Learn more about long-term contracts in the Free Energy Market

If there is an investment that cannot be missing in your company, that investment is in energy. As invisible as it is important, energy often takes a back seat when doing financial planning, even though it represents one of the main costs for companies, exceeding the 15% mark.

Companies that are already part of the Free Energy Market are a step ahead in this regard, because besides showing concern for reducing these costs, they can also negotiate other aspects of their contract, including the choice for sustainable energy.  

But to extract the best benefits from the Free Contracting Environment it is important to organize the energy purchase in advance. In this sense, opting for long‑term contracts in the Free Energy Market may be the best strategy.

Want to understand if this option is worth it for your company? Keep reading with us!

Differences between short‑term and long‑term contracts

The consumer of the Free Contracting Environment needs to ensure that they have enough energy to guarantee their company's monthly consumption. To do so, they can choose to contract in the short term or the long term and even accumulate more than one contract at the same time, from different suppliers.

Short‑term contracts in the Free Energy Market

Contrary to what the name suggests, short‑term contracts do not necessarily involve a reduced period. In the Free Energy Market, short‑term contracting usually occurs after consumption has taken place and there is some shortage or surplus, i.e., consumption was higher or lower than forecast.

So the consumer goes short‑term and pays for the energy that was missing or sells the surplus energy for an amount based on the Settlement Price of Differences (PLD) in force, plus the markup defined by the retailer – all according to the chosen sub‑market.

It is at this moment that the greatest financial risk exists, since prices in the short‑term market (or spot market) can fluctuate significantly and generate extra costs that were not anticipated.

Long‑term contracts in the Free Energy Market

Contracts lasting a few months or many years in the Free Energy Market are considered long‑term. In this contract, some basic commercial conditions are negotiated, including, besides the term and the monthly energy volume, the price and how the adjustment index will be applied.

In some cases it is also necessary to indicate the contract's monthly flexibility. This flexibility is expressed as a percentage, with the idea of allowing a larger or smaller energy consumption margin each month, without burden for the contracting company.

Similarly, it is possible to pre‑determine a time of year for reduced consumption, which we call seasonality, in order to lower the projected energy volume for that period.

Advantages and disadvantages of long‑term contracts

So far, we have explained the differences between the contract types of the Free Energy Market. Considering the price volatility of the short‑term market, it is more common for companies to plan their energy purchase in advance.

But what is the ideal period for long‑term contracts? And what are the disadvantages and advantages of this choice? See below:

Disadvantages of long‑term contracts

Reduced energy price in the short term

It is true that the short‑term market can be quite risky, but it is possible to take advantage of the price drop in specific situations and secure a good last‑minute deal.

Since our electricity matrix is mainly composed of hydroelectric plants, this usually occurs during periods with a large volume of rain and full reservoirs.

Advantages of long‑term contracts  

Cost predictability

At the top of the list of benefits of the Free Contracting Environment (ACL), cost predictability is the main advantage of this contract model.

Unlike what happens in the captive market, in the free market companies can forecast their energy costs long before the bill arrives and also have exemption from tariff flags, which can significantly increase the final invoice amount.

The longer the contract term, the longer the budget predictability, providing more security and also savings – the next item on our list of advantages.

Energy savings

In challenging times, reducing risks is essential. Reducing costs, then, is a given. Energy represents an even larger share of industrial investments, reaching 40% of production costs, according to Firjan.

When energy prices are high, long‑term contracts in the Free Energy Market provide a significant saving, which can be exponential as the term extends.

For example, considering an average consumption of 1 MW, in a contract starting in 2023 and ending in 2032, i.e., ten years, the energy price tends to fall relative to the initial value. In this scenario, the estimated savings, when compared to annual or shorter‑term contracts, would exceed R$ 500 thousand per year.  

Better prices and conditions for longer

If your long‑term contract is delivering savings, why not lock in that price for longer? That's how it works when negotiating energy in the free market. You sign one or more bilateral contracts according to your company's needs and, besides the best prices, you can secure the best conditions, so you don't have to worry about energy for a long time.

More and more clean energy

Brazil's energy matrix is very diverse and stands out for the percentage of renewable sources it comprises. When you choose long‑term contracts in the Free Energy Market, you are directly contributing to the environment by enabling new sustainable energy projects.

With over 15 years in the market, Serena is a pioneer in wind, solar and digital energy, offering customized solutions for consumers seeking clean and affordable energy. 

Being able to provide up to 30% discount on the electricity bill, the contract can be made digitally or with a team of specialists, without bureaucracy and with the choice of the ideal plan for you. 

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