Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

Pursuant to Law No. 9074/1995, construction and operation of generation facilities shall be subject to:

  • concession regime, upon previous bidding process: exploitation of hydraulic potentials and implementation of thermopower plants (except for nuclear power plants) above 50,000kW designed for public services; exploitation of hydraulic potentials above 50,000kW designed for independent power production; and use of public assets, exploitation of hydraulic potentials above 50,000kW, which are designed for exclusive use of the SP;
  • authorisation regime: thermopower plants (except for nuclear) above 5,000kW designed for exclusive use of the SP and for independent power production; and small hydropower plants (PCHs) above 5,000kW and equal to or below 50,000kW designed for exclusive use of the SP and for independent power production; and
  • registration with the granting authority: hydraulic potentials and implementation of thermopower plants equal to or below 5,000kW.

In ‘new energy’ project auctions, aside from PPAs, generation companies also bid for a regulatory licence to operate the power plant. While hydropower plants with an installed capacity above 50MW are required to participate in those auctions to obtain the corresponding concession (whose granting must be preceded by a public bid and shall be for a period of up to 35 years), power plants subject to authorisation may obtain the respective regulatory licence without the need for an auction.

In addition to regulatory approvals, construction and operation of power plants shall also be subject to other permits and licences, including with respect to the protection of the environment and cultural heritage, among others.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

The legislative framework grants open access to transmission and distribution systems for the different agents supplying or consuming power.

Such access shall be subject to charges owing to transmission or distribution costs involved (TUST and TUSD tariffs, respectively), and may require capital expenses by the accessing party, as it would be the case of transmission facilities of exclusive interest of the power producer.

The general terms and conditions for the contracting of access to transmission or distribution systems are regulated by ANEEL, as discussed in question 10.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The government has implemented different policies over time to foster alternative energy sources.

As a response to the energy supply crisis in the early 2000s, Law No. 10438, dated 26 April 2002, contemplated incentives for alternative sources in the electricity matrix. The law included:

  • creation of the Alternative Energy Source Incentive Programme (PROINFA) aimed at the construction of 3,300MW of installed capacity, through a feed-in tariff mechanism;
  • creation of the Energy Development Account (CDE) to foster competitiveness of power produced by wind plants, thermo solar, photovoltaic, small hydroelectric plants, biomass, other alternative sources and natural gas; and
  • a waiver for IPPs that generate power exclusively from wind, solar, biomass, PCHs and qualified cogeneration with respect to the obligation to apply at least 1 per cent of net operational revenues per year in research and development.

In addition, specific energy auctions were used to foster alternative sources, including the Reserve Energy Auction and the Alternative Sources Auction.

Pursuant to Law No. 9427/1996, as amended, ANEEL shall also stipulate a discount of at least 50 per cent (or 80 per cent in case of certain solar plants) to the TUST or TUSD charged from ‘incentivised sources’ (small hydroelectric plants, solar, wind power, biomass and qualified cogeneration, provided that they do not exceed the applicable capacity).

The concept of special consumers established a lower threshold (load higher than 500kW) as compared to free consumers to allow purchase of power from IPPs and SPs that generate power from small hydroelectric plants with capacity lower than 5,000kW or solar, wind or biomass plants with capacity lower than 50,000kW.

ANEEL also regulated in 2012 the net metering mechanism for distributed generation, which plays an important role in increasing the use of photovoltaic solar generation in Brazil, among other alternative energies. Such regulation was also recently amended to level the distributed generation of hydropower plants with other sources at a maximum of 5MW and further regulatory changes are expected in 2019 upon public consultation currently being conducted by ANEEL.

The 2026 Energy Plan published recently by EPE reflects relevant growth of wind and solar plants installed capacity. In the case of solar photovoltaic plants, more than 2,500MW have been contracted through Reserve Energy Auctions since 2014. Although solar energy installed capacity is still not significant, it is expected to maintain its growth.

Renewable energy sources are also entitled to some special credit lines from the Brazilian and the Northeast public banks, the National Bank for Economic and Social Development (BNDES) and the Brazilian Northeast Bank (BNB).

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

As discussed, the Brazilian electricity matrix is already mostly renewable as hydropower and wind power are responsible for more than 70 per cent of the installed capacity.

Environmental concerns, on the other hand, limit Brazil’s ability to expand its hydropower generation capacity with large reservoirs. As a result, large hydropower plants, like Belo Monte, Jirau and Santo Antônio, are run-of-the-river power plants.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

Law No. 9991 dated 24 July 2000 established mandatory investment in research and development projects as well as energy efficiency.

Based on this legislation, ANEEL recently approved 11 proposals for research and development projects submitted to ANEEL Public Call for Strategic Research and Development Projects No. 21/2016, which aims at developing projects for the insertion of electricity storage systems in the electricity sector. Twelve other proposals were approved with recommendations.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

Brazil currently has two nuclear reactors in operation (Angra 1 and Angra 2), representing approximately 1.3 per cent of the installed capacity. A third plant is under construction (Angra 3).

Pursuant to the Brazilian Federal Constitution of 1988, the federal government shall have the power to operate nuclear energy services and exercise state monopoly over research, prospecting, mining, enrichment and reprocessing, industrialisation and trade in nuclear ores and their by-products. Therefore, private investors are not allowed to participate in nuclear power in Brazil.

In 1997, nuclear operations of Furnas Centrais Elétricas SA merged with Nuclebrás Engenharia SA (Nuclen) (both government companies of the electricity sector) to form Eletrobrás Termonuclear SA (Eletronuclear), a new subsidiary of Centrais Elétricas Brasileiras SA (Eletrobrás) responsible for construction and operation of nuclear power plants in Brazil.

Although nuclