Is the Free Energy Market a threat to GD Solar’s ​​business?

With the collaboration of Henrique Hein and Wagner Freire

The solar energy sector has started 2024 with a series of new features, one of the main ones being the possibility of all consumers in Group A (High Voltage) migrating from the captive environment to the Free Energy Market – measure seen by electricity sector analysts as a significant step towards liberalization of the energy sector.

This change has the potential to attract 72 thousand medium and small companies, such as industries, service and retail chains, according to a survey carried out by CCEE (Electricity Trading Chamber).

Until December 2023, only consumers with a demand of at least 500 kW could participate in Mercado Livre. From now on, the rule changes for all high and medium voltage customers, as long as they are represented by a retail supplier.

Due to this openness, many doubts about a possible threat to distributed solar energy businesses have been and still continue to be raised, mainly by integrators. Among them, is the Free Energy Market a threat to self-generation with solar energy?

A first point worth highlighting is that the Free Energy Market Law has existed for more than two decades (Law No. 9.074 of 1995), and which began operating in 1998.

And until last year (2023), with the rules until then, and despite more than two decades of existence, about 97 thousand eligible UCs (consumer units) to be on the Free Energy Market, approximately 37 thousand opted for this modality. In other words, more than half, around 62%, decided not to make the migration.

The data was collected by the report of the Canal Solar next to Abraceel (Brazilian Association of Electricity Traders).

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Although the opening of Mercado Livre is an opportunity now in 2024 for a greater number of companies (those that consume energy in group A), previously several already had this possibility and did not do so, which shows that changing to this modality is not something trivial. .

In the evaluation of Thiago Bao Ribeiro, lawyer specializing in DG and CEO of Bao Ribeiro Advogados, this difficulty occurs because migrating to the Free Energy Market is not simple, due to the processes that comprise it.

He points out that one of the main barriers faced by companies is the lack of understanding about how this market works. The lawyer also points out that many companies still do not fully understand the processes associated with this change.

As a result, Ribeiro explains that these companies end up being more cautious before making this decision. “The migration to the Free Energy Market in Brazil is not a simple exchange of keys. It requires planning, knowledge and, above all, a clear understanding of the nuances of the electricity sector. For companies considering this change, it is essential to seek specialized advice and prepare adequately for this transition,” he commented.

The lawyer also highlighted that many people who say that DG (distributed generation) will end because of the Free Energy Market are not seeing the barriers that consumers will encounter when trying to migrate to this new business model.

Considering the scenario before the new rules and that of 2024, the lawyer lists the main points of attention. See below:

• Adaptations and time: migration does not happen instantly. It demands adaptations, takes time and needs intermediation to adapt and manage consumption;
• Familiarity with the sector: the new consumer is not familiar with the electricity sector, which can generate doubts and insecurities when making the migration;
• Economic viability: of the 165 thousand consumer units capable of migration in 2024, around 93 thousand already benefit from distributed micro and minigeneration, which reduces the economic viability of the change for these consumers;
• Segment aimed at intensive consumers: the free market segment will reach more energy-intensive consumers first, which may leave out consumers with lower demand;
• Market complexity: the challenge of explaining opportunities, market rules and the sales structure in Brazil to new entrants;
• Location of customers: the difficulty of finding where potential customers are, especially when compared to groups that have distributors and that have a clear exchange of information between the distributor and the group's sales company;
• Portability barriers: there are still barriers to be overcome in order to port customers to the free market. This means that there is a learning curve for new entrants, who need to familiarize themselves with a different market environment than the traditional one.

Which solution is best for the consumer?

Making a comparison with the DG (distributed generation) market, the Free Energy Market, despite having existed for so long, is still a new and different model from what consumers are used to.

This is because contracting energy in the Free Energy Market environment is a “paper purchase”, that is, an energy purchase contract is signed, something that can be seen as not very tangible, and that can bring a certain abstraction in the eyes of the consumer. While the  purchase of a photovoltaic system, which is physically seen by the consumer, can bring a greater feeling of security.

