Energy Efficiency or Free Energy Market?

Currently, migration to the free market is seen as an attractive way to reduce energy costs. Since 1995, when it was created, until today, the adhesion of large consumers – industries, shopping, retailers, large commercial buildings – to the free system of buying and selling electricity has only grown.

According to ABRACEEL, the Brazilian Association of Electric Energy Traders, more than 60% of the energy purchased by industries is negotiated in the free contracting environment (ACL). In 2015, more than 700 industrial companies began to negotiate directly in the purchase of electricity. Today, around 4,000 companies are in the free market, according to the Electric Energy Trading Chamber. There are still more than 1000 companies in the process of migration.

The reason for this is simple. Since the contract is made directly between consumers and energy products, it is possible to negotiate lower and predictable rates, reducing the cost per kWh and the exposure to risk.

In many cases, a discount is applied to other components that make up the energy bill, such as Demand and TUSD (Distribution System Usage Rate), resulting in an even higher bill.

The contract in the ACL is complex and brings additional costs that need to be explained and understood, as we will discuss in another article. According to ABRACEEL, with the free market it is possible to reach up to 47% in relation to the captive market.

It is known that energy consumption is one of the most expensive resources for the industry and many large companies. Therefore, those who can buy at a lower price and use it more effectively gain a competitive advantage over their competitors.

However, despite being an excellent alternative for reducing costs, this system has nothing to do with the efficient use of energy: even if there is a saving on the bill at the end of the month, it is only due to the reduction in the final tariff.

Energy efficiency + reduction in the cost of kWh = Savings²

Reducing the cost of kWh can already be considered a great victory for companies operating in the free market. But it is possible to achieve even more expressive results by reducing consumption effectively. To do this, you must have an energy management plan, which focuses on opportunities to reduce energy consumption.

Typically, companies and sectors first evaluate equipment retrofit. These include installing more efficient lighting systems, more modern motors, etc.

All of these measures are valid, but they are generally costly and require investment. There are many low-cost opportunities that contribute to energy efficiency and that are often overlooked. Measures such as changes in operating procedures, improvements in automation systems, maintenance of defective components, and reuse of discarded energy usually generate significant savings with small investments. Having a well-trained energy management team is also an important action, still little applied in Brazil.

Although they may seem simple, these opportunities often go unnoticed in everyday life. Or they are even noticed, but are not implemented due to lack of time and personnel. That's why there are experts and energy consulting companies whose goal is to implement energy management systems and help identify and implement efficiency projects.

The order of the factors changes the product

Let's suppose someone starts a diet and on the same day finds a clothing store with great prices. It's better to wait for the diet to take effect so they can buy a smaller size, right? Otherwise, they will have bought a cheap piece of clothing, but it will have been a waste, because the clothing will be too big.

We can draw a parallel with the migration to the free market. Most contracts contain a clause known as take or pay. In it, the contractor is obliged to pay for a minimum amount of energy.

In practice, this means that if a company reduces its consumption after signing the contract, it cannot have a corresponding cost reduction. This way, you will have “wasted” the chance to make an excellent purchase.

For this reason, through energy optimization projects, efficiency must come first. After a good part of the savings potential for prosperity, it is worth returning to the negotiating table to migrate to the free market. This way, it will be possible to negotiate a much more advantageous contract, which will allow the financial use of all the energy savings obtained.

In this way, migration to the free market and energy management can “go hand in hand”. Both can reduce energy costs and consumption, as long as they are done in the right order. First, implement energy efficiency actions and then evaluate contracting in the free market.