The move by the Lula administration comes a little over a year before the presidential elections.
Brazil’s power sector reform could lead to higher electricity prices, contrary to the government’s stated intention, according to Walter Fróes, CEO of energy trading company CMU.
One of the goals of the proposed changes, which are currently under review in congress, is to expand subsidies for low-income consumers. To offset this, the government has proposed reducing benefits that particularly affect renewable generation sources, such as solar and wind power.
“This will affect already signed contracts, with a tendency for prices of these energy sources to rise and the possibility of legal disputes,” Fróes told BNamericas.
“There’s nothing resembling a real reform here, just a political maneuver to improve the government’s popularity.”
The move by the Luiz Inácio Lula da Silva administration comes a little over a year before the presidential elections and also includes efforts to lower natural
gas prices.
Brazil has already had controversial experiences in this regard, such as when Dilma Rousseff’s government issued provisional measure 579 in 2012 forcing then-state power company Eletrobras to sell electricity below market prices. Fróes, however, believes the current proposal is far less drastic than the 2012 measure.
“MP 579 was much more damaging because it transformed that Eletrobras energy into quotas and caused turmoil in the power sector, leading to a power rate increase that reached nearly 100%,” he said.
With its privatization in 2022, Eletrobras was authorized to gradually resume selling electricity at market prices.
Inflation
Amid the dry season and the resulting activation of the red power rate flag by watchdog Aneel, electricity prices are on the rise in Brazil.
According to statistics office IBGE, the national consumer price index showed that electricity had the heaviest weighting in headline inflation in June and July.
According to Fróes, the impact on upcoming inflation will depend on rainfall in September and October.
“The trend is for an increase in the coming months, but the weather will ultimately decide,” he said.