08/06/2022

On 6 and 7 June 2022, ERSE – the Energy Services Regulatory Authority - promoted a series of events on “Energy Transition and Markets - Portugal | Brazil 2022”, in partnership with the Electricity Sector Study Group of Instituto de Economia of Universidade Federal do Rio de Janeiro, and Instituto Superior de Economia e Gestão, of Universidade de Lisboa.

These initiatives, aimed at sharing the Brazilian and Portuguese vision of the energy markets in the two countries, focused on the challenges of economic regulation in the face of technological innovation in electricity distribution, and the design of markets in the electricity sector, in order to ensure a sustainable future.

In addition to academic institutions, regulators and government officials from both countries, the events were attended by various stakeholders in the energy sector.

Pedro Verdelho, the Chairman of ERSE, highlighted the unprecedented challenge that the energy sector will face in the coming years – “a sector in metamorphosis” - affected by an environmental and economic crisis, reflected in high energy prices on world markets, inflation and shortage problems in supply chains, coupled with a geopolitical crisis, as a result of the armed conflict in Ukraine and its repercussions around the world.

“Looking ahead, I see two phases. We know that the levelized cost of new small-scale renewable generation technologies is lower than the cost of fossil fuels. We are in a phase where the long-term marginal cost is lower than the short-term marginal cost. This makes it easier to decarbonise our energy model at a lower cost to consumers, we invest more in renewable technologies and at the same time we reduce consumers’ energy bills compared to a scenario without decarbonisation. But we have a big challenge ahead of us. With the massive uptake of renewable energy, in a few years we will start to see surpluses of energy that we will not be able to absorb in our consumption processes. And these surpluses will lead to a collapse in prices and hence in short-term marginal cost. Since long-term marginal cost is the signal for investment, this reversal of the relationship will pose a challenge to replacing the remaining fossil energy in the energy system. It is therefore important to think in advance about market design to ensure that market outcomes are consistent with energy policy objectives”, said ERSE’s Chairman.

For Pedro Verdelho, Brazil is an inspiration for Portugal because it has experienced this reality for a long time. “For these reasons, the Brazilian market model is very different from the European one. Brazil has an energy model that is largely based on hydroelectric generation. The massive need for investment in renewable generation to meet a strong growth in demand, in a context where the price signal for investment is higher than the short-term marginal cost, has forced Brazil to anticipate a market model that could be an inspiration for Europe”, stressed ERSE’s Chairman.

In this scenario, he added, ERSE’s partnership with knowledge institutions, such as ISEG/UL and GESEL/UFRJ, “is fundamental to planning the future and creating rules that will guide us in finding adequate responses to meet the challenges that lie ahead”.

Vítor Santos, lecturer at ISEG, also stressed the importance of these debates, which bring together academics, companies and regulators, and he raised the challenge of comparing the way how the wholesale market works in Portugal and Brazil. “Perhaps we can draw some conclusions that could be useful for Portugal”, he noted.

The role of regulators and the commitment to change and stability was also highlighted by Nivalde de Castro, a lecturer and coordinator of GESEL, who stressed the need for a regulatory framework that encourages investment.

The Secretary of State for the Environment and Energy, João Galamba, highlighted the role that laws and regulations should play in this process, as active agents of innovation, “never as technological or administrative barriers”.

The member of the Government added that “in this journey, we rely on ERSE’s skills and total commitment, in articulation with network operators and other stakeholders, so that the solutions to the challenges are implemented, optimising national resources and integrating the most efficient mechanisms, generating greater benefits for consumers”.

The decarbonisation challenge, added João Galamba, can only be met with an energy transition that is understood and embraced by all. “Public policy incentives and investment flows into renewable energy are not enough. There is a whole ecosystem to change and work on”, he added.

Paulo César Domingues, Secretary of Energy Planning and Development of the Brazilian Federal Government, outlined the changes that have taken place in the Brazilian electricity sector in recent years and the series of reforms that are currently underway, stressing that “the energy transition is a process that varies in pace and stage, according to the differences and competitive advantages of each country and region”.

According to the Brazilian government member, there is no single market model or technological solution to the changes that are taking place. “Despite the challenges, there are many opportunities for partnership and investment between the two countries. In Brazil, with a high share of renewables in the energy model, the transition is a great opportunity to develop new industries, drive technological innovation and create quality employment”, said Paulo César Domingues.

Brazil’s ambassador to Portugal, Raiumundo Carreiro, also highlighted the importance of the energy transition for the future of humanity. “The new geopolitical era, with the war in Ukraine, has accelerated this process and strengthened an already important element, energy security. We will soon replace the barrel of oil with a barrel of green hydrogen”, said Raimundo Carreira.

In the context of promoting permanent reflection on the challenges facing the energy sector, ERSE signed cooperation protocols with GESEL/UFRJ and ISEG/UL in March 2018 and October 2020, respectively.