The price of electricity has a direct impact on the performance of all economic sectors. It can bring down the costs of goods and services, or drive them up. But do you know what defines if energy prices will go up and down across the country?
Over 60% of Brazil’s energy is hydro-power. The amount of water stored in hydro plant reservoirs is the main indicator of how much is available to generate electricity. If reservoirs drop too much, thermal plants must be switched on to provide the energy consumers need, which drives up the cost considerably.
These fluctuations affect the PLD, or the price for settling differences (spot price), which influences prices in both the captive and free markets. In the captive market, higher operating costs are passed along to consumers immediately, in the form of Rate Flags and annual and extraordinary adjustments. In the free market, if the consumer is fully under contract and has no need to buy or sell energy in the spot market, it will not feel the effect of fluctuations in the PLD. However, new agreements, whether short, medium or long term, will be influenced. In this case, if the PLD drops, it is more likely that consumers will be able to close deals at a lower price, and vice-versa.
Rainfall is related to reservoir levels, and hence to the price of energy. Weather forecasts try to be as accurate as possible to anticipate the likelihood of weather changes across the country. The bad news is that, to fill up the reservoirs, it has to rain in the right places! This means that while cities may be flooded, this rainfall may have absolutely no impact on hydro plant reservoirs, which are fed by rivers with headwaters several kilometers away.
Brazil is split into four sub-markets – southeast/middle-west, northeast, north and south -, and the regional price of energy is influenced by the level of the reservoirs in that same region. About 70% of the reservoir volume in Brazil is in the southeast/middle-west, while only 7% is in the south. Energy can be shipped from one sub-market to the other via the National Integrated System (SIN), but the amount is limited by the capacity of the transmission lines. Once the limit has been reached, the price of energy in each sub-market is linked to the volume stored in the reservoirs, and the extent to which thermal power plants must be switched on to supply demand.
Comerc Energia, the largest energy manager in Brazil, created an infographic to show you where to do your “rain dance” to increase the chance that energy prices will drop in your region. This infographic shows the most important rivers and river basins, and how long it takes for water to travel from the source to the reservoirs.