Detachment between energy prices and reality can generate a cost of BRL 7 billion per month, says entity

A mismatch between the reference price of energy traded on the short-term market (PLD) and the operating reality can generate a cost of up to R$ 7 billion per month for all electricity consumers in the country, pointed out Anace (Association Consumers of Energy), which wants a review of parameters.

The association indicated that the so-called PLD (Difference Settlement Price) registered values ​​of around R$ 100/MWh, close to the minimum levels in the first two weeks of November, while extra thermals have been dispatched with CMO (Marginal Operating Cost) quite high, reaching up to R$ 2,000/MWh, to preserve the hydroelectric reservoirs due to the water crisis.

“We urgently need to review the pricing mechanisms,” said the president of Anace, Carlos Faria, in an interview with Reuters by telephone this Friday (19).

The PLD, which is calculated by the CCEE (Electric Energy Trading Chamber), would normally serve as a reference for short-term energy contracts and would influence quotations on the free electricity market.

“It doesn’t make any sense to have the PLD price today at its minimum level, close to R$ 80, while the country has thermal generation of approximately 15 thousand MWmed to supply the market and recover (hydroelectric) reservoirs.”

Faria pointed out that at the beginning of the month all the thermal plants were on, with a total of 20 thousand MWmed to supply the market, including approximately 5,000 of inflexible plants, which remain always in operation when they are not undergoing maintenance or stopped by an external factor.

“It is not coherent that, in such a scenario, the short-term market price is so low; it would be expected that it was at the ceiling value of the PLD”, points out Faria.

When contacted, CCEE said that it is “studying this unnatural volatility of the PLD to seek improvements, especially with regard to the importance that different factors have in computational models”.

The chamber also stated that it periodically analyzes, together with the CPAMP (Permanent Committee for the Analysis of Methodologies and Computational Programs in the Electricity Sector), possible improvements in the models so that the results of the calculations are increasingly adherent to the operational reality of the system.

CCEE also said that, as of January 2022, measures will be adopted related to the use of the minimum operating volume, which looks to the short term, and the updating of these values ​​to more conservative levels.

CCEE further commented that “further improvements will be needed to have a quick and adequate price response to operational fluctuations.”

Who pays

To carry out the calculation, Anace pointed out that the difference between the current average PLD and the ceiling value of the structural PLD, of R$ 583.88/MWh, is around R$ 480.

This difference could result in an expense of up to R$7 billion per month, in a scenario in which all thermal plants were activated.

At the moment, with part of the more expensive thermal plants turned off, the specialist estimates that the costs to the system are in the order of R$ 3.6 billion.

The amount ends up being paid by all consumers, captive and free, via ESS (System Service Charges), he said.

The ESS is included in the electricity bill of consumers served by distributors in the regulated market. In the free market, the CCEE charges agents the charge in accounting for the operations, proportionally to the consumption.

“In this scenario, the consumer class again bears an enormous cost to face the current crisis in the electricity sector, an expense that would be paid by agents who are exposed to the spot market. Once again, consumers are called to pay the bill that would otherwise be of other agents”, concludes Faria.

While there is no review of the pricing mechanisms, established for years, Anace defends that there is an increase in the PLD ceiling and that these extra costs generated are also shared with generators that did not deliver promised energy due to the water crisis.

CCEE did not contest Anace’s calculations.

The problem is yet another reflection of the worst drought in hydroelectric reservoirs, the main source of electricity in the country, in more than 90 years.

To guarantee the supply, Brazil resorted to the activation of thermal plants with high costs and energy imports.

Faria pondered that the rains arrived earlier than expected at the end of the year and “gave a relief”.

But the country still faces the challenge of ensuring the current energy supply and preparing for the next dry period, which starts in April. Thus, there are still a great number of activated thermals.