With the collaboration of Helder Sousa, from TR Soluções; José Marangon e Luana Marangon, from MC&E
The consideration of the new locational signal in the TUST (Transmission System Usage Tariff) will result in gradual increases, but also reductions, in the TUSD (Distribution System Usage Tariff) for a large part of the country's energy consumers until the 2027/2028 cycle, when the five-year transition period defined by the ANEEL (National Electric Energy Agency) for the new rules for locational tariffs.
This study by TR Soluções and Marangon Consultoria & Engenharia (MC&E), which calculates the expected variations in tariffs due to changes in the locational methodology, shows that the change represents an improvement in favor of increasing the efficiency of the Brazilian electrical system.
The locational signal, in addition to indicating the best locations for installing generation projects, also shows for electrical energy consumption the points on the transmission network where there is more generation supply and consequently where load demands should be located.
This economic signal tends to postpone the need for new investments in the system, which, in the long term, contributes to low tariffs.
Introduction: Tariff changes
The application tariffs to which captive electricity consumers are subject are basically composed of two components: Tariff for the Use of Distribution Systems, attributed to both captive and free consumers; and TE (Energy Tariff), attributed only to captive consumers.
The TUSD is made up of regulatory cost elements related to wire usage, losses and sectoral charges. TE concerns regulatory costs related to distributors' expenses with the purchase of energy.
The costs related to the use of the wire, or energy transport infrastructure, are divided into two groups: transmission costs (TUST) and specific distribution costs. The cost allocation criterion for calculating the tariffs that remunerate the transmission service is the Long-Term Marginal Cost with locational signal, while the apportionment of costs related to distribution systems is based on the Marginal Cost of Capacity.
Improvements in the locational methodology recently applied to transmission tariffs by ANEEL seek to allocate these costs in a fair and efficient manner, taking into the electro-geographic location of s and the complementarity of tariff revenue between load (consumption) and generation.
It aims to signal entry options for new s of the transmission network that are most appropriate from the point of view of available infrastructure, in addition to avoiding cross-subsidies between network s, seeking efficiency in the energy production and transport chain.
The Marginal Cost of Capacity, as a criterion for apportioning distribution costs, allows them to be allocated according to the responsibility of typical s, at each voltage level, in forming the expansion costs of distribution networks, that is, the costs distribution systems are established differently between groups (A; B); subgroups (A1; A2; A3; A4; AS; B1; B2; B3; B4); tariff classes and subclasses, taking into the tariff modalities.
Exactly ten years ago, the application tariff (TUSD + TE), average in Brazil, was 253,77 R$/MWh, with a typical composition distributed as follows:
- 2% with Transmission Network;
- 29% with Distribution Network;
- 7% with Losses;
- 4% with Sectoral Charges;
- 58% with Energy Purchase.
Currently, in October 2023, the value of an application tariff, average in Brazil, is 619,45 R$/MWh, with the following composition:
- 6% with Transmission Network;
- 27% with Distribution Network;
- 7% with Losses;
- 12% with Sectoral Charges;
- 49% with Energy Purchase.
In this period, against an accumulated inflation of 80% if measured by the IPCA or 109% if measured by the IGP-M, despite the increase in the share of sectoral charges in the tariff composition having been significant, it was the transmission networks that accumulated the greatest variation average in the period: 721%; against 599% of sectoral charges; 137% of losses; 121% from distribution networks and 106% from energy purchases.
This article analyzes, based on recent history, the main factors behind this leading role of transmission costs in the evolution of tariff composition.
It also presents data and information that indicate what can be expected for the segment's costs over the next five years in view of the adoption of the new locational sign in the TUST definition, including both the specific impacts on this tariff and on the values of the application tariffs paid by consumers.
Evolution of RAP
RAP (Allowed Annual Revenue) is the regulatory remuneration received by electricity transmission companies for the public service of “wholesale transportation” of electricity. It is defined in accordance with the concession or bidding contracts. In the case of tendered concessions, the RAP is established based on the results of the auctions, with the lowest offer being accepted.