In addition to Bao Ribeiro, the Canal Solar also spoke with experts who work in both the ACL and DG segments. In their assessment, entrepreneurs and integrators in the photovoltaic sector can rest assured: the opening of the free energy market will not put an end to the solar distributed generation business.

On the contrary, new opportunities are opening up in the sector, with both solutions converging towards the same purpose: delivering quality energy at a lower cost to the end consumer.

The consumer can choose both options. For example, a supermarket chain can be a free consumer in the consumer unit at its headquarters, and have other low voltage consumer units (offices) with solar DG. Or, a Mercado Livre consumer can be an Energy Self-Producer (APE) with the installation of a photovoltaic solar system.

Bernardo Marangon, managing partner of Exata Energia, said that integrators will have to understand the rules of the free market to take advantage of opportunities.

“For medium voltage customers who will be able to migrate in 2024, I understand that the free market must deliver something more interesting than distributed generation. But this does not mean that this client, being on Mercado Livre, could not invest in solar generation alongside the load, in the self-production model, which is something that is becoming very common in the market”, said Marangon.

In the view of the consultant and former director of ANEEL, Edvaldo Santana, the opening should not be a threat to self-generation of energy. “If for consumers in group A the ACL may be better, it is because DG, which is also free, may have higher costs. However, I have doubts as to whether the greater opening of the market will be bad for DG. DG has much lower risks for the consumer, in addition to being easier to understand”, he pointed out.

Also according to Santana, the DG owner does not have a purchase and sale relationship with generators or suppliers, simplifying the energy management model, which reduces contractual risks. “Once connected to the network, it’s life,” he said.

“The pace of migration will be very fast, for GD and/or ACL, as the regulated tariff continues to rise. The second “leg” of the gold rush has begun”, added Santana.

Gustavo Scrignoli, specialist in regulation and commercialization rules at CCEE (Electrical Energy Commercialization Chamber), sees the opening of the market positively, precisely because it allows the consumer to have more competitive energy, while it also allows the generator another market environment to generate business. For Scrignoli, the logic of DG is the same as that of the free market: promoting energy savings for the consumer.

“In the case of this opening, opening it to everyone who is connected to High and Medium Voltage, represents approximately 11% more load in the electricity sector that will be able to purchase energy on the free market”, said the CCEE specialist during participation in the II Canal Solar Connects.

Self-production at ACL with solar energy

The self-producer of electrical energy (APE) is nothing more than the free consumer who chooses to invest in generating their own energy. This can be done through the acquisition or construction of solar plants.

With this, the self-producer can use the energy generated by him to meet his own demand, and also that of other consumers through the sale of his surplus on the market. To do so, you must be registered with the CCEE (Electric Energy Trading Chamber) as an Electric Energy Self-Producer (APE).

As this is only possible for consumers who are on Mercado Livre, the opening of this contractionary environment to more Brazilians in 2024 opens a window of opportunities for solar energy.

In this sense, the opportunities for solar energy on the free market are many. One of the ways is the combination of a photovoltaic solar system with migration to the free market. In this case, the integrator needs to form a partnership with a supplier to be able to offer both services.

Read also Self-production through asset leasing will be the focus of legal modeling at Mercado Livre

It is possible for the customer to cover, for example, 30% of the load with solar energy and purchase the rest of the energy on the free market.

If the customer is willing to invest, they can also opt for self-production of solar energy on the free market.

In this case, the plant is sized to meet 100% of consumption and, at times, export energy to the grid. This injection can generate extra income for the investor. The main benefit of being a Self-Producer is having a good reduction in the costs of electricity sector charges.

According to Marangon, group A consumers who have solar DG will be able to migrate to the free market from 2024, simply look for a retail supplier. In this case, it is necessary to evaluate whether it is worth migrating with the generator and consumer profiles, or just with the consumer profile.

“The consumer has to be more careful to assess whether or not it is worth injecting energy into the grid,” he said.

Another option for free consumers is to have a solar energy system without injecting their surplus into the public grid. In this case, the project needs to consider the simultaneity factor since the energy generated and not consumed instantly (surplus energy) is not injected into the grid. This solution is called grid zero, and may also have electrochemical batteries added so that the surplus is not wasted.

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