Transactions among different participants in the electricity industry take place through the Wholesale Electricity Market, or WEM, which was organized concurrently with the privatization process as a competitive market in which generators, distributors and certain large users of electricity could buy and sell electricity at prices determined by supply and demand, and were allowed to enter into long-term electricity supply contracts. The WEM consists of:
- a term market where quantities, prices and contractual conditions are agreed upon directly between sellers and buyers (after the enactment of former Secretariat of Energy (‘SE’) Resolution No. 95/2013, this was limited to the Energy Plus market, and later being added the Term Market from Renewable Energy Sources, also known as MAT ER, according to Resolution No. 281/2017 of former Ministry of Energy and Mining);
- a spot market where prices are established on an hourly basis as a function of economic production cost; and
- a stabilized pricing system of spot prices, which we refer to as the seasonal price, set on a semi-annual basis and designed to mitigate the volatility of spot prices for purchases of electricity by distributors.
The following chart shows the relationships among the various actors in the WEM: