Brazil’s planned opening of its free electricity market to low-voltage consumers could require stronger credit assessment, liquidity management, regulatory oversight and consumer protection mechanisms, according to a study by energy market specialists Guilherme Susteras and Alexandre Bueno.

The study draws on a Wattio database covering 88,000 consumer units linked to 1,400 shared solar plants across the service areas of 40 electricity distributors between January 2025 and May 2026.

The researchers found an average monthly payment delinquency rate of 17% and monthly customer churn of 4%, potentially resulting in turnover equivalent to more than 40% of the customer base over a year.

The findings provide a reference point for assessing risks that could become more pronounced as Brazil expands access to its free electricity market.

Under the planned regulatory timetable, industrial and commercial consumers will be able to migrate to the free market from Nov. 25, 2027. Other consumers, including residential customers, will become eligible from Nov. 25, 2028.

Credit and liquidity risks

The researchers said the expansion of the retail electricity market will require regulatory oversight to extend beyond monitoring the physical and energy balance of the system.

“It will not be enough to monitor only the system’s physical and energy balance. Issues such as working capital, liquidity, contractual robustness, credit assessment, anti-fraud mechanisms and commercial practices will become increasingly important for the sustainability of the retail market,” said Susteras.

The study found that a fragmented customer base does not eliminate payment delinquency risks. In a highly competitive market, significant levels of overdue payments could put pressure on electricity retailers’ cash flow and undermine their ability to meet financial obligations.

The researchers called for stronger credit assessment, guarantee and receivables management mechanisms from the initial stages of market expansion.

Pricing pressure

Competition for customers presents another potential challenge. The study found that subscription-based solar generation offered an average annual discount of 17%, rising to 19% in 2026.

The researchers warned that customer acquisition costs, payment delinquency, working capital requirements and competitive pressure could encourage electricity retailers to reduce margins excessively in pursuit of market share.

“In a market with significant customer acquisition costs, payment delinquency and working capital requirements, a strategy based exclusively on lower prices can jeopardize the financial sustainability of operations,” said Susteras.

He added that retailer bankruptcies could leave consumers dependent on a supplier of last resort, potentially exposing them to higher electricity prices.

Customer churn and oversupply

The study also identified monthly customer churn of 4% as a source of pressure on operating costs.

Contracts with limited exit barriers, poor customer understanding of energy products, aggressive sales practices and price competition all contribute to customer turnover, according to the researchers.

Another concern is unused project capacity, which occurs when shared solar generation projects fail to attract enough subscribers to absorb their available output.

The researchers said investments made before sufficient demand materializes could increase financial exposure for market participants.

A similar situation could emerge in the free electricity market if excessive contracting increases retailers’ exposure to Brazil’s short-term electricity market, particularly if contracted supply grows faster than customer demand.

Information asymmetry

The researchers also highlighted the challenges of serving smaller electricity consumers.

Citing data from Brazilian restaurant and bar association Abrasel, the study noted that energy is not among the main priorities of small business owners, who tend to focus on staffing, supplies, sales, marketing, taxation and administrative requirements.

As a result, some consumers may enter into electricity supply contracts without fully understanding their commercial terms, billing arrangements or contractual obligations.

“Information asymmetry is a critical issue. Situations arise in which consumers claim not to recognize contracts or have difficulty understanding the charges shown on their bills,” said Bueno.

Contracting timelines could further complicate the customer experience.

In subscription-based distributed generation, the period between signing a contract and receiving the associated benefits can extend to 90 days. A similar period may apply between cancellation and a return to previous supply arrangements.

According to the study, the start of supply by a retailer in the free market could involve a comparable timeframe, while returning to the distribution utility could take up to a year.

For consumers unfamiliar with electricity supply contracts, these delays could increase uncertainty and perceived risk.

Broader regulatory oversight

Opening the market to low-voltage consumers is also expected to increase operational complexity because of differences in metering and billing procedures among Brazilian electricity distributors.

The researchers said problems affecting customer experience could become indicators of regulatory stress as the number of retailers, consumers and contractual relationships increases.

“The ability to oversee contracts and commercial practices, combat fraud, monitor liquidity and payment delinquency indicators, and manage different metering and billing processes will be decisive in establishing a broader and more sustainable market,” said Susteras.

The study was developed by Allez Estratégia, a consultancy specializing in energy regulation and retail electricity markets. It draws on the experience of Susteras and Bueno, who led Brazilian solar company Sun Mobi from 2016 to 2025.

The researchers cautioned that the experience of subscription-based distributed generation does not necessarily predict how the free electricity market will develop. However, they said it provides indicators of risks that could become more significant as retail competition expands.

They concluded that market liberalization will require not only greater consumer choice but also stronger governance, regulatory frameworks and risk management practices.