2006: New Challenges and Opportunities in the Brazilian Electric Energy Arena

I have just made a comment to the article "2006: New Challenges and Opportunities in the Brazilian Electric Energy Arena," by Rafael Herzberg, Partner, Interact Ltd., Energy Consulting, which was published today.

Dear Rafael,

The wait-and-see warnings that professor Banks talks about are of systemic nature. Linear economics cannot explain the non-linear systemic feedback links of the power business. There are systemic delays which fool us into believing that things are working, when they are not. As some customers get better deals, the remaining customers are pressured to pay more through rate hikes to maintain power sector financial sustainability. As rates go up, many things happen, like increases in theft, more customers that find attractive individual solutions, etc., leading to a vicious circle. If rates are clamped, long run investments suffer and a boom-bust cycle gets in.

We have the best example of a failed "deregulation" effort in the Dominican Republic, which I have recently characterized as a black hole. Investors came to the Dominican Republic, and in their due diligences didn't see that a disruptive technology (on-site generation) was making an inroad. A systemic process called "the boiling frog" was at play, resulting in an exponential growth of individual solutions. However, that big problem is giving us great opportunities, as demand response can be developed to transform a very unreliable, disintegrated, and unarticulated system, into the opposite.

I suggest that you take a close look at the active discussion on Energy Bill 2005 – A Waste of Time? Unless a complete deregulation is done, in which there is demand response, no firm power (but different grades of firmness), no discrete demand charge (but real time demand charge), no price controls, and where retailers compete with each others to minimize customer's costs, without interference from distributors (with financial interest in retail), economic inefficiency sets in. In a sense, there is a need for a new paradigm to get to true market deregulation.