As for non-auctioned concessions, the ANEEL calculates the RAP taking into the annual costs of assets and operating and maintenance costs, in addition to charges and taxes. The period between tariff reviews in the transmission segment varies between four and five years, depending on when the contract is signed. The RAP is updated annually based on the inflation index defined in the contract.
Responsibility for this revenue is shared among all s of the basic transmission network, such as generators, distributors, free consumers, importers and exporters of electrical energy. It is used to remunerate revenues from transmission services, including the portion of the ONS (National Electric System Operator) costs not covered by contributions from its associated agents.
In the last ten years, 54 transmission auctions were held and 365 new contracts were signed, with accumulated investments of around R$227 billion, against an average annual growth in energy demand of around 1,5%.
As a result, during this period the value of RAP jumped from R$8,4 billion to R$39 billion per year, an increase of 364%. The difference between the growth of the consumer market in the period – just 15% – and the increase in revenue justifies the fact that transmission tariffs for the consumer segment increased by 721%.
Over the next ten years, according to the “Studies of the Ten-Year Energy Expansion Plan 2032” (Transmission Notebook), published in March 2023 by EPE (Energy Research Company), R$ 158,3 billion in new investments in transmission network, against an expectation of average annual growth in national demand of 3%.
Given this trend, the need for continuous improvement of the tariff calculation model, especially TUST, is evident.
Regulatory advances
The changes now implemented began to be discussed in February 2018, when the ANEEL opened Public Consultation no. 04/2018 ( 04) to obtain contributions for improving the calculation of TUST.
Due to the volume of contributions received in the first phase of the process requesting the reevaluation of the prospective RAP composition methodology, used in calculating stabilized tariffs in the generation segment, the second phase of 04 was established, ending in May 2019.
These studies conducted by ANEEL with the collaboration of the agents, they indicated, among other aspects, the need to intensify the locational signal, in order to ensure higher rates for the agents that most burden the transmission system, as well as to prioritize the valorization of possible benefits of generating electricity close to the load. In view of this, in July 2021, 39/2021 was instituted (Aneel Public Consultation No. 39/2021).
39 was composed of three phases, with final results presented by the agency in September 2022. Therefore, considering the studies started in 2018, it can be said that for almost five years, ways of improving the calculation of transmission fees.
In the end, since a portion of the agents requested the maintenance of the calculation regime with low intensity of the locational signal and the other significant portion requested the change, the ANEEL opted for a gradual change in the TUST calculation methodology, as detailed below.
TUST problems and solutions
REN 559/2013 (Normative Resolution No. 559 of the ANEEL, of June 27, 2013), established the procedures for calculating TUST, including the use of the Nodal methodology for calculating the TUST of the locational Basic Network (TUST_RB) as a cost allocation method based on power flow.
This rule took into the fact that the locational portion of the tariffs did not fully recover the revenue necessary to cover the costs of the transmission system, making it necessary to include the additive portion, commonly called “seal”.
In this way, the TUST_RB of each connection point (bus) in the system was formed from the following equation: = + o, where πb is the nodal tariff derived from the long-term marginal cost calculation methodology with the locational sign of bus b.
Regardless of the calculation formula, TUST basically has two primary functions:
- Bring load and generation closer together, attracting new s to points more suitable for their installation, promoting the rationalization of the use of systems and the minimization of expansion costs; It is
- Signal the current cost situation, in order to ensure greater charges for those who burden the system most.
Locational signaling, under the of REN 559, was close to the average value of transmission tariffs for most Federation Units, showing that the “stamp” component was predominant in the transmission tariff in relation to the “locational” component. The “seal” component presents the same tariff value for all network s regardless of their location.
According to the Regulatory Impact Analysis Report No. 02/2021-SGT/ANEEL, when analyzing the MUST (Transmission System Usage Amounts) contracts used in the calculation of the 2020/2021 cycle, between the generation and consumption segments, ANEEL observed that the generation amounts exceeded those of consumption in the North and Northeast submarkets, while in the Southeast/Central-West and South submarkets there was a certain uniformity.
