Aneel creates a water scarcity tariff flag, and the electricity bill will become even more expensive

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SAO PAULO – The electricity bill will become more expensive, once again. The National Electric Energy Agency (Aneel) and the Ministry of Mines and Energy announced this Tuesday (31) the creation of a new tariff flag, called the water scarcity flag.

This flag is above the level 2 red flag, which was in force in recent months and was until then the most critical flag adopted by Aneel. Aneel stated at this Tuesday’s meeting that the flags are defined looking “twelve months ahead”, and credited the creation of the new flag to the Brazilian water crisis and the need to import electricity.

With the water scarcity flag, the extra charge will rise to R$ 14.20 as of this September. The value is applied to every 100 kilowatt-hours consumed (kWh), and will be valid between September this year and April 2022. The previous charge, for the red flag level 2, was R$ 9.49. That’s a 49.63% increase in extra charges. Aneel estimates that the final impact on the electricity bill will be 6.78%.

All consumers in the distributors’ captive market will pay the new charge. The exception are consumers in the state of Roraima and consumers who benefit from the social tariff, a subsidized tariff that reaches 12 million Brazilians.

What are tariff flags?

Aneel has adopted the energy bill flags system since 2015, as a way to balance the costs of electricity production. The flags indicate whether conditions are favorable for energy generation (green flag) or whether there are additional costs (yellow flag and red flags level 1 and 2).

In the yellow and red flags, there is an additional charge for every 100 kilowatt-hours consumed (kWh) in the electricity bill of individual and small business consumers. Consumers who are in the free energy market do not participate in the flag system.

The flag system was suspended between May and November 2020, as a way to ease the pockets of consumers during the first wave of the new coronavirus pandemic. In December 2020, red flag level 2 returned (an attempt to contain inflation in the year 2020). 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 this year, the country has adopted the level 2 red flag.

Not only was the banner more critical, but the extra charge also rose. At red flag level 2, the charge was BRL 4.50 for every 100 kWh consumed in 2016. The price increased until reaching BRL 9.49 in July this year. As we have seen, the charge rose to R$ 14.20 this Tuesday, with the institution of the new level of water scarcity flag.

André Braz, economist and coordinator of the Consumer Price Index (IPC) of the Getúlio Vargas Foundation (FGV), says that fuel and electricity will be components that will occupy greater space in inflation in 2021. Only in August of this year, the Index The National Extended Consumer Price 15 (IPCA-15), considered a preview of the country’s official inflation, advanced 0.89% compared to July – above the high of 0.82% expected by economists consulted by the Refinitive and the highest result for a month of August since 2002.

Electricity alone had an increase of 5% in the same month, growth 5.6 times greater than general inflation. “Electric energy rose 20% in 12 months, not counting this new decision by Aneel”, says Braz. According to the economist, electricity affects about 4.6% of the family budget. In the poorest families, the income commitment is from 6.5% to 7%.

Why is the account getting more and more expensive?

Experts estimated that the increase announced by Aneel would leave the extra charge in a range between R$ 11 to R$ 20 for every 100 kWh consumed. Aneel itself proposed a limit scenario of R$25.

The banners and extra charges are a way to offset electricity production costs, which have increased in recent times. Pedro Rio, co-founder of the free energy market startup Clarke, explains that the blackout the country went through in 2001 caused thermoelectric plants to be created as sources of energy reserve. “Thermal plants prevent the loss of supply in the event of a drought, but they produce more expensive and polluting energy. The tariff flags bring the marginal operating cost closer to the selling cost”, says the entrepreneur.

The country is facing its worst drought in the last 91 years, according to the National Electric System Operator (ONS). This water crisis forced the adoption of thermoelectric plants, which produce more expensive and more polluting energy than hydroelectric plants. Brazil also had to increase its imports of energy from neighboring countries, a more expensive alternative than domestic production.

“Both in thermoelectric plants and in imports, the megawatt costs more than R$ 2 thousand. In comparison, a megawatt in the regulated energy market typically costs R$400 in energy tariff. The distributors assume part of this loss, and another part is passed on through the banners”, says Rio. “This is because today our consumption is not at pre-pandemic levels. If it were, we would be at risk of a new blackout.”

How should the electricity bill look in the future?

Everything indicates that the electricity bill will continue to pressure the IPCA-15 in the coming months. Both Braz and Rio estimate that the pressure will extend for the rest of this year and contaminate 2022. Aneel itself confirmed this analysis, with the flag of water scarcity going until April 2022.

“A gradual increase in rainfall will begin in the coming months, but it is necessary to rain close to the reservoirs so that energy production becomes cheaper,” says Braz. “In the free energy market, we see prices that reflect short-term demand. We see prices above those seen in the regulated market, something unusual, for the whole year of 2022. We don’t see a light at the end of the tunnel until there is an impact of the rains”, agrees Rio.

What can consumers, businesses and the government do?

Consumers, individuals and small businesses have little to do: it is necessary to reduce consumption. “We have to be aware that water and energy are scarce resources, and that investments do not have the same speed as the depletion of these resources”, says Braz.

Another way out is public policies for financial relief. “This is a measure that helps to discipline people. Just asking for savings is not enough”, analyzes the economist.

Also on Tuesday, Aneel announced a program to encourage voluntary reduction in consumption. The program has a goal of 15% reduction in consumption, with a minimum of 10%. There will be a premium to the regulated consumer, with a deduction of R$50 per 100 kWh reduced, up to a limit of 20% reduction. The program will run from September to December 2021.

Aneel made a simulation: a person who consumed 100 kWh a month paid R$64 when the red flag level 2 was in effect. With the water scarcity flag, this same bill will rise to R$74. If this person now consumes 80 kWh, will have a 20% reduction in its consumption. The value will drop from R$74 to R$59 without any bonus. With the incentive program, there is a R$10 bonus and the account drops to R$49.

One more alternative is the transition to the free energy market, outside the universe of regulated consumers. Establishments with electricity bills that exceed R$ 100,000 per month can buy conventional and renewable energies in a market with smaller contracts based on supply and demand. In the case of exclusive purchase of renewable sources, the monthly bill can start at R$10 thousand.

“There are bills that want to take this market to smaller consumers, but this is the category benefiting from the transition for now. In the energy encouraged [exclusiva de fontes renováveis], the average is R$ 285 for every 100 kWh consumed, compared to around R$ 400 in the regulated market. Remembering that there is no system of flags in the free energy market”, says Rio.

The government, in turn, should intensify the work of diversifying energy sources. Braz and Rio agree that wind and solar energy have increased their share since the 2001 Brazilian energy crisis – but that these slices are still far from ideal.

“We had good energy modernization movements in the country in the last ten years, albeit slow. We’ve multiplied our wind and solar power capacity, and we’ve also created thermoelectric power plants as a safe but expensive and polluting source of energy. The solution is to continue investing in wind and solar energy and replacing thermal energy with biomass energy. It is a renewable but firm source, which allows automatic activation in case of drought”, says Rio.

“We must gradually think about greater investment in energy matrices, with an agenda that will not be interrupted depending on the current government. We can explore Latin America’s enormous sun exposure, and harness our coastline for wind energy. 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 renewable sources allow this growth to be more sustainable”, adds Braz.

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