Bill 414/21, which originated from Senate Bill 232/16, aims to implement a few of the motions to modernize the electricity sector. It results not only from years of work of the Federal Government’s but also from civil contributions towards a more competitive and inclusive electricity sector, open to technological innovations that already move the energy industry and deeply affect the relations between the different agents that are part of it.

One of the main objectives of Bill 414/21 is expanding the Free Market^[1], an endeavor that began over 25 years ago with the publication of Law No. 9,074/95, which allowed free consumers with large demands and served at high voltages to freely choose their energy supplier.

Currently, Bill 414/21 is under analysis in the Brazilian House of Representatives and awaits the opinion of the special committee, created on May 31^st this year by the House’s president, Arthur Lira (PP-AL). The case’s designated reporting House Member is Mr. Fernando Coelho Filho (União Brasil-PE). If approved in the House with amendments, the bill will return for the Senate’s deliberation.

The Bill´s approval is certainly awaited within the sector and is among the Federal Government’s priority agenda. Amidst the changes brought by Bill 414/21 is the proposal of the 42-month deadline for the full opening of the Free Energy Market, which would give every electricity consumer the option to freely choose their energy supplier within up to four years. Such measure would allow the Free Market’s expansion for the commercialization of electricity, with the offer of diversified products to which the final consumer does not currently have access.

Bill 414/21 brings changes to the laws on concessions of public services, generation, transmission, distribution, commercialization, among others, and establishes a 24-month deadline for the Executive Branch to present a plan for the Free market’s broadening, which shall include a last-resort supply system for those consumers or end users who are not covered by power purchase agreements.

The Bill also foresees the modification of some rules, such as the extension of electricity concessions and changes in sectorial charges – in the quotas of the Energy Development Account (Conta de Desenvolvimento Energético - CDE), for example. According to Bill 414/21, there will be a change in the proportion of the payment of annual quotas, which will be prorated proportionally in the energy market, serving distribution and transmission companies from 2030 onwards. Another proposed measure is the Energy Development Account’s payment exemption for consumers receiving the Social Tariff.

Initially, low voltage consumers (below 2.3 kV) should not have access to the tariff discounts currently applied to the generation of renewable energy . Nevertheless, currently, the largest source of collection of the Energy Development Account (approximately 79%) comes from the tariffs paid exactly by these consumers, who will now have the possibility to trade their electricity outside the regulated market.

In order to avoid a decrease in the percentage paid by low voltage consumers, it was established that specifically these consumers will not be exempt from this tariff when entering the free energy market.

Bill 414/21 changes the amounts and mandatory allocation of a percentage to research and development, raising the percentage applied to energy efficiency programs to 0.50% and reducing the percentage of investment for research and development by 0.25%.

Currently, the free market is limited to consumers with an energy demand ranging between 500 kW and 1,500 kW (who can contract renewable sources) and above 1,500 kW (free to contract the supply from any source). Under the new proposal, all consumers, including those with a demand below 500kW, will be able to enter the free energy market. This opening to more consumers will likely cause an expansion to the sector.

As a result of the greater possibility of entering the free market, it is expected that many energy consumers will exercise this right. However, this dynamic will generate uncertainty for distributors about the expectation of consumption in the regulated market^[2] and, consequently, about the amount of energy they must contract to uphold this market.

The costs incurred by distributors resulting from this migration between free market and regulated market will be covered by a sector charge to be created to distribute excesses and deficiencies to the entire chain. The fund will be regulated by the National Electric Energy Agency (Agência Nacional de Energia Elétrica - ANEEL).

The costs arising from serving consumers with the right to supply of last resort will also be borne, applicable when the power supply is suspended or when the activities of the energy seller in the free market are terminated, a scenario that will be regulated to define its applicability.

Legislative advances remain incomplete in several different aspects, such as defining what low-voltage consumer representation mechanisms will look like in the free market. It is also discussed whether the expansion of the free energy market will meet expectations of lower electricity prices through increased competition among suppliers.

It is expected that the debates in Congress, with the participation of civilians, agents, sectoral organizations, specialists and other interested parties, will promote a rapid opening in the Brazilian energy market for all consumers.

It is noted that the expansion must be accompanied by measures that seek the energy security and the system’s economic and financial sustainability. The objective is to achieve the expected benefits of the competitive dynamics in the energy market, especially the improvement of energy supply and the reduction of prices.

^[1] In this article, the terms “free market” and “free energy market” refer to the regime under which electric energy trading participants can freely negotiate all commercial conditions, such as suppliers, prices, contracted energy quantities, supply period, and payments. Simply put, the free energy market allows consumers to acquire energy from sources other than their local concessionaires, with far more autonomy to create their own terms and conditions for such.

^[2] The regulated contracted environment refers to the market segment in which power purchase and sale operations are carried out between selling agents and distribution agents, usually preceded by a bidding process.