Table 1 – TUST_RB Tariffs
The intensification of the locational signal, therefore, would result in a reduction in the values charged for the consumption segment in the North and Northeast submarkets and an increase in the Southeast/Central-West and South submarkets. And, in a complementary way, the tariffs for the generation segment should reflect exactly the opposite, according to the premises established in the legislation.
This finding is important because it brings economic rationality, since the TUST, in such a condition, would be higher for the generation segment in regions with excess supply and lower for load, indicating, from a transportation point of view, a greater rationality in the use of existing infrastructure, seeking balance and reducing the need for new investments in transmission.
However, this is not what happened with the use of REN 559 procedures. According to ANEEL, most of the Federation Units had locational signaling close to the average value. In other words, for an investor in generation, it made no difference whether to build a project in the North or Southeast region – the cost of transporting energy had practically no influence on its economic rationale.
Technical Note No. 71/2018/SGT/ANEEL (NT 71 highlighted that the procedure associated with proportional dispatch by “submarket” adopted was the preponderant factor for the tariff result with little locational signal, pointing out as a possible solution to the problem a dispatch called “unified” proportional dispatch in national .
In February 2021, EPE published a technical note with a sensitivity analysis regarding the TUST calculation, Technical Note EPE-DEE-NT-014/2021-rev0. EPE pointed to “unified” proportional dispatch as a possible way to improve location signaling, despite the need to review the calculation tool so that flows in regional interconnections respect operational restrictions.
EPE, in the aforementioned technical note, also highlighted the importance of location signage in the viability of generation projects, in the competitiveness of projects from different sources and in the indicative expansion of the generation system.
The idea would be to adapt the rules considering that, unlike the generation projects of past decades when there was basically no small generation at a low cost per kW, today it is possible to implement new solar or wind generation projects in a short space of time and in different locations, which confirms the need to improve the methodology in order to intensify locational signaling.
Within the scope of the first phase of 04, a proposal was initially presented to improve the methodology by changing the base case order, which was carried out regionally (Alternative 1) to a national order (Alternative 2).
The essence of the nodal methodology did not change, but only the way in which the plants are dispatched to compose the flows used to assess the occupation of the capacities of the transmission network elements.
This change in the form of dispatch was more coherent with the increase in connection capacity between the regions of Brazil, that is, with the increase in the number of lines that interconnect the four subsystems (Northeast, North, Southeast/Central-West and South) , resulting in shorter electrical distances.
One of the issues raised by ANEEL within the scope of the discussions is that, when applying the national dispatch, there would be an overestimation of the power flows in the regional interconnections resulting from the use of “Alternative 2” at levels well above the operational reality.
For this reason, given the contributions received in the first phase of 39, the ANEEL proposed the use of “Alternative 2A”, which consists of “Alternative 2” with the attenuation of flows with the linear application of the FD (Demand Factor) on the MUST contracted by the consumption segment.
In the “Alternative 2A” configuration, flows in regional interconnections would remain at levels below operational restrictions. This configuration would also intensify the locational signal compared to “Alternative 1”. The intensity would be lower than that presented in “Alternative 2”, although sufficient to promote tariff complementarity between load and generation.
In view of the contributions received in the third phase of 39 and other discussions, the ANEEL consolidated the understanding that the solution to the problem of locational signaling would lie in the combination of “Alternative 1” and “Alternative 2A”.
It was also decided that the effective application of the measure would be carried out over five years, with gradual changes in the participation of the new locational signal in the composition of transmission tariffs: in the first cycle (2023/24), the participation will be 10%, increasing to 20% in the following cycle and so on, until the desired locational signal is reached in cycle 2027/28.
- 90%/10% in the 2023/2024 cycle;
- 80%/20% in the 2024/2025 cycle;
- 70%/30% in the 2025/2026 cycle;
- 60%/40% of the 2026/2027 cycle;
- 50%/50% from the 2027/2028 cycle onwards.
