July 26, 2021
What Is the Free Energy Market?
Do you know what the free energy market is? Also known as the Free Contracting Environment (ACL), it allows consumers to choose their energy suppliers, promoting consumer choice in energy and increasing energy market competition.
Want to learn more about this topic? Check out the article below!
What Is the Free Energy Market and How Does It Differ From the Regulated Market?
The market in which all residential consumers purchase their energy is called the regulated market or the Regulated Contracting Environment (ACR). Most small and medium-sized businesses must also buy energy in this market.
In this market, tariffs/rates are set by ANEEL (National Electricity Agency), and energy is exclusively contracted from the local utility where the business or residential consumer is located. For example, in the city of São Paulo, regulated consumers buy energy from Enel SP, and they cannot negotiate with other suppliers.
So, what is the free electricity market? In this environment, businesses like industries, commercial enterprises, or agribusiness sectors that meet the consumption requirements for migration can freely negotiate their energy supply contracts with suppliers.
The negotiation includes aspects such as price, quantity, flexibility, supply period, payment date, and the energy source to be used (such as hydroelectric, photovoltaic, or wind power, among others). This process reflects the broader concept of electricity market liberalization, allowing for a more competitive and flexible market.
In this arrangement, electricity market players such as traders or generators establish bilateral contracts with consumers. The local utility is paid only for using the distribution system, meaning the infrastructure for transporting energy, but not for the energy itself. This shift from regulated contracts to negotiated agreements illustrates a key aspect of energy market deregulation. Estimates indicate that cost reductions in the Free Contracting Environment can reach up to 30%.
How to Migrate to the Free Energy Market?
To participate in the open energy market, companies must fall into one of the following categories: special consumer or free consumer.
What Are Special Consumers of Electricity?
Special consumers are companies with a contracted energy demand of 500 kW or more, and they can purchase “incentivized” energy. Additionally, under legal association, several consumer units under the same corporate registration (CNPJ) can combine their demand to reach the minimum required to become eligible for migration to the ACL.
Incentivized energy comes from sources such as small hydroelectric plants, solar, wind, biomass, or qualified cogeneration, which inject 50 MW or less into the grid. This category is essential for understanding the energy market structure and how consumers can gain electricity market access in a liberalized system.
What Are Free Consumers of Electricity?
Free consumers are companies with a contracted demand of 1,500 kW or more. These businesses can purchase energy from any generation source, such as large hydroelectric plants. This is an example of how energy trading operates in the free market, with direct agreements between electricity market players such as generators and consumers.
There is an expectation that the limits for accessing the free energy market will gradually decrease over the coming years, and according to a study by ABRACEEL (Brazilian Association of Energy Traders), it is possible that the entire market will open by 2027, further advancing energy market deregulation.
Did you enjoy learning about the free energy market and how your company can migrate to it? Also, check out our article on how to assess the economic feasibility of migrating to the free energy market.