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New rules for distributed power generation, proposed by Brazil's energy regulator Aneel, present challenges to the feasibility of solar projects. Thus, they create instability for related investments.
The watchdog started a public consultation on the proposed regulation, which is endorsed mostly by power distributors. They say that subsidies, amounting to 300mn reais (US$75mn), for distributed generation are paid by regular consumers.
Brazil has 101,761 distributed power projects, mostly solar power, but also wind, thermo, and small hydros. Energy ministry data shows installed capacity of distributed generation could rise from the current 1.2GW to 12GW under the previous rules, with 1.35mn new systems. But under the proposed regulation, growth would slow.
In their current form, the new rules would double the time of the return on investments for the installation of residential and commercial solar systems, to seven and five years respectively. Financing options would therefore become limited.
“We expected that the change was gradual, as the market grew. However, Aneel brought a new reality. For companies, this makes the market unstable,” Rodrigo Travi, CEO of solar power firm Ledax Energy and Lighting, told BNamericas.
Sami Grynwald, manager at consultancy Thymos, agreed that the previous rules were not balanced and needed revision, due to the lack of compensation paid to distributors for the use of cables. But he also believes that the proposal will upset the market. He thinks Aneel did not consider the benefits brought by distributed solar power, such as higher generation in times of peak demand – currently, around 3pm – the reduction in electricity losses and smaller demand for transmission investments.
“This will cool down investments. Companies will need to rethink their business models and evaluate the new costs. I do not think this will impede all investments, but it could prevent some regions from receiving projects,” Grynwald told BNamericas.
In Bahia state, for example, estimates show the new regulation would throw the solar power market back to 2016 levels, when it added only 2,500W of new systems, compared with the 18MW expected for 2019.
“This was a market that was growing by 300% per year and could now face a six-fold reduction. Besides from threatening companies and jobs, this also breaks the market’s confidence,” the co-founder of Bahia state solar power association, Giancarlo Smith, told BNamericas.
Smith said associations will demand Aneel to open up the methodology used to reach its conclusions and try to push changes in the proposal during the expected public meeting.
“Aneel assumed distributed generation was already mature in Brazil and compared it with developed markets, such as Germany and the USA, but those are regions with many more installed systems,” he said.
Grynwald, however, believes it is unlikely that the final rules will differ much from the proposed ones. If approved without changes, consumers with small generation systems would undergo a transition period and not need to pay distributors until 2030. Those who install new generation facilities will pay the network cost. By 2030, or when a predetermined amount of systems is installed, these consumers will also start paying taxes, in addition to network costs.
For remote generation, consumers that already have distributed generation would continue with the current rules until 2030, while those requesting new systems would start paying network costs and charges.
The final rules are expected for the first half of 2020.
By Gabriela Ruddy
Text originally published on BNamericas website october 17th 2019.