Electricity tariff flags are a way to control the costs of electricity production, according to the scarcity of the country's energy resources.
What are tariff flags?
It is the mechanism responsible for reflecting the costs associated with the generation of electricity, being directly influenced by the levels of water reservoirs in hydroelectric power plants. Instituted in 2015, this system is coordinated by ANEEL (National Electric Energy Agency) as a strategic measure to adjust to the demands of using thermal power plants to compensate for moments of water scarcity and high energy demand.
The 2001 energy crisis
Until 2001, Brazil's energy composition was predominantly sustained by the operation of hydroelectric plants. However, this dynamic was altered due to one of the most significant energy crises faced by the country. Several regions experienced abrupt interruptions in energy supply due to a shortage of rainfall and the absence of adequate planning by the federal government.
The main measure adopted to control the situation was the implementation of energy rationing, which lasted from mid-2001 until early 2002. This measure covered states and municipalities in the Northeast, Southeast, and Midwest regions, as well as the Federal District. The rationing program involved a 20% reduction in consumption compared to the previous year and was applied to the commercial, industrial, and residential sectors, except for essential services such as hospitals and clinics.
And what are the flags?
There are currently four types of tariff flags, which are applied directly to electricity bills:
Green flag: means there are favorable conditions for energy generation. The tariff does not suffer any additional charges;
Yellow flag: generation conditions are less favorable. The tariff incurs an additional charge of R$0.01874 for each kilowatt-hour (kWh) consumed;
Red flag - Level I: costly generation conditions. The tariff incurs an additional charge of R$0.03971 for each kWh consumed;
Red flag - Level II: generation conditions are even more costly. The tariff incurs an additional charge of R$0.09492 for each kWh consumed.
The Free Energy Market and the non-tariffing of electricity bills
As an option to avoid tariff charges on energy bills and to take advantage of more adaptable contracts, the Free Energy Market emerged as a viable choice. Presently, Brazil's energy sector is divided into two environments: the ACR (Regulated Contracting Environment), encompassing captive consumers, and the ACL (Free Contracting Environment), intended for consumers who opt for the free energy market.
Captive consumers are those who obtain energy directly from the concessionaires operating in the regions where they are located. Each consumption unit is responsible for paying a single monthly energy bill, which includes services such as distribution, transmission, and generation, also incorporating the tariff flags in force.
By contrast, free consumers acquire their energy directly from generators or traders, establishing bilateral contracts with freely negotiated conditions, including terms, prices, volumes, among others. Each consumption unit is responsible for paying a bill associated with the distribution service to the local concessionaire, as well as one or more bills related to the purchase of energy. In this scenario, tariff flags are not applied, as energy acquisition is made directly with the supplier, without government involvement.
Starting in January 2024, the Free Energy Market will serve medium-voltage consumers, belonging to Group A. These consumers will have the choice to migrate to the new model or remain in the captive market.