A ANEEL, according to AIR Report No. 02/2021-SGT/ANEEL, understood that such a solution would meet the contributions received within the scope of 39, since some of the agents requested the maintenance of the current regime and some requested a change, in addition to allowing the methodological change to occur in a gradual and balanced manner.
Table 2 – Forecast of the impact of changing the locational signal on TUST (Cycle 23/24)
Who wins and who loses with the improvement of TUST?
As a simulation of the impact on application tariffs due to the improvement of the locational signal, TR Soluções, using transmission tariff data provided by Marangon Consultoria & Engenharia (MC&E), calculated the expected variations in TUSD and application tariff, for tariff subgroup, in the different regions of Brazil.
In order to identify the isolated effect of the transition adopted by ANEEL for the locational signal, the tariff projections of all energy distribution concessionaires connected to the basic network were considered. In these scenarios, all tariff calculation assumptions were kept constant, with the exception of the expected value for transmission tariffs related to the basic network.
For the values of the Transmission Tariffs of the basic network, MC&E, using the data from the Nodal Program, cycle 23/24, attached to the Approval Resolution ANEEL No. 3.217, of July 4, 2023, recalculated the Transmission Tariffs for cycle 23/24, changing the locational transition stages for the tariff cycle in question.
Based on these new transmission tariffs calculated in different stages, TR Soluções was able to estimate the new application tariffs that would be verified in the period from July/23 to June/24 considering different TUST transition scenarios, thus estimating the expected impact of the improvement of the locational signal.
Table 3 – Impact of changing the location signal on application fees
As expected, after improving the locational methodology, transmission tariffs tend to become lower for the consumer segment in the North and Northeast submarkets, and higher in the South and Southeast/Central-West submarkets, putting pressure on application tariffs for up or down.
Table 4 – Average impact of changing the locational signal in the SOUTH region by tariff subgroup
Table 5 – Average impact of changing the location signal in the SOUTHEAST region by tariff subgroup
Table 6 – Average impact of changing the location signal in the CENTRAL-WEST region by tariff subgroup
Table 7 – Average impact of changing the locational signal in the NORTH region by tariff subgroup
Table 8 – Average impact of changing the location sign in the NORTHEAST region by tariff subgroup
It is worth noting that, when calculating application tariffs for energy distribution concessionaires, the weight of the tariff component associated with the transmission network is not uniform between tariff subgroups, due to the tariff structure for allocating distribution regulatory costs. Therefore, consumer units in Group A tend to be more affected than consumer units in Group B by changes made to the calculation of transmission tariffs.
Final considerations
Although the Fio A component (infrastructure costs of electricity transmission networks) of the application tariff for consumers in Groups A and B is not preponderant in relation to the other tariff components, it is clear that there is, in general, a tariff relief for consumers in the North and Northeast regions. In other words, the signal for the consumer segment in these regions is that there is an excess of generation and that an increase in load is opportune.
In any case, the solution adopted by Aneel, with the establishment of a transition whose goal is to make the locational signal reach, in tariff , only half of its real impact, a subsidy portion is maintained in favor of the generators of North and Northeast regions.
Considering the trajectory of investments in the transmission system observed in the last ten years (R$ 227 billion) and its significant tariff developments regarding the Fio A component in this period (721%), it is to be expected that the old maxim “efficient investment costs prudent measures” adopted in the calculations of tariff repositioning in the distribution segment should also be observed in the transmission segment.
The new rules are more favorable in this sense: the improvement promoted by Aneel in the locational methodology amplifies economic signaling in order to favor the consumption of electrical energy in points of the transmission network where more generation projects are located.
This economic signal tends to postpone the need for new investments in the system, which, in the long term, contributes to low tariffs. Therefore, it is undeniable that what benefits from the improvement of TUST is Brazil as a whole.
The opinions and information expressed are the sole responsibility of the author and do not necessarily represent the official position of the author. Canal Solar.
