The selected country for this discussion is Brazil. This nation is currently the third largest consumer of electricity in the Americas. The energy market in the state is projected to reach 6 billion US dollars by the year 2019. The amount of imports is also expected to rise by almost 1 billion US dollars within the next three years. This paper gives a detailed analysis of this nation’s electricity system. The existing problems are also identified. Suggestions for regulatory improvement are offered in order to improve performance.
Regulation and Organization of Brazil’s Electricity System
The electricity market in Brazil is regulated and managed by the National Electricity Agency (ANEEL). The Ministry of Mines and Energy (MME) also formulates and implements appropriate policy issues and developments. ANEEL regulates every tender involving electricity distribution. It is also tasked with various roles such as setting tariffs for consumers in the market. The agency maintains a favorable economic balance to ensure that the quantity of distributed energy meets the needs of different consumers and results in return on investment (ROI).
Currently, there is an unregulated system that is liberalized and controlled by independent energy producers and suppliers. Under this arrangement, there are specific stakeholders and players who produce energy and market it in an uncontrolled manner. Some consumers and industries can decide to purchase electricity from the unmanaged or unregulated market. This system has been observed to support the needs of different consumers and industrial players. ANEEL has not been able to introduce digital or smart meters in the country. In 2012, the agency presented a powerful resolution aimed at meeting the needs of different customers or consumers. The Energy Research Company (EPE) has been keen to conduct studies and offer incentives for efficient planning in the sector. Detailed information from this organization is shared with the Ministry of Mines and Energy (MME).
In terms of organization, different stakeholders collaborate to support the effectiveness of the energy sector. Hydropower currently forms 65.1 percent of the nation’s source of energy. Other resources used to produce electricity include coal and oil (9.8 percent), biomass (9.4 percent), natural gas (8.8 percent), wind (5.4 percent), and nuclear energy (1.4 percent). The National Electric System Operator (ONS) is the agency that dictates when each generating firm or organization should provide its power to the national grid. ONS also operates the transmission system in this county. Tariff policies and frameworks are approved or managed by ANEEL. When it comes to the sale of power, there is a non-regulated and regulated contract environment. The unregulated market is governed by specific terms and conditions that apply whenever purchasing electricity. Additionally, bilateral agreements are applied in accordance with existing commercialization rules.
Existing Problems
The nature of the existing policies and regulatory frameworks in Brazil’s energy sector has created an environment whereby consumers purchase electricity from different generators. However, the current regulation system explains why shortages have become common. This is the case because the country currently relies on water for electricity production. Existing regulations encourages different generating companies to produce electricity. This process has been observed to result in increased competition, thereby affecting energy availability or sustainability in the state.
The unregulated system dictating the manner in which electricity is generated and marketed has empowered different companies to charge exorbitant prices. This means that many customers and industries have become captives in this sector. Another common problem encountered in this country is that the existing mechanisms in energy production and distribution fail to focus on the issue of demand. This gap has affected the wholesale market for this commodity. With these problems in place, many investors have been reluctant to consider this country. This has been the case because the capacity of electricity is quite uncertain. This issue continues to affect the state’s economic growth.
With the nature of the existing policies, different marketers and consumers have created an artificial demand and supply for this commodity. This has led to low tariffs, thereby creating the best environment for inflation. Some experts have observed that electricity supply is an area that has made it is easier for cartels to thrive. The sector also faces challenges such as corruption. This means that management issues continue to affect the manner in which power is generated, transmitted, taxed, and marketed. The construction of electricity generation plants has been associated with increased levels of corruption. This happens to be the case because of the ineffectiveness of the existing regulatory mechanisms. Many politicians in Brazil have been keen to benefit significantly from the sector.
The regulatory instability in this nation continues to push away over 40 billion US dollars of foreign and national investors after every four years. The current gap has forced many people to focus on other nations in South America. The reduced autonomy of ANEEL has also made it toothless and incapable of addressing most of these obstacles making it impossible for the needs of many electricity producers and consumers to be met in Brazil.
The nature of the framework implemented in this country has been observed to disorient the integrity of the natural environment. For instance, the issue of water unavailability has continued to affect many communities. This happens to be the case because the country relies heavily on hydropower. The reduced regulatory levels encourage different cartels and politicians to provide licenses to generating companies without a proper auditing or environment impact analysis (EIA). These issues should, therefore, be taken seriously in an attempt to transform the situation and support the country’s economic development.
Suggestions for Regulatory Improvement
From this analysis, it is evident that the existing regulatory framework in Brazil is quite inappropriate for the country’s development agenda. This system has created a scenario whereby different agencies and organizations are unable to address the needs of different clients or stakeholders. That being the case, a stable regulation system will be needed to transform the current situation. This kind of change or framework should focus on the goals or autonomy of ANEEL. The approach will ensure that the agency is capable of regulating every public tender revolving around the distribution of electricity in the country as an essential utility. The policy will make it easier for the institution to set the right tariffs and deal with various issues that can result in inflation. ANEEL will also be in a position to regulate the market.
Proposed policies and regulations should go further to provide adequate resources and financial support to agencies such as ANEEL. This move will make it easier for them to maintain an appropriate economic balance in the country. This means that operating costs incurred by different distributors are covered. This approach will ensue that every distributing company is in a position to recover a desirable ROI.
Another program is needed to ensure that the unregulated system is controlled using powerful regulations. This new framework will ensure that there are guidelines dictating the purchase and use of electricity from the unregulated market. The move will empower more consumers and make it easier to identify the right suppliers. They will also have their demands and issues addressed. The initiative will do away with the current market that has been unregulated over the years. This strategy will increase the confidence of many investors in the country.
Another solution or approach that can deal with the above problems revolves around the use of good trade-off models. This means that different players and stakeholders will be required to negotiate and deal with emerging challenges. Some of the players that can be involved include electricity suppliers, federal government agencies such as ANEEL, environmental organizational, and consumers. This initiative will result in long-term approaches and efforts to deal with every potential challenge. Complaints raised by different stakeholders will be addressed efficiently.
A new organization can also be proposed whereby different distributors and generators are merged to minimize conflicts of interests and unnecessary competition. The country can also present adequate funds and resources to ensure that electricity is generated from renewable sources and stop the current overreliance on hydropower. The strategy will also have to be regulated using new policies and laws. This initiative will address most of the challenges facing the country’s electricity system.
Projected Performance
The move to empower ANEEL will ensure that different challenges affecting the sector are addressed. For instance, tariffs will be streamlined and monitor the initiatives undertaken by different stakeholders. Additionally, the current problem of inflation will be dealt with. As a result, the industry will operate smoothly and minimize most of the obstacles discouraging different stakeholders and business partners from investing in the country. When the market is regulated efficiently, it becomes easier for different players to pursue their missions successfully and address the needs of every stakeholder.
The introduction of new policies will streamline the way electricity is produced and marketed. Different agencies will be empowered to hold generating companies into account. The strategy will also create the best environment whereby ANEEL is supported using adequate financial resources. It will also promote the implementation of superior policies and regulations that can eventually transform the performance of the country’s electricity system. This move will support and sustain a positive economic balance.
The implementation of new policies to address the issues affecting the unregulated system will promote transparency in the manner in which electricity is purchased. Cases of inflation or price fixing will also be addressed efficiently. The initiative will create a balanced demand and supply and attract more investors. With these measures, areas that are under-regulated will be monitored and supported using superior laws and guidelines. Consequently, the country will benefit from an efficient electricity system and eventually achieve its economic goals.
Conclusion
This discussion has revealed that Brazil is currently one of the leading consumers of electricity in the Americas. However, the inefficacy of its electricity system has resulted in challenges such as reduced investment levels, cartels, and inflation. Superior laws and regulatory frameworks should, therefore, be introduced to empower agencies such as ANEEL and address every obstacle facing the sector. This initiative will improve the level of transparency and make it easier for different investors to achieve their potential.