Brazil passes bill to solve risk for hydro operators

Late last week, Brazil’s senate approved a bill to solve the generation scaling factor (GSF), which apportions costs related to hydrological risk among power operators due to the drought during the past decade.

On its website, CESP says the GSF, or MRE Adjustment Factor, is the ratio between the total generation and the total physical guarantee of the mechanism. If the ratio is more than “1,” it means that secondary energy was generated during the period. If the ratio is less than “1,” this is the adjustment factor to be applied to the physical guarantees of the plants in the MRE, to cover their levels of generation.

According to BNamericas, the bill has been discussed since 2015 and involves settlements of more than BRL9 billion (US$1.6 billion). The issue had gridlocked Brazil’s short-term electricity market and created uncertainties for investors. The bill will now undergo president Jair Bolsonaro’s sanction.

However, the restoration of normal short-term market liquidations still needs to await regulations by watchdog Aneel and power trading firm CCEE. Final compensation terms should be announced 90 days after the law’s publication.

“The bill’s approval was the first step. I would like it to be a final solution and that the market could go back to normal by next week, but there are still lawsuits to be closed, for example,” Walfrido Ávila, the president of Brazilian electricity trading firm Tradener, told BNamericas.

Estimates show companies from the sugar and ethanol sectors could receive around BRL500 million (US$91.9 million) and power firm Amazonas Energia would get other BRL200 million (US$36.8 million), among other creditors.

The bill’s approval, however, is considered important not only to give more juridical security for hydropower investments in Brazil but also because it shows an improved scenario for other discussions regarding the energy market in Congress, such as the update in natural gas regulations and the modernization of power rules. Such subjects had been left aside in the latest months amid discussions of other matters to deal with the coronavirus pandemic.

“It seems like there is a greater understanding of energy sector issues. This will help attract new investments and will alleviate economical issues,” Ávila added.  

Still, the bill has controversial points, such as the inclusion of the so-called Brasduto fund, which would allow for the use of pre-salt funds to help finance the construction of new pipelines. Analysts, however, pointed out that this portion could receive a veto from Bolsonaro, as it regards a subject that has no direct relation with the main points of the bill.

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