In addition to the standard clauses found in any contract related to legal transactions between private entities, individuals, or business companies, the purpose of this article is to objectively introduce points for reflection on specific clauses in energy purchase and sale agreements within the free contracting environment.
To clarify, in the Free Contracting Environment (ACL), consumers who meet specific requirements can contract and negotiate the terms of electricity purchase directly with traders or generators.
In the “free energy market,” there are two “types” of consumers: special and (truly) free. Special consumers, from Group A (such as large companies and industries), have an energy demand starting at 0.5 MW — which represents an electricity bill of over R$100,000 — and must exclusively source their energy from incentivized sources (biomass, wind, solar, and small hydroelectric plants).
Meanwhile, free consumers, also from Group A, have an energy demand equal to or greater than 1.5 MW. These consumers can receive energy from any source, incentivized or conventional (from fossil sources).
It is worth noting — in a beneficial trend — that there is a move to open up the free energy market. In September 2022, the Ministry of Mines and Energy (MME) issued Normative Ordinance No. 50, which allows, from January 2024, the free energy market to open up to all Group A consumers, with no distinction between special and (truly) free.
However, this is a topic for another time, as the issue is still being refined and discussed by the MME to possibly allow, around 2026 or 2028, for the free market to open to all consumers.
Returning to the focus of this article, below are some points of reflection on specific clauses in energy purchase and sale contracts. The aim is to enable the assessment, understanding, and negotiation of contractual terms to achieve a satisfactory outcome for both parties when using “templates” of contracts for different business arrangements.
1st Point of Attention — Contract “Object”: In models typically used by energy traders, it is common to find that the energy acquired may come from either conventional or incentivized sources. Reflect here on whether you, as the buyer, genuinely wish to acquire energy only from “clean” or incentivized sources, or if conventional energy would also be acceptable. Many companies want to display a “I use clean energy” badge. However, if your energy contract does not specify exclusive use of incentivized sources, this statement may be inaccurate.
2nd Point of Attention — “Seasonalization” of Energy in the Contract: Some energy purchase and sale contracts include the possibility of seasonalizing demand. That is, energy “delivery” can vary throughout the year to align closely with the buyer’s actual monthly usage. For example, if a school enters the free energy market, it is worth noting that energy demand will likely be lower during vacation months compared to the rest of the year. With historical consumption data, it’s possible to “seasonalize” energy delivery accordingly. It is important, therefore, that both parties consider how and whether this seasonalization should be planned from the outset, and which criteria should be met. Alternatively, a flat contract, where energy is equally distributed throughout the year, might be preferred.
3rd Point of Attention — Flexibility of Energy in the Contract: If the contract includes seasonalization, it’s necessary to stipulate monthly flexibility percentages for energy distribution, or how much the delivery may vary each month. Generally, contracts allow for percentages of 130% and 70%, while keeping the contracted annual energy amount stable. However, as in the school example, it may be necessary to increase this monthly variability.
4th Point of Attention — Price and Taxes: It is essential to clarify in the contract whether the price per energy quantity includes the ICMS tax and, if applicable, whose responsibility it will be to pay it. Not all Brazilian states require ICMS payment — hence the importance for both parties to ensure that this provision is included if needed.
5th Point of Attention — Contract Termination, Cancellation, and Withdrawal: Any legal business transaction may be terminated, whether unilaterally by one party or by mutual decision. In energy contracts, beyond the basics, it is essential to be attentive to the following criteria: How long is the contract period? If my company needs more energy, will I be allowed to purchase from another trader? Is price a valid reason to terminate the contract without incurring penalties?
There are certainly many other nuances in energy purchase and sale contracts that both parties should carefully consider. The important point here is not to overlook what is written, provided, and stipulated in each clause. Only those who fail to analyze the terms of the agreement end up surprised — and this principle applies to any legal business transaction.
Preliminary negotiation and understanding of the terms set between the parties to meet their expectations effectively is not only a basic measure before signing any contract, but also a means to avoid future and unnecessary conflicts. As seen, the specificity of an energy trading contract makes it even more sensitive compared to other business dealings.
Given the unique terminology of the energy sector, understanding is not just a precaution; it is a fundamental requirement for the healthy continuity of the market.
