The mess of the electricity sector
Consumers pay far too much for clean or dirty energy, new or old, in Brazil and Paraguay. The free-for-all promoted by the government, Congress and lobbyists must end.
By Notas & Informações
12/06/2026 | 03:01
The electricity sector often seems incomprehensible. It is hard to understand why a country that boasts one of the cleanest electricity matrices in the world subsidizes coal-fired plants. It is hard to understand how we run the risk of blackouts from both a lack and an excess of energy on the same day. It is hard to understand why the abundance of natural resources for generating electricity does not result in cheap electricity bills. There are technical arguments to explain each of these issues. But to a greater or lesser extent, they all stem from planning failures that have accumulated over the years, with the cost invariably passed on to consumers.
On Sunday, June 7, the National Electric System Operator (ONS) activated an emergency plan to prevent a blackout due to grid overload. In addition to ordering wind and solar plants under its centralized management to cut their generation by 30%, the ONS instructed 12 distributors across the country to cut production from small plants connected to them.
There is therefore a surplus of electricity in the system, at least at some times of the day, largely due to the proliferation of solar panels installed on rooftops and condominiums. In a way, this would be a relief for a country that 25 years ago paid a high price when it was forced into energy rationing caused by a combination of lack of rain, low investment in generation and transmission, and high energy demand.
How then to explain that, despite this abundance, this same country has just held an auction to contract plants to be on standby for the system—that is, to generate energy only when truly necessary—for the princely sum of up to R$ 800 billion? If physics cannot clarify, politics has the answer on the tip of its tongue: this is due to a deliberate political choice to cater to sectoral lobbies at the expense of cleaning up the mess in the electricity sector.
For decades, the country has kept old, high-cost plants running under the guise of not harming municipalities and businesspeople who depend on them for their livelihood. New technologies have been incorporated into the system under the same logic, consisting of perpetual subsidies, low transparency about real costs and benefits, and high margins for investors.
It seems clear that the sector's business model has allocated excessive costs and risks to the consumer, without guaranteeing security of energy supply. The problem did not begin with the current Minister of Mines and Energy, Alexandre Silveira, but it has certainly worsened under his management.
After all, instead of tackling these problems, the minister chose to go along with them. The result was the capacity reserve auction held in March, which contracted more projects than necessary, ceiling prices were raised on the eve of the bidding, there was very low competition, and obviously, negligible discounts. At a premium, thermoelectric plants will fill the hole that opens in the system when the sun sets and the winds stop.
Associations representing renewable sources felt slighted. They wanted to participate in the bidding with batteries. What was the minister's solution? Double down: there will be another auction to include them at the end of this year. In the private sector, that would be grounds for dismissal, but it only strengthens Silveira's unshakeable position in Lula's government and the electricity sector.
Congress replicates this modus operandi. Every bill that arrives or leaves the Legislature aims to extend subsidies that should already have ended and to secure the same advantages for emerging segments, such as hydrogen plants and offshore wind farms.
Each granted privilege amplifies distortions and costs, which obviously do not disappear—they are merely disguised in the indecipherable charges embedded in electricity bills. Consumers probably do not know it, but they pay much more than they should for all kinds of energy: clean or dirty, new or old, throughout Brazil and—believe it or not—even in Paraguay. This free-for-all promoted by the government, Congress, and lobbyists must end.
