Free energy market: what it is, how it works and advantages for companies

In the free market, companies can negotiate directly with generators or traders
Free energy market: what it is, how it works and advantages for companies
Photo: Envato

The free energy market has established itself as a strategic solution for companies seeking to reduce costs, gain predictability and have more freedom in choosing their electricity supplier. Unlike the captive market, where supply and prices are regulated, in the free market companies can negotiate directly with generators or traders, ensuring better contractual conditions.

Although the energy is purchased independently, the local distributor remains responsible for the physical delivery of the electricity. In addition, the consumer remains subject to the payment of the TUSD (Distribution System Usage Tariff), which refers to the infrastructure used to transport the contracted energy.

With the gradual opening of this market in Brazil, more and more companies are migrating to this model, taking advantage of savings and sustainability opportunities. In this article, you will understand what the free energy market is, how it works, its advantages and the steps necessary to this system.

Photo: Envato

What is the free energy market?

The free energy market is present in the Free Contracting Environment (ACL), an environment in which consumers can choose who to buy their electricity from, negotiating prices, and contractual conditions directly with suppliers. This model provides greater competitiveness and flexibility, allowing companies to reduce costs and have greater financial predictability.

In the captive market, energy is purchased exclusively from the local distributor, with rates regulated by the National Electric Energy Agency (ANEEL). In this model, consumers cannot negotiate prices or choose the origin of the energy they consume.

Brief history of the opening of the energy market in Brazil

The free energy market was introduced in Brazil in the 1990s as part of the restructuring of the electricity sector. Since then, the government has gradually expanded consumer eligibility, allowing more companies to migrate to this model.

The expectation is that, in the coming years, residential consumers will also be able to the free market, further increasing the competitiveness of the electricity sector in the country.

Difference between captive market and free market

Main agents of the free market

  • Generators → Plants that produce electricity and sell it directly to consumers or traders;
  • Traders ⚡ → Companies that buy energy from generators and resell it to consumers, offering customized conditions;
  • Free and Special Consumers → Companies that meet the minimum connection voltage requirement (group A) and can the free market.
Photo: Envato

Advantages of the free energy market

Migrating to the free energy market brings a series of benefits to companies in different sectors. Among the main advantages are cost reduction, financial predictability and the possibility of choosing renewable energy sources.

Reduced costs

Consumers can save between 20% and 40% on their energy bills by negotiating contracts directly on the free market. This savings occurs because energy prices in the free market are currently more competitive than regulated rates in the captive market.

Spending predictability

In the captive market, rates may increase due to factors such as water crises and regulatory changes. In the free market, companies can enter into long-term contracts with fixed prices, ensuring greater financial predictability and reducing risks with rate fluctuations.

Sustainability and ESG

Migrating to the free market allows companies to opt for renewable energy, reducing their carbon footprint and meeting environmental, social and governance (ESG) policy requirements. This strengthens the company's image and can generate competitive advantages in the market.

Flexibility and customization

Unlike the captive market, where energy is supplied in a standardized manner, in the free market companies can negotiate customized contracts, choosing:

  • Term of the contract;
  • Volume of contracted energy;
  • Type of energy source (renewable or conventional).

This flexibility allows each consumer to adapt their energy purchase according to their operational and financial needs.

Who can the free energy market?

The possibility of migrating to the free energy market is related to the contracted demand and the connection voltage level. Currently, consumers are classified into two main categories:

Free and special consumers

  • Contracted Demand: Equal to or greater than 500 kW.
  • Energy Sources: You can acquire energy from any source, whether conventional or incentivized.
  • Voltage Level: Generally connected at medium or high voltage (Group A).

Note: As of January 1, 2024, all consumers connected to high voltage will be able to migrate to the free energy market, regardless of contracted demand.

Consumers with demand less than 500 kW

  • Possibility of Migration: Consumers with demand below 500 kW can migrate to the free energy market as long as they are represented by a retailer. This modality was created to facilitate the participation of smaller consumers in the free market, reducing bureaucracy and allowing these companies to benefit from the advantages of this environment.
Photo: Envato

How to migrate to the free energy market?

Migrating to the free energy market requires structured planning to ensure that the company takes full advantage of the benefits of this environment. The process involves some essential steps:

Feasibility analysis

  • Check whether the company meets the migration criteria (connection voltage and contracted demand);
  • Estimate potential savings based on energy consumption and prices charged on the free market;
  • Assess the risks and opportunities of the model.

Communication to the distributor

  • Request the disconnection from the captive market at least six months in advance;
  • Maintain the distribution system usage contract (TUSD) with the local distributor.

Supplier selection and contracting

  • Compare proposals from generators and retailers to find the best conditions;
  • Negotiate the price of energy, contractual and contracted volume;
  • Assess the need for contractual guarantees, such as bank guarantees or insurance.

Management and monitoring

  • Monitor energy prices in the market to optimize costs throughout the contract;
  • Count on the of a specialized manager or consultancy to ensure regulatory compliance and operational efficiency.
Photo: Envato

Challenges and precautions when entering the free energy market

Although the free energy market offers several advantages, it is essential that companies are prepared to deal with some challenges. A lack of planning can compromise the expected benefits and generate financial risks. Here are the main points to pay attention to:

price volatility

The price of energy on the free market can vary due to climate, economic and regulatory factors. Companies that do not adopt an efficient purchasing strategy may face unexpected costs.

