Market expects light bill relief after reservoir level doubles in one year

The water tank of the Brazilian electricity sector starts the dry period of 2022 with the highest volume of water since 2012 and experts are already projecting the end of the extra fee on the electricity bill in May, with the adoption of the green flag on the electricity bill after eight months of charging the water scarcity flag.

According to data from the ONS (National Electric System Operator), the average level of reservoirs in the Southeast and Central-West regions reached 63.3% in March, the last month of the so-called rainy season. The two regions concentrate around 70% of the energy storage capacity of Brazilian hydroelectric plants.

The volume recorded in March is almost double that recorded in the same month of 2021, the year in which the country was at risk of energy rationing. “The rainy season was very good for the electric sector”, says the former president of the ONS (National Electric System Operator), Luiz Eduardo Barata. “Brazil is no longer at risk of energy rationing.”

The recovery is the result of heavy summer rains, which caused damage and deaths in Bahia, Minas Gerais and the mountainous region of Rio de Janeiro. It also reflects the strategy adopted by the government to face the water crisis, with the activation of more expensive thermal plants that put pressure on the electricity bill in recent months.

With the improvement in the level of reservoirs, the price of energy in the wholesale market is today at R$ 55.70 per MWh (megawatt-hour), the lowest possible value in the current system. At the height of the crisis, it spent three months at the ceiling set for 2021, of R$583.88 per MWh.

“We started the dry season in a much better situation than last year, which should give us more peace of mind in terms of supply security and allow the return of the green flag”, says Luiz Barroso, president of the consultancy PSR Energy, which helped to devise the plan. of 2001 rationing.

Barata and Barroso recall that the need to turn on thermal plants dropped a lot after the rains. This Thursday (31), only 6.5% of the volume of energy generated in the country came from this more expensive and polluting source.
At the height of the crisis, it was 21%.

Low-income consumers, who were not affected by the creation of the water scarcity banner, have been without an extra charge on their electricity bill for four months. The rest of consumers will pay for another month the R$14.20 per 100 kWh (kilowatt-hour) charged exceptionally since September.

Despite the expectation of relief with the extra fee, the electricity bill will continue to be pressured by the high use of thermal plants in 2021, which justified the granting of a R$ 5.3 billion loan to the sector, and by the decision to hire emergency plants to try to fill the reservoirs in the coming years.

These plants were contracted in an auction held in October to deliver an average of 775 MW (megawatts) between 2022 and 2025 at a total cost of BRL 39 billion. The process was criticized at the time by experts and the industry for guaranteeing projects high levels of energy generation even in periods of full reservoirs.

The government justified the order by saying that it needed to reinforce the reservoirs to avoid risks of rationing in the coming years, but now with the hydroelectric plants already in good condition, the projects are unnecessary, according to industry experts.

“It’s time to make an account and see if it’s worth taking it out”, says Barata.

The projects are due to start generating power in May and there are problems related to the location of some plants, which could deplete regional energy outlet capacity and force cheaper plants to shut down.

The director of the specialized consultancy Volt Robotics, Donato da Silva Filho, says that one of the lessons of the 2021 crisis is the need to keep some cheaper thermal plants generating permanently to avoid the need to activate more expensive plants in times of drought.

In the second half of 2021, the government authorized the contracting of energy from thermal plants that were stopped due to lack of contract, some of them costing around R$ 2,500 per MWh, which helped to increase the financial hole in the sector.

Sought, the ONS said it would not comment on the scenario for the dry season as it is finalizing an analysis to present next week. In his latest projections, he estimated that the water tank reservoirs will still gain volume in April, ending the month with almost 70% of their capacity.

The MME (Ministry of Mines and Energy) and Aneel (National Electric Energy Agency) had not responded to interview requests until the publication of this text.