red flag level 2 has a new increase

Aneel (National Electric Energy Agency) announced today the creation of a new banner for the electricity bill, called the water scarcity banner. The fee has the value of R$ 14.20 per 100 kWh, and will be applied to the electricity bill from this Wednesday (1). The flag will remain in effect until April 30, 2022.

The new value represents an increase of 49.6% (or R$ 4.71) compared to the current red flag level 2 (R$ 9.49 per 100 kWh), which was being applied to the electricity bill. At the end of June, the value of red flag level 2 had already risen 52%.

Tariff flags are added to the account value depending on the energy generation conditions in the electricity sector. When the scenario is favorable, there is no addition (green flag). The yellow flag indicates a less favorable scenario, while the red ones (levels 1 and 2) point to costly energy generation conditions.

The water emergency flag did not exist. According to the Ministry of Mines and Energy, the new rate will cause an increase of 6.78% in the average tariff of regulated consumers, such as residential ones.

The purpose of the tariff flags is to remunerate the use of thermoelectric plants, which have a higher cost. Thermoelectric plants are being used because of the drought, which has reduced the hydroelectric reservoir and harmed energy generation. The country is experiencing the worst water crisis in 90 years.

In July, according to a presentation released by the Ministry of Mines and Energy, the flags account already had a deficit of R$5.2 billion. In other words, the fee was not able to cover the extra costs of power generation.

Measures to reduce consumption

The decision on the new value was taken jointly by Aneel and Creg (Chamber of Exceptional Rules for Hydroenergy Management). The group was created in late June by President Jair Bolsonaro (non-party), and includes representatives from various ministries, including Mines and Energy and Economy. According to the government, the objective is to develop exceptional measures to “preserve the safety and continuity of the supply of electricity and the use of water”.

The Ministry of Mines and Energy itself assesses that the energy generation scenario in Brazil is getting worse. The government had already drawn up a program for large consumers, such as industries, to reduce spending, especially during peak hours. Participation, however, is voluntary. A survey by the CNI (National Confederation of Industry) pointed out that the proposal may have low adhesion.