How to manage electricity in the Free Electricity Market?

The main advantage of the Free Energy Market is the freedom to negotiate contractual terms and, consequently, cost reduction within the company.

But it is necessary to carry out proper energy management, thus reducing exposure to price fluctuation risks, for example.  

Want to know where to start to manage your company's electricity and thus enjoy the benefits of the Free Energy Market? Keep reading and you will learn in a simple way!

Electricity Management  

A good electricity management should be routine for all companies. This makes it possible to act sustainably and preserve our natural resources, but also to optimize energy performance and save on energy, reducing operational costs.  

Those who are part of the Free Contracting Environment (ACL) know even better the importance of this management and also of planning, since long-term contracts are common.

Consumers who are not yet part of it can also decide if migration is viable based on management. This is because it consists of detailed monitoring of consumption and its trends, providing data that can assist decision-making like this.  

Want to know where to start your electricity management? Check the steps we list below, considering those that best suit your company's situation:

Electricity Management: before migration

Before migrating to the Free Energy Market, it is important to understand if this option is viable for your company. Not only because of the prerequisite to join, which is a minimum contracted energy demand of 500 kW (or the sum of the demands of several units under the same CNPJ that reach this value). But also to make a cost comparison between the markets and be sure that this is the best option at the moment.

Once the migration viability is confirmed, check some steps below:

1. Analyze the contract with the current distributor to define a migration schedule;

2. Assess the amount of energy to be purchased;

3. Analyze the energy sources and verify which will bring more savings to your company;  

4. Assess the need to contract energy with flexibility, seasonality and its percentages;

5. Verify the reliability of energy suppliers;

6. Assess the best timing for long‑term energy contracting;

7. Prepare the adhesion documentation to the Electricity Commercialization Chamber (CCEE).

It is common to have doubts throughout this process, since migration to the Free Energy Market is still not a simple process. In this case, counting on the help of migration specialists, such as energy consultancies, can be a good choice.

Electricity Management: after migration

Once part of the Free Energy Market, all you need to do is take care of the contracts, so that there is neither excess nor shortage of energy, which could cause penalties to the company and also expose it to the risk of short‑term market price fluctuations.

Thus, it is common for companies to prefer to opt for energy consultancies to take care of this. When managing your company's energy in the Free Energy Market, the consultancy considers the following aspects:

• Monthly CCEE reports;

• Guidance on CCEE communications that affect your company;

• Commercial management of energy contracts;

• Analysis of energy supply invoices and distribution system usage;

• Monitoring of short‑term opportunities and risks;

• Information about the market and electricity sector regulation.

It is worth noting that some of these analyses also apply to consumers who are part of the Regulated Contracting Environment (ACR).

Electricity Management: price calculation

The price of energy does not follow an exact mathematical calculation, but there are variables that impact this value. They are: rainy periods, reservoir levels, and energy demand. Knowing and monitoring these variables is essential to understand more about the market and thus define good energy management for your company.

In addition to the mentioned variables, the formation of the energy price considers the Settlement Price of Differences (PLD). The PLD is the market's radar price, the basis for short‑term contracts and a reference in medium and long‑term negotiations.  

In the short term, operations are closed in spreads, that is, considering the current PLD plus or minus a certain amount. In the long term, prices are impacted by a future projection of the PLD.

The CCEE publishes the PLD on Fridays with a validity of one week, that is, from Saturday to the following Friday. However, the replacement of this weekly model is scheduled for January 1, 2021, with the implementation of the Hourly PLD (PLDh), according to Ordinance No. 301, from the Ministry of Mines and Energy (MME), dated July 31, 2019.

So, how can the consumer monitor the energy price in their energy management plan? We suggest using a specialized consultancy, which will monitor market variations and indicate the ideal purchase moments.  

Electricity Management: billed accounts

In the ACL, transportation and energy bills are invoiced separately. In addition, there are also costs with the CCEE, which include the associative contribution and other obligations that include financial guarantees for energy settlement and charges, reserve energy and possible penalties.

Thus, unlike what happens in the Regulated Contracting Environment (ACR), there is more than one payment to make and, therefore, the need to also manage this part.

Electricity Management: energy sources

In the Free Energy Market, you have the freedom to choose between conventional or incentivized energy sources. Incentivized energies have a discount on the Distribution System Use Tariff (TUSD) of 50%, 80% or 100%.    

The free consumers, who have a contracted demand above 2,000 kW, have no restriction regarding the choice of energy sources. Thus, they can opt for conventional or incentivized sources. In other words, they can contract energy generated by gas, coal, oil, nuclear, large hydroelectric plants, qualified cogeneration, or renewable sources.  

Special consumers, with contracted demand between 500 kW and 2,000 kW, can only purchase incentivized energies, commonly called I0, I5, I8 and I1. This energy comes from renewable sources, for example, solar, wind, biomass plants or hydro plants with a maximum capacity of 50,000 kW