In Brazil, the “price of electricity” does not come from a single market or a simple supply-and-demand curve. It is the result of a combination of system planning, hydrological conditions, thermal generation costs, operational constraints, and a set of mathematical models designed to answer a tough question: what is the value of energy right now without compromising security of supply later?
First things first: Brazil does not “price electricity”, it “prices a system”
Brazil’s National Interconnected System (SIN) is large, integrated, and historically highly dependent on hydropower. That means reservoir water works like a kind of “energy inventory”.
In simple terms:
- When rainfall is strong and reservoirs are comfortable, the system can “use more water” and generate cheaper electricity.
- When rainfall is weak and the outlook feels riskier, the system tends to “save water” and dispatch more thermal plants (which are more expensive).
That logic sits at the heart of short-term price formation.
PLD: the most talked-about and most misunderstood price in the sector
The PLD (Preço de Liquidação das Diferenças) is Brazil’s reference price for the short-term market. It shows up in conversations all the time because it affects:
- Settlement of differences at CCEE (when contracted and measured volumes do not match)
- The market’s “thermometer” for cost and risk
- Negotiations and contract renewals (even when a contract is not directly indexed to the PLD)
One important point: the PLD is not “the price everyone pays.” It is a short-term signal used to settle deviations and guide decisions, so it can vary significantly.
Where does the PLD come from? The marginal cost of operation
The PLD is derived from the CMO (Custo Marginal de Operação), which is essentially the cost to serve the next unit of demand on the system at that moment.
The logic is intuitive: if the next needed megawatt-hour comes from an expensive thermal plant, the marginal cost rises. If it comes from “cheap water” (with comfortable hydrological conditions), the marginal cost tends to fall.
The three models that power price formation
Short-term pricing relies on an integrated architecture of models that operate across different time horizons:
- NEWAVE (long-term): looks months and years ahead and optimizes system operation with the future in mind (especially water management).
- DECOMP (mid/short-term): refines decisions with a closer view, typically on a weekly basis, adding more operational detail.
- DESSEM (very short-term): approximates daily operation and dispatch with a horizon of days.
In practice, they try to turn uncertainty (rainfall, inflows, load, constraints) into a coherent operational decision and, from there, produce a price signal.
“The value of water”: the concept that explains half the sector
If you have ever heard someone say “water is expensive,” it is not a metaphor.
The models calculate something like a future value of water: how much it is worth saving water today to reduce the risk (and cost) of not having enough energy later.
When the system decides that water must be preserved, it tends to dispatch more thermal generation now, which pushes costs and prices upward.
Why can the PLD be so volatile?
Volatility does not happen “for no reason.” It happens because the price is sensitive to small changes in assumptions, such as:
- Rainfall and inflow forecasts (a scenario adjustment can significantly change the risk perception)
- Load revisions (demand higher or lower than expected)
- Transmission constraints (limits that can “separate” prices by region)
- Plant availability (outages, maintenance, fuel, and so on)
- Operational decisions for reliability (not everything that happens in real dispatch is perfectly reflected in the models)
As a result, the PLD can move sharply, especially when hydrological uncertainty is higher.
The model’s core trade-off: security vs. cost
Every pricing approach carries a hidden trade-off:
- If the model is too conservative, it dispatches thermal plants earlier, “holds back water,” and raises short-term costs, with the promise of reducing scarcity risk.
- If it is not conservative enough, it may lower costs now but increases the chance of “paying the bill” later, through higher-cost dispatch, hydrological stress, or emergency measures.
This calibration is at the center of the sector debate: finding a point where the price signals risk without becoming noise that makes planning impossible.
What does this change for companies and free-market consumers?
Even when your electricity is contracted at a fixed price, the pricing model still matters because it affects:
- Contract renewals (the market prices risk by looking at the short and medium term)
- Procurement strategy (indexing, tenors, seasonality, flexibility)
- Exposure management (differences between contracted and metered volumes, seasonality, shaping)
- Portfolio decisions (when to lock in price, when to structure hedges, when to leave a portion exposed)
In plain terms: understanding the model helps you avoid making decisions in the dark, especially during volatile periods.
What to watch in practice, without becoming an expert
If you want to follow the topic in a useful way, focus on three questions:
- Is hydrological risk increasing or decreasing?
- Are load forecasts trending up or down?
- Is the system “tighter” due to constraints or thermal dispatch?
This does not replace professional management, but it improves scenario reading and decision timing.
Want to turn price into strategy, not a surprise?
At Deal Comercializadora, pricing is not just a number. It is an input for procurement strategy, risk management, and decision-making. If you want to understand your exposure, structure protection, and plan renewals with more predictability, talk to us and we will analyze your case.
