The free energy market is a strategy for companies, large consumers, seeking ways to reduce costs, optimize processes, and, in some cases, even increase the profitability of their buildings. The business model consists of choosing the energy distributor that the project will contract and consume.
According to the Brazilian Association of Energy Traders (Abraceel), the free energy market now accounts for 34% of all energy in Brazil, up from 32% in 2020. This increase is due to the entry of 5,407 consumer units into the free market, a 25% increase over the last year. Brazil currently has over 11,000 free customers, including industries, shopping centers, malls, hospitals, and other businesses.
If you haven’t yet considered this alternative for your building, check out how it works and the advantages of joining the free energy market below.
What is the free energy market?
Generally aimed at medium to large units, the free energy market is a competitive environment where price, term, volume and payment method are negotiated directly with electricity generators and traders. This way, consumers can choose who to buy energy from, bid how much they are willing to pay, and negotiate the length of the contract.
Organizations that provide electricity services are responsible for offering clean energy sources, such as geothermal, wind, biogas, solar, and others. Therefore, they require authorization from the Electric Energy Trading Chamber (CCEE) to sell energy on the market.
How does the free energy market work?
The electricity market in Brazil is divided into two business forms: the Regulated Contracting Environment (ACR), made up of captive consumers, and the Free Contracting Environment (ACL), which comprises free consumers.
In the first, consumers purchase energy from the companies responsible for distribution in their regions. With government-regulated tariffs, each consumer pays a monthly bill that includes both the distribution and production services.
In the Free Contracting Environment (ACL), the consumer purchases the energy and negotiates the terms. In this model, the consumer has two contracts: one with the distributor, which provides the wiring to transmit the service, and another with the generator, which sells the energy.
Some companies, which are part of large industries, require more intensive forms of electricity for their activities. In this scenario, they end up migrating to contracting services in the free energy market, as they can find better conditions and negotiate lower prices than those typically paid in the Regulated Contracting Environment.
To purchase energy, units sign contracts with the numerous options available in the free energy market. Suppliers generally seek to offer a long-term contract at an attractive price, while consumers seek a short term, low-cost contract. In this context, negotiations are mediated by energy traders to ensure a balance between the interests and objectives of both parties.
Regarding price, many variables impact this issue. Among them are the duration of the formal contract and the type of energy purchased. Furthermore, the free energy market requires migration processes, financial guarantees, and compliance with legal requirements.
Main advantages of contracting energy through the free market
One of the main benefits of joining the free energy market is cost reduction, as energy is contracted directly with the supplier, leading to a more competitive price than the Captive Market.
According to a survey by Abraceel , it is estimated that free contracts generate an average annual reduction of 23% in energy prices compared to those charged by traditional distributors. This is the case, for example, with the Palácio Austregésilo de Athayde , managed by Engepred. Since April 2018, the project located in downtown Rio de Janeiro has been part of the free energy market. In addition to saving approximately 25% on energy costs since then, the project meets another sustainability requirement by contracting energy from renewable sources.
Another point that can be taken into consideration is freedom of choice, as in the free energy market, consumers can analyze which generator best meets their needs and negotiate the best contracting conditions, which are compatible with their own financial situation.
Furthermore, the free energy market allows consumers to contract the volume of energy according to their companies’ demand and have control over the type of energy they are consuming, since they can choose to contract only renewable energy sources.
Precautions when entering the free energy market
Any industry or business connected to medium or high voltage can enter Brazil’s free energy market, but it’s important to be aware of certain points and follow a step-by-step guide for successful contracting. The first step, according to Abraceel’s recommendations, is to assess voltage requirements to determine whether there is a minimum demand of 500 kW.
Next, it’s important to analyze the terms of the contracts with the distributor. For example, in a 12-month contract, cancellation notices are sometimes required six months in advance, and a fine may be imposed if the contracting party fails to comply.
Abraceel also recommends that consumers conduct an economic feasibility study before purchasing any services, comparing their costs with those of the captive market. It’s worth noting that energy purchases are made in two ways: through free energy purchase agreements (CCEAL) or incentivized energy purchase agreements (CCEI). These agreements can be purchased from traders, generators, or other consumers.
In short, the migration to the free energy market requires planning and contract management by free consumers who, in turn, must analyze all bureaucratic issues and financial matters before adhering to this energy trading model.
With experience in migrating large projects to the free energy market, such as the Palácio Austregésilo de Athayde, Engepred can help you evaluate whether this is the best option for your building. Talk to one of our consultants !
