Aneel cuts power rate as rains ease generation costs

Sector regulator Aneel has set a yellow power rate flag for November due to improved power generation conditions in Brazil.

Two local experts told BNamericas that they agreed with the regulator’s decision, while another expressed concern.    

In October, the flag was at red level 2, but increasing rainfall and the consequent reduction in energy generation costs made it possible to activate the yellow flag for November.

As a result, the charge will fall from 7.88 reais (US$1.38) to 1.89 reais for every 100kWh consumed.

Despite the improvement in power generation conditions, rainfall and water flow forecasts in the reservoir regions for the coming months are still below average, indicating the need for additional thermoelectric generation to supply consumers.

The flag system indicates generation conditions and costs for power consumers. When production at hydro plants – which produce cheaper energy than thermal plants – is favorable, the regulator activates the green flag; when less water is available, the yellow or red (level 1 or 2) flags may be activated, which leads to higher consumer rates.

Fred Menezes, executive director of energy trader Armor Energia, said the yellow flag is in line with current meteorological changes, which indicate favorable rainfall in late October and early November. 

“The situation is very different from the beginning of October when there was concern about the rapid decline of the reservoirs,” he told BNamericas. 

“Although caution is still needed, we're in a much more comfortable position.”

Alan Henn, CEO of energy trader Voltera, also agreed with Aneel’s decision.  

He underscored that the energy price traded on the free market for November is at 160 reais/MWh, down from 375 reais/MWh two weeks ago. 

“This price level also indicates greater optimism in the market about the condition of hydroelectric generation and a reduction in the PLD," or free market price reference, Henn told BNamericas. 

Walter Fróes, president of power trader CMU, said he was surprised by the flag change despite the rainfall seen over the last two weeks. 

“Any reduction in the price of energy is a stimulus to consumption. I don't think this is the time to encourage consumers to spend more on energy," he told BNamericas.