A comprehensive analysis of the Demand Response Program proposed in Brazil based on the Tariff Flags mechanism

Abstract The Brazilian Electricity Regulatory Agency (ANEEL) presented a proposal to revise the tariff structure of distribution companies in Brazil. One of the main approved suggestions was to establish a mechanism called Tariff Flags, which aims to foster a Demand Response Program in Brazil via an increase in the energy tariff. In this work, the proposed mechanism is reviewed in detail and the expected results of its application are simulated and analyzed under different perspectives. This paper shows that the system operation directly impacts the Demand Response Program, since the spot prices will define which Tariff Flag should be triggered. In order to encompass and assess the main consequences of its application, this paper presents the expected effects on energy spot prices, system operating costs, probability of triggering each flag, investment recovery for utilities and finally, the impact for the final consumers. The case studies presented in this paper were developed using real information about the Brazilian electrical system for each economic sector and the price-demand elasticity is discussed using the literature for this application. Finally, some conclusions and guidelines are provided to improve the application of the mechanism.