What Is the PLD and How It Affects Electricity Tariffs

PLD is the acronym for Short-Term Market Price (Preço de Liquidação das Diferenças). Understanding it is essential for those who trade energy in the free energy market or wish to better understand how the tariff they pay works.

It corresponds to the value used to settle the differences between the volumes of energy contracted and those actually measured in transactions of the Short-Term Market Price (PLD) by the Electric Energy Trading Chamber (CCEE).

What is the PLD?

As mentioned, the PLD is used to settle energy differences. That is, to reconcile the differences between what was contracted and what was actually generated and consumed.

For this reason, every month the CCEE performs accounting and, to determine and settle these differences, uses the PLD, which it calculates itself.

In 2020, the PLD was calculated across three load tiers: peak, intermediate, and off-peak. Each represented periods of high, intermediate, and low consumption, respectively.

Starting in January 2021, hourly accounting began, thus changing the name to "Hourly PLD". With this change, there is better representation of the actual cost of energy, considering load variations and generation sources, optimizing energy price indications to market agents.

What is Hourly PLD?

Hourly PLD was adopted in line with the worldwide trend of greater price granularity, where costs are allocated with greater precision to those responsible. This improved representation contributes to increased sectoral efficiency, which favours global cost reduction.

Price definition is carried out daily for each hour of the following day, based on the Marginal Cost of Operation. The process also considers the application of maximum (hourly and structural) and minimum limits in force for each assessment period and for each submarkets. Previously, the calculation was performed on a weekly basis.

With the change, the energy price becomes closer to its actual generation cost, since this varies over time according to the availability of sources. For example, a solar power plant may have a lower cost, but operates only during the day, while a natural gas thermal plant can operate at any time. Consumer behaviour is also considered in these analyses.

How is the PLD calculated?

It is calculated by the CCEE through mathematical models, with the objective of finding the equilibrium solution between the immediate benefit of using water for energy generation in hydroelectric plants and the future benefit of its storage, measured in terms of expected savings in fuel from thermal plants.

Greater use of hydroelectric energy can provide lower immediate costs to the system, since, generally speaking, this source is more economical. However, if used excessively, it tends to cause an increase in energy value in the future, as this would increase the risk of energy shortfall.

Thus, using computational models DESSEM (daily), DECOMP (short-term) and NEWAVE (long-term), the PLD is calculated based on the following aspects:

• current state of hydroelectric plant reservoirs;
• rainfall forecast;
• energy demand;
• projection of intermittent generation variability (wind and solar);
• fuel price of thermal plants;
• entry into operation of new projects;
• transmission and generation availability.

How does the PLD affect electricity tariffs?

Like free consumers and generators, distribution companies must settle energy contract surpluses and deficits at the CCEE. Therefore, if a company is under-contracted, it will have to pay the amounts necessary to serve its market at PLD values and the costs will be passed through to tariffs.

On the other hand, if the concessionaire is over-contracted, the energy unnecessary to serve its market is settled at the PLD.

The effects of these movements on tariffs depend on the differences between the PLD value at the time of settlement and the energy price set at the time of its contracting. If the difference is positive for the distribution company, the effect will be favourable to consumers in the tariff process, and vice-versa.

The PLD is also used in calculating the cost associated with hydrological risk, that is, the risk that hydroelectric generators cannot generate all the energy sold. Captive consumers are responsible for the hydrological risk of approximately 70% of all energy contracted by distribution concessionaires. Thus, the PLD can also impact tariffs in accounting for these risks.

Did you enjoy learning more about this subject? Continue following TR Soluções content.