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[Opinion] Brazil: new electricity prices to increase by 7.17% in 2017 to pay off government debt

Brazil: new electricity prices to increase by 7.17% in 2017 to pay off government debt

The news is spreading across Brazil: the government owes private transmission companies USD 20.3 billion (R$ 62.2 billion) and energy consumers will pay the price. The Brazilian Electricity Regulatory Agency – ANEEL – will increase electricity bills on average by 7.17% for residential and industrial consumers starting this year to help pay off their debt.

On February 22, 2017, this announcement has been broadcasted throughout all news channels in Brazil.

Why does the government owe transmission companies USD 20.3 billion (R$ 62.2 billion)?

In 2012, president Dilma Rousseff’s administration demanded transmission companies to accept changes to their contracts before renewing their concessions.  As part of these changes, companies had to pay for infrastructure upgrades, with the understanding that ANEEL would reimburse all related costs. Additionally, a new mandate required transmission companies to reduce electricity costs for residential and industrial customers by 20%.

ANEEL expected to start repayments in 2013; however, there were delays in negotiating the contract terms. The government realized in 2015 that they had insufficient funds to pay the transmission companies, which delayed the process even more. Ultimately, the agreement was signed in 2017 and stipulates that the government owes USD 20.3 billion (R$ 62,2 billion) to be paid over the course of 8 years. To finance this debt, the electricity tariffs for residential and industrial energy consumers will be increased by 7.17%* on average. The first installment of USD 3.5 billion (R$ 10.8 billion) will be paid in 2017.

How can industrial customers protect themselves against rising electricity costs?

New regulation makes it easy for industrial and commercial customers to switch to distributed generation and produce their own electricity using solar power. Not only will this protect energy consumers from volatile electricity tariffs, but this will also allow them to reduce annual energy costs as well as dependency on the national grid.

* Tariff increases can range anywhere between 1.13% to 11.15%