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The Reform of the Electric Sector from the Perspective of the Energy Transition

Analysis of the proposal to update the regulatory framework of the electric sector


Instituto E+ views the modernization of the electric sector as an opportunity for Brazil to maintain its leading role as a low carbon economy. With the appropriate legal and regulatory framework, conditions are created for the sector to incorporate the necessary innovations and to appropriate to the benefits of the energy transition. In this way, it can offer energy with the quality and at the cost that society deserves.


Around the world, the regulatory framework of the electric sector is being modernized towards a more decentralized and digital industry, and is seen as a vector of efficiency and not as a threat to the development and operation of the electric sector. In the case of Brazil, there are several improvements required, mainly involving the wholesale and retail markets, the rationalization of subsidies, expansion, risk allocation, increased flexibility and the treatment of the legacies.


Main conclusions:

1. The updating of the regulatory framework of the electric sector is one of the fundamental steps for countries to prepare for the modernization of the sector and for the energy transition. Around the world, the regulatory framework of the electric sector is being modernized towards a more decentralized and digital industry, and is seen as a vector of efficiency and not as a threat to the development and operation of the electric sector. In the case of Brazil, there are several improvements required, mainly involving the wholesale and retail markets, the rationalization of subsidies, expansion, risk allocation, increased flexibility and the treatment of the legacies.


2. The reform underway in Brazil brings important advances from the perspective of the energy transition, such as the forecasting of prices, hours and with a locational signal, and is moving in the right direction, preparing the system for the inevitable transformation. The reform also includes elements that pave the way for the pricing of attributes, which are an important element so that the distributed energy resources are integrated into the electric matrix. The environmental attributes, which are required for the internalization of the emissions in the valuation of the energy sources, are also cited in the proposal that is in progress.


3. Some points still require more attention in order for the reform to provide the basis of an efficient electrical system, which can be a vector for the transformation of the economy as a whole. Among the subjects analyzed in this report, the following are highlighted: (i) the revision of the tariff structure, to allow the end consumer to perceive the economic signs of the wholesale market and to become an active agent; (ii) the advance towards a full separation between the network services and the commercialization of the electric energy in the distribution, in order to adjust the allocation of risks in the commercial environments; (iii) the rationalization of the cross-subsidies of the electric sector, which have a high impact on tariffs and distort the competition between the sources in the expansion; and (iv) the revision of the organizational structure for the operation of the electric sector, which will be subject to alterations due to the transformation of the sector.


4. The key word of the new environment is “flexibility”, not only of resources, but also mainly in the regulatory frameworks and in the institutional culture. A holistic approach, seeking to avoid the creation of new legacies and to provide predictability, is always necessary in reforms.

5. The modernization of the electric sector is an opportunity for Brazil to maintain its leading role as a low carbon economy.



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