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Electricity Market
Sector structure
Upstream Brazil is highly reliant on hydro-schemes, which represents the 80% of generation capacity and 90% of electricity generated in 2003, mostly controlled by state-owned companies. A few coal plants exist near coal reserves in the South, but thermal power mainly supply isolated markets.

Federal State-owned Eletrobrás controls half of generation capacity and 3 out of 4 import corridors. The largest private generator is Tractebel Energia, a subsidiary of the France-based Suez, with an installed capacity of 6.7 GW.

The wholesale electricity market model adopted in Brazil is inspired to the single-buyer model and distinguishes between two energy trading markets.

The first one is a regulated pool for captive consumers (Ambiente de Contratação Regulado-ACR), where the energy is bought from generators and costs are shared among distributors. Power for captive market is secured through under the form of long-term power contracts by each distributor via government and regulator coordinated auctions differentiated according to fuel type (thermal and hydro). Contracts are then pooled to form a uniform price for all of Brazil's 64 distributors.

The second one is a free market (Ambiente de Contratação Livre - ACL) where eligible consumers and distributors can buy electricity at freely negotiated prices via bilateral contracts.

Significant cross-ownership between generation, transmission and distribution sectors is precluded: generation and transmission must be deverticalized from distribution operations and ownership unbundling is required for distribution companies.
Networks Transmission is dominated by state-owned companies, while distribution is largely privatized.

The interconnected transmission system is operated by a collegiate of energy players and the Ministry of Mines and energy through the National System Operator (ONS), under a RTPA regime. Several isolated grids operate in the Amazon region, but these isolated grids are progressively interconnecting to the integrated system. However, private investors won several bids for new transmission lines.

Intrastate transmission and distribution is handled by 64 State-level companies, for the most part in private hands (2/3).

ANEEL, the electricity regulator,defines tariffs methodologies and approves nodal tariffs for the use of the transmission grid. Under the former system, least-cost generation received priority access to the network.

A price caps method for distribution tariffs has been introduced since 1995 by ANEEL, that annually adjusts the costs managed by distribution companies and reviewed distribution tariffs methods every 5 years.
Downstream Supply is handled by distribution companies in each State.

Eligibility levels set at 3MW since 2000.

Lack of electricity is a rural problem mainly in the North and the Northeast. Still, the electrification rate is around 80% in those regions.
Gas Market
Sector structure
Upstream The sector is partially privatized.

Production and Bolivian import pipelines are dominated by Federal State-owned Petrobras (which owns proximally the 90% of the national reserves in 2004). Others important players are Sulgas (49% owned by Petrobras and 51% by the Federal Government (Rio Grande do Sul) and the British-based BG.

Prices set by Petrobras.
Networks Transmission sector is state-owned while partially privatization of distribution sector has been realized by the states.

Transmission is owned and operated by Petrobras’ subsidiary Transpetro which negotiates the third party access conditions subject to criteria defined by the gas regulator ANP.

Distribution is handled by the States, which are allowed to maintain a monopoly on this business. However, many States have partially sold stakes in their distribution companies.

Petrobras has a stake in 17 of them. Spain's Gas Natural has a stake in Rio de Janeiro's CEG, the country's largest distributor.

Corporate unbundling for transmission activities.
Downstream Supply is handled by distribution companies in each State.

The largest consumer of gas is the industrial sector, representing about 80 percent of total domestic consumption.
Current issues Brazil will need USD 82 billion of investment through 2020 just to keep energy supply and demand in balance, most of which will have to come from the private sector.

Due to the low cost of hydroelectric generation and to its plentiful availability in recent years, Petrobras is having difficulties finding enough demand to meet the gas supply contracted with Bolivia via take or pay agreements. Petrobras and the government are trying to encourage wider use of natural gas through volume-linked discounts to distributors and the construction of new transmission and distribution pipelines.

Petrobras planned to increase its production by the 2008 of 520 Bcf.

ANP has sought to attract international investment to the sector, and its seventh licensing round emphasized blocks thought to contain commercial quantities of natural gas.

On going privatization process of electricity distribution and electrification process of rural areas.

A proposal of a specific law for the natural gas industry is being developed it aimed to consolidate the regulatory framework, providing consistency to related policies and shortening uncertainties.
National Legislation Basic electricity legislation available in Portuguese:
Law 8.987 of 1995 (Public Service Concessions)
Law 9.074 of 1995 (electricity concessions)
Law 9427 of 1996 (creation of ANEEL)
Decree 2.335 of 1997 (ANEEL regulations)
Basic Gas legislation available in Portuguese at ANP website.
Sources IERN staff on publicly available information