Either regret contracting or regret not contracting
After enduring the worst drought in nearly a century, Brazil emerges from a prolonged period of energy scarcity with its reservoirs replenished and its electricity tariff flags returning to green. The National Electric System Operator projects that consumers will face no additional surcharges through the end of 2022, a quiet but meaningful restoration of stability in a system that had strained under the weight of climate and cost. In the larger arc of energy governance, this moment reflects both the vulnerability of hydroelectric dependence and the difficult calculus of planning for crises that may or may not arrive.
- Seven months of emergency surcharges — including a water-scarcity flag adding R$14.20 per 100 kWh — had burdened Brazilian households through the worst drought in 91 years.
- Thermal plants running at over 20,000 MW last year signaled a system under severe stress, forcing expensive backup generation to compensate for depleted reservoirs.
- Rainfall since late 2021 has refilled Southeast and Center-West reservoirs to their highest levels since 2012, dramatically reducing the need for costly thermal generation to roughly 4,000 MW.
- Grid operator ONS director Luiz Carlos Ciocchi declared on April 11th that no tariff flag changes are expected before 2023, offering consumers a rare horizon of predictability.
- Emergency thermal contracts signed during the crisis will secure energy reserves through December 2025, locking in a long-term buffer even as the immediate pressure subsides.
Five days after President Bolsonaro announced the return of the green tariff flag starting April 16th, Brazil's grid operator ONS offered further reassurance: the relief would likely hold through the end of 2022. General director Luiz Carlos Ciocchi stated that no tariff changes were expected before 2023, meaning consumers would see no additional charges on their electricity bills for the remainder of the year.
The tariff flag system translates the real cost of electricity generation into what people pay. A green flag means no surcharge; yellow and red flags add progressively higher charges per kilowatt-hour as thermal plants are called into service. Last year's emergency water-scarcity flag — in effect for seven months following the worst drought in 91 years — had added R$14.20 per 100 kWh consumed, a significant burden on households already navigating economic uncertainty.
Ciocchi's confidence was grounded in the recovery of Brazil's hydroelectric reservoirs. Rainfall since late 2021 had brought Southeast and Center-West water levels to their highest point since 2012. Thermal generation, which had peaked above 20,000 MW during the crisis, would fall to roughly 4,000 MW — only the plants too inflexible to shut down. Hydroelectric dams supply around 65 percent of Brazil's electricity, with wind power contributing approximately 9 percent of a gradually diversifying energy matrix.
Defending the government's decision to contract emergency thermal capacity during the drought, Ciocchi framed it as a choice made under profound uncertainty. Those contracts will guarantee energy reserves through December 2025. For consumers, the shift felt almost abrupt: months of surcharges giving way to a projected window of stability, contingent only on the weather holding.
Five days after President Jair Bolsonaro announced the end of a water-scarcity surcharge on electricity bills and the activation of a green tariff flag starting April 16th, Brazil's grid operator offered reassurance: the relief would likely last through the end of the year. Luiz Carlos Ciocchi, the general director of the National Electric System Operator (ONS), stated on April 11th that no tariff changes were expected before 2023, meaning consumers would probably see no additional charges added to their power bills for the remainder of 2022.
The tariff flag system is how Brazil's electricity market translates the real cost of generation into what people pay. When conditions favor hydroelectric output, the green flag applies—no surcharge. When thermal plants must run instead, costs rise, and the system adds charges to both recover expenses and discourage consumption. The yellow flag adds roughly R$0.01874 per kilowatt-hour. The red flag, split into two tiers, charges R$0.03971 or R$0.09492 per kilowatt-hour depending on severity. Last year, the government created an emergency water-scarcity flag that tacked on R$14.20 per 100 kilowatt-hours consumed. It had been in effect for seven months, since September, a response to what officials called the worst drought in 91 years.
Ciocchi's confidence rested on rainfall patterns and reservoir recovery. Since late 2021, precipitation had refilled the hydroelectric reservoirs enough that the Southeast and Center-West regions had reached their highest water levels since 2012. This meant the country could navigate the rest of the year more securely than it had in 2021. Thermal generation—the expensive backup—would shrink to only the inflexible plants that cannot shut down, representing roughly 4,000 megawatts of capacity. During the worst of last year's crisis, thermal plants had been running at more than 20,000 megawatts.
Hydroelectric dams currently supply about 65 percent of Brazil's electricity. The energy matrix has been diversifying in recent years, with wind power now accounting for approximately 9 percent of total generation. Yet despite the recovery, Ciocchi defended the government's decision to contract emergency thermal capacity during the crisis. Those contracts would guarantee energy reserves through December 2025, providing the long-term cushion officials believed necessary. The choice had been made under profound uncertainty, he noted—either regret contracting thermal plants or regret failing to do so.
The shift from crisis to stability happened quickly enough to feel almost abrupt. Consumers who had endured months of surcharges would see their bills flatten. The grid operator's projection suggested that barring unexpected weather, the green flag would remain in place through year-end, offering a window of predictability in a system that had recently felt fragile.
Citas Notables
The Southeast and Center-West regions finish the rainy season at their best levels since 2012— Luiz Carlos Ciocchi, general director of ONS
We had two choices: regret contracting thermal plants or regret not contracting them— Luiz Carlos Ciocchi, on the government's emergency thermal capacity decision
La Conversación del Hearth Otra perspectiva de la historia
Why did the water-scarcity flag last so long—seven months seems like a heavy burden to carry into spring.
The drought of 2021 was genuinely severe, the worst in nearly a century. Reservoirs emptied faster than anyone expected, and the government had to keep thermal plants running at massive scale. The surcharge was meant to signal that energy was scarce and expensive, to discourage waste while they waited for rain.
And the rain came. But does one good rainy season actually solve the underlying problem?
It solves it for now. The reservoirs are at their best levels since 2012, which is real. But Ciocchi's own logic suggests they're not taking chances—they locked in emergency thermal contracts through 2025. They're betting on recovery while hedging against another drought.
So the green flag through year-end is genuine, not just optimism.
It appears to be. The math is straightforward: if hydroelectric dams are full and wind is growing, you don't need to burn expensive thermal fuel. The surcharge disappears because the cost structure changes.
What happens to those emergency thermal plants if they're not needed?
They sit as insurance. The government paid to have them available. Whether they run or not, that's the cost of having learned a hard lesson about depending too heavily on hydropower alone.