Solution: Evaluate contracting options, such as long-term contracts or hedging strategies, to reduce exposure to market fluctuations.

Contractual and regulatory management

Negotiating and managing contracts in the free market requires technical and legal knowledge. Regulatory complexity can create difficulties for companies that do not have expertise in the sector.

Solution: Rely on a qualified internal team or hire a specialized consultancy to ensure compliance with all obligations and avoid contractual risks.

Monitoring consumption and demand

Unlike the captive market, where the distributor manages the energy supply, in the free market the company needs to monitor its consumption and its contracted demand.

Solution: Implement energy management tools that monitor consumption in real time and adjust energy purchases according to the company's needs.

Supplier choice

Choosing the wrong supplier can compromise the expected savings and the security of the energy supply. It is essential to analyze the financial solidity, history and reputation of the supplier before hiring.

Solution: Carry out a careful analysis of the marketing companies available on the market and negotiate contractual clauses that protect the company against possible problems.

Free energy market
Photo: Envato

Own energy generation in the free market

One of the great advantages of the free energy market is the possibility for consumers to generate their own energy through a solar, wind, biomass or other renewable source. This model allows greater control over energy costs and can bring even greater savings and predictability to the company.

How does self-generation work in the free market?

Consumers who wish to generate their own energy can install a local or remote generation plant. If the energy generated is not fully consumed on site, it can be injected into the electricity grid and sold to other consumers.

To do this, the company must fall into one of the following categories:

Self-Producing Energy (APE)

  • Generates energy for your own consumption;
  • You can share energy between different consumer units (as long as you have a shareholding);
  • If it generates a surplus, it can transfer the energy to third parties on the free market.

Independent Power Producer (IPP)

  • Generates energy with the aim of selling it to free consumers or traders;
  • Must be ed with the Electric Energy Trading Chamber (CCEE);
  • You can act as a supplier in the free market, negotiating contracts directly with consumers.

Advantages of self-generation in the free market

  • Cost reduction: Reduced dependence on third parties and protection against tariff fluctuations;
  • Sale of surplus: Possibility of transforming unused energy into extra revenue;
  • Sustainability: Use of renewable sources, contributing to ESG and environmental policies;
  • Greater autonomy: Total control over the company's energy supply.

With the growing search for efficiency and sustainability, self-generation combined with the free energy market becomes an increasingly advantageous alternative for companies that want to reduce costs and strengthen their competitiveness.

Free energy market in Brazil
Photo: Envato

FAQs – frequently asked questions

Here are some of the most common questions about the free energy market:

What is the free energy market?

It is an environment where consumers can negotiate directly with electricity suppliers, choosing prices, and contractual conditions.

What is the difference between a free market and a captive market?

In the free market, consumers can choose their supplier and negotiate contracts. In the captive market, energy must be purchased from the local distributor, with prices regulated by the ANEEL.

Which companies can the free energy market?

Currently, any consumer connected to high voltage (Group A) can migrate, regardless of the contracted demand. Companies with lower consumption can participate through retail sales companies.

Can I generate my own energy on the free market?

Yes! In the free energy market, companies can install solar, wind, biomass or other renewable energy plants to supply their own consumption. If they generate more energy than they consume, they can inject the surplus into the grid and sell it, as long as they become a Self-Producer of Energy (APE) or an Independent Energy Producer (PIE), duly ed with the CCEE.

Is it worth migrating to the free energy market?

Yes! Migration can provide savings, financial predictability and access to renewable energy, making it an advantageous strategy for many companies.

Conclusion

The Free Energy Market represents a strategic opportunity for companies seeking to reduce costs, increase financial predictability and adopt more sustainable practices. With the possibility of negotiating directly with suppliers, consumers gain autonomy and flexibility to contract energy according to their needs.

In addition, consumers can generate their own energy and, if they have surplus, inject it into the grid and sell it, as long as they are ed as an Energy Self-Producer (APE) or Independent Energy Producer (PIE). This model further expands the advantages of the free market, providing greater control over costs and new revenue opportunities.

With the market opening expected in the coming years, the trend is that more companies and, in the future, residential consumers will also be able to adopt this model. Migration requires planning and careful analysis, but the benefits can be significant.

If your company wants to explore these advantages, assessing the viability of migration can be the first step towards more efficient energy management.

Want to understand more about the free energy market and how to take advantage of its benefits? Sign up for the exclusive course Canal Solar and have access to complete content, with industry experts explaining every detail about this hiring model.

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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.

Photo by Bernardo Marangon
Bernardo Marangon
Graduated in Electrical Engineering and Master in Electrical Engineering from UNIFEI. He worked for 5 years at EDP Brasil between 2010 and 2015, working in the areas: planning the Operation and Maintenance of Hydroelectric Plants and the New Business area. He was Director of Generation at the Léros Group between 2016 and 2018. He is currently managing partner of Exata Energia, part of the Prime Energy Group, leading three business fronts: Financial consultancy, Energy sales and investments in the group's Generation. He is structuring a new initiative, the commercialization of credits, through shared DG. He is a professor at Canal Solar for 4 years, having taught more than 3 thousand students on the topic of investment analysis in distributed generation, free market and energy storage.

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