 we have today.