Electricity bill: understand how the drought will affect consumers’ pockets

Experiencing the worst drought in recent history, Brazil is going through a difficult period when it comes to energy. With severe drought in all regions of the country, the estimated low water levels are expected to continue until at least November, and this has raised red flags for the maintenance capacity of the current energy supply system.

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And even though blackouts remain under the radar for now, the energy crisis could have a very significant effect on the national economy — and on taxpayers’ pockets.

In 2021, the last serious energy crisis, the drought caused a 21.21% increase in residential electricity and pushed the IPCA to 10.06%, the highest level since 2015. Given this history, the Minister of Mines and Energy, Alexandre Silveira, told DINHEIRO that the situations are different.

“Neither this year nor in 2025 will we experience anything similar to what we saw in 2021. Supply conditions are different.”

Even though Brazil was going through a pandemic at the time and energy demand was high, the economic effects of a tariff increase today could be the difference between closing the year within the inflation target or not.

FGV economist André Braz estimates that, with red flag 1 confirmed, the pressure on inflation in Brazil will be around 0.2 percentage points (compared to the 0.4 percentage points estimated if red flag 2 were to come into effect). As a result, the increase in energy bills for Brazilians should be around 5%, compared to the 10% estimated with red flag 2.

The estimate is that the tariff will add 0.25 percentage points to the IPCA this month. If confirmed, inflation would close September at around 0.56% — which could be decisive for Copom, in November, to raise the Selic rate and control economic activity in favor of monetary policy.

Anticipating such a scenario, a huge weight falls on Silveira’s shoulders, who was the first to say, when red flag 2 was announced, that a reassessment of the decision would be necessary. The minister referred to an inconsistency reported by the Electric Energy Trading Chamber (CCEE) on the 31st and which, on September 4th, resulted in the revision of red flag 2 to 1. The CCEE understood that there was an error in the calculation of a plant’s dispatch.

5%
The forecast is for an increase in the price of energy in Brazil, with the confirmation of the red flag 1

84%
of the energy supply in Brazil comes from renewable sources, most of it hydroelectric

28%
of the world’s energy comes from renewable sources, the goal for 2030 is to increase the number to 50% by 2030

Silveira also reinforced that the account that receives the amounts paid in excess on the electricity bill is in surplus — which would also allow a review to lower charging levels.

“If we want to use the resources from the flag account, we can even advance and keep the green or yellow flag for some time.”

But he knows that it is not possible to take too many risks. “Balance is essential because no one can be sure of how long the downturn will last. It is important that we have a balance between the balance in the flag account and between the reception and dispatch of our thermal plants,” he declared.

He, however, said that there is still no consideration of the need to activate more expensive thermoelectric plants than those currently being dispatched. “All instruments to maintain energy security must be available to the Electric Sector Monitoring Committee [CMSE]. Today, there is no need for any order that would increase Brazil’s energy bill,” he declared.

Impacts

Whether due to drought or technical issues at state and private companies, the fact is that there is a widespread problem in the management of energy supply in Brazil. Although there is ample supply of renewable energy here, with 84% of the supply, compared to 28% on a global average, the continental size of Brazil is a major challenge. Silveira even recognizes this.

“Our challenge is to find a balance between affordable tariffs and energy security”

For Emerson Carvalho, an expert in energy transition and professor at Unicamp, the problem is that Brazil is unable to make significant progress with alternatives to energy generated by hydroelectric plants.

“Wind energy, or solar energy, is still ridiculously incipient,” he said.

According to the academic’s research, at the current rate, three decades of growth would be needed for such modalities to represent some level of security. “According to climate projections, until then, the viability of more than 80% of the matrix being hydraulic is close to zero,” he said.

Regarding the behavior of renewable generation, Alexandre Silveira acknowledged that, despite the “affordable cost”, these alternatives “still do not provide the security” that the system needs. “The government is working consistently in the medium and long term, and this will be important in the future. But now we need to solve the problems that arise,” he said.

To explain the difficulty with renewable energy, let’s take a practical example. Solar power suddenly stops delivering around 30 GW at sunset, a time when the system records peak consumption, around 6 p.m. on a weekday. The same goes for wind and, perhaps in the not-so-distant future, for water — just look at the drought that is currently ravaging Manaus.