November 24, 2022

CDE Expenses From Opening the Market to Group A and B Consumer Units

Starting now, users of the Energy Tariff Estimation Service (SETE) can build their own free-energy-market-opening scenarios and run consistent analyses on the topic. This is possible thanks to additional features implemented in the tool.

This enhancement was developed in the context of discussions on the effects of market opening, both for consumers connected at high voltage (Group A) and those connected at low voltage (Group B).

In this debate, opinions expressed across different media outlets, specialized or not, basically center on the need for subsidies to support an expanded Free Contracting Environment (ACL) and its tariff impact.

TR Soluções has taken a direct part in these discussions: on three recent occasions, it ran simulations to quantify, in an unbiased way, possible tariff impacts arising from market opening.

In mid-September 2022, the company prepared a report assessing the effects of market opening as part of a consulting engagement for Ernst & Young (EY). That report fed into the study EY prepared for Abraceel, which showed that, should full market opening happen in January 2026, consumer migration to that environment could result in an 18% savings on electricity bills. That savings would raise disposable income by 0.7%, freeing up more than BRL 20 billion for purchases of goods and services.

On a second occasion, in an article published on October 6, TR Soluções assessed aspects related to legacy contracts and concluded that opening the market to everyone starting in 2028 shouldn't result in distribution companies becoming over-contracted.

The analysis considered the continued growth of consumer migrations under the rules already set and the proposals put out for public consultation by the Ministry of Mines and Energy. It also factored in energy-consumption growth outlooks and the duration of existing energy contracts, as well as projections for the free market's evolution and mini and micro distributed generation (MMGD) connections.

That study's conclusion was that, from the standpoint of the average energy balance across the 53 Brazilian concessionaires, even if new migrations to the ACL happen faster than projected in the study, the existing contractual-reduction mechanisms will be able to deliver the balance needed to mitigate the risk of billing an eventual additional charge. But for that, suspending concessionaires' routine ordinary energy contracting is crucial.

Finally, on a third occasion, in an article published on October 27, TR Soluções assessed the possible effects of free-market expansion on energy tariffs, focusing mainly on the potential impacts of migration growth on the Energy Development Account (CDE).

The main conclusion was that, if 80% of Group A consumer units that haven't yet migrated opt for the free market by 2028 as special consumers, the subsidy should rise from BRL 13.23 per MWh to BRL 20.59 per MWh. That study also flagged this increase's tariff impact and estimated the possible effects of opening the market to low-voltage consumers.

Obviously, in all these cases, TR Soluções needed to adopt assumptions about future market-opening scenarios.

In this regard, it's important to note that, given the nature of TR Soluções' services, we prefer to remain in the role of observer. The purpose of these studies is simply to investigate the context, understand the figures based on current regulation, and thereby better size up the problems, contributing to the discussion by presenting the most likely tariff scenarios.

Obviously, the results obtained are tied to the assumptions used in the analyses. It's in this spirit — seeking greater transparency and improving the services provided to clients — that TR Soluções implemented additional features in SETE so application users can also build their own scenarios tied to market opening. Check out the new features, already available for use in SETE:

Evolution of the incentivized-source subsidy from opening the ACL to Group A – This evolution is shown in the system in annual values for that subsidy, as well as its percentage impacts on the TUSD and the application tariff. Expected subsidy figures, in tariff terms, are also shown by connection-voltage range and by the submarket the consumer unit is located in.

Feature available at: Menu/Tools/Flags and CDE/CDE

Since incentivized-source subsidy values are directly tied to the speed of consumer-unit migration, users can indicate their own Load (Connection) Migration Projections and thereby get scenarios specific to expected subsidy figures.

Feature available at: Menu/Tools/Energy/Market Liberalization (HV Market tab)

Evolution of the incentivized-source subsidy from opening the ACL to Group B – Users can also indicate the year the ACL-opening process for Group B begins, as well as the expected speed of these migrations as a percentage of the low-voltage market, excluding consumer units classified as low-income. The new feature also allows indicating how Group B's migration is allocated between purchasing incentivized-source or conventional energy.

Feature available at: Menu/Tools/Energy/Market Liberalization (LV Market tab).

By setting your assumptions and enabling this feature for opening the market to Group B, SETE will show recurring market migrations (MWh) from B CONVENTIONAL subgroups to B LOAD-USE subgroups for each year indicated.

It's important to stress that this operation's effects go well beyond changes to incentivized-source subsidies. It also changes aspects such as distribution companies' energy balance, billing, and tariff calculations.

The percentage users indicate (migration speed) will be used to shift load from the ACR to the ACL. Operationalizing this in SETE follows the same approach usually adopted for Group A. That is, first the market grows and, on that new base, MMGD additions are factored in. Finally, the percentage users indicate for shifting load to the ACL is applied to the operation's residual market.

It's also worth noting that Group B's migration to the ACL can happen through purchases of incentivized-source or conventional energy, with users indicating in the system how these allocations between the two source types should play out.

For Group B's ACL market, the same load-growth criteria adopted for Group B's ACR market will be used (temperature, precipitation, and GDP variation).

The billing unit for the LOAD-USE Modality, CONVENTIONAL or Incentivized-Source (FI) type, will be energy (MWh), and this new modality's billing will only involve the tariff components explaining the TUSD.

Users can also check, after updating scenario data in the CDE tool, an expected curve for the incentivized-source subsidy's evolution due to opening Group B. This curve will be available in the chart quantifying the subsidy due to opening Group A, also available in SETE.

We hope these new features help with the studies your company runs, and we're available should you have any questions.