POWER February 2012 - 69

POWER IN BRAZIL
lishes the boundaries of our activities, and
we make sure not to act outside of these
limits. This policy has allowed us to quickly
become a robust player, as we are ready
to face any potential crisis. "
Brazil's Energy Market: Key Challenges.
The main challenge facing Brazil's free
market is that it still suffers from a closed
system that does not allow for competition,
which keeps energy prices high.
The trading industry's voice is ABRACEEL,
which advocates for a more open
energy market. According to Reginaldo
Almeida de Medeiros, president of ABRACEEL,
a more competitive market leads to
a more efficient allocation of resources in
the economy, thus reducing energy prices.
In Brazil, the free market is open to consumers
over 3 MW and special consumers
who have a load between 500 kW and 3 MW.
Special consumers pay only 50% of transmission
and distribution costs. " The goal is
to reduce the limit to 1 MW or 2 MW. The
market is 75% captive and 25% free; we need
to change this, " explained Luis Fernando Vianna,
president of APINE, the association for
independent power producers. " APINE advocates
a free energy market; we believe that
the country needs this free market in order to
be competitive. "
APINE is working on a manifesto with
consulting firm Andrade & Canellas advocating
the need for a more open energy market
in Brazil. " Andrade & Canellas strongly
believes in the future of the free market and
is pushing for a legislative agenda providing
for its extension, " said the consultancy's de
Oliveira Mello. " Such a broadening of the
free market will bring many benefits to the
Brazilian energy industry, beginning with
enhanced competitiveness within the market
itself as consumers, and especially industrial
ones, will be empowered and able to negotiate
prices. "
However, the regulated market protects
not only distribution companies but also
many consumers. " Free " consumers enjoy
the security of the regulated market,
which protects them against the potential
volatility of Brazil's energy supply. According
to Pedro Seraphim, partner at law
firm Tozzini Freire and head of the group's
energy division: " If companies decide not
to renew a contract with a distribution
company and enter the free market, and
then return to the regulated market, they
must give a five-year notice. The way the
market is structured, it is difficult to find
a generator willing to sign a contract for
five years. So it is not a legal problem but a
structural one. We are always on the verge
of a rationing here in Brazil; if we have a
bad year in terms of rain, we would be in
February 2012 | POWER
serious trouble. This means that companies
are unwilling to sign longer-term contracts
because it is not so easy to predict energy
prices in the future. "
For the traders themselves, most of whom
are members of ABRACEEL, a more open
market is essential to the growth and development
of the energy sector. " Our aim is to
demonstrate that by using the free market
we can grow and provide many advantages
to Brazilian society, " said Kawai of Safira
Energia, an ABRACEEL member.
" We consider that the market should be
absolutely free, " said Gabriel Rosa, trading
manager at Delta Energia, one of the first
companies involved in the trading sector in
Brazil. " If players buy their energy in the
free market instead of buying it in the captive
one, it is because it is less expensive.
If you limit the economic agent's capacity
to access the free market, you are also
reducing their competitiveness. The free
market could easily be extended to new
commercial clients. "
Small changes to the structure of the energy
market can lead to increased growth
by including major power consumers who
currently buy energy from the captive market.
" We estimate that the free market in
Brazil can grow by 10,000 MW, or 20%,
just by including the industrial sector, "
said Felipe Barroso at Bio Energias. " This
growth can be achieved by changes in regulation,
but the political incentive to have
a free market is missing. To build a project,
you need to have a PPA for 15 to 20
years, and the free market does not provide
those long-term contracts. Most industries
only draft five-year business plans and do
not want to commit to longer projects. We
are discussing how to finance the sector
without having to give 20-year contracts. "
As the energy trading market is still
quite young, legislation governing the industry
is still in the development phase,
and traders themselves are having difficulty
navigating the regulatory waters. " With
so many changes, the model is getting
more difficult to understand, " said Machado
of Nova Energia Commercializadora.
" Because the market is so new, all of the
rules and regulations are constantly changing.
Keeping up with these regulatory evolutions
is one of the key challenges of the
industry itself. "
Some energy traders take an optimistic
view, believing that the free market needs
more time to reach stability. " The market
is still young, and it will progressively mature
with the expansion of the free market
towards new consumers, " said Augusto
Rossi of Capitale Energia. " It is a market
that is naturally becoming more competiwww.powermag.com
tive
and profitable, but to facilitate this
process we need regulatory reforms. "
While energy traders continue to push
for a more open and competitive market,
the future for the industry looks bright,
thanks to an increasing number of free
consumers entering the marketplace.
" We expect that the trading volumes in
Brazil will increase and the market will
become more competitive, " said Prado of
Diferencial Energia. " There will be more
liquidity, more players, and more opportunity,
so we want to grow as the market
does. The market will become more sophisticated,
which is good for us because
we have the tools and the mindset to become
more sophisticated. "
" We think that liberation will deepen,
but to reach the residential customers we
will need more time, as we would need
to change all electricity meters to adapt
to the free market system, " said Donatelli
at Light Esco. " The free market could be
easily opened for the 'middle market' customers,
perhaps in two years. Competition
will always benefit the client. "
The Service Sector
The steady growth experienced by the Brazilian
energy sector during the past decade
and optimistic predictions for its future expansion
have fed the development of many
actors that base their activities partially or
integrally around the energy industry. In
particular, this has been the case for service
providers, equipment manufacturers, and engineering
companies. In a reciprocal manner,
the enhanced maturity of these players provides
the necessary conditions for expanding
energy sector activities and projects.
E&C: Building Brazil's Energy Future.
The engineering and construction (E&C)
sector in Brazil is dominated by Brazilian
firms, as local engineering companies
are exceptionally consolidated. This local
strength is spread over various fields, including
the energy sector, and in the past,
Brazilian engineering companies have had
a dominant role in the development of the
country's energy facilities and infrastructure,
being involved in the construction of
such complex and significant projects as
the Itaipú and Tucuruí dams.
During the past 15 years, national companies
such as Andrade Gutierrez, Camargo
Correa, and Odebrecht have become even
stronger. They have built a strong local presence
and have the capacity to expand internationally,
especially across Latin America,
Africa, and Asia. This international aptitude
was exemplified through Brazilian participation
in the development and construction of
the Three Throats dam in China.
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POWER February 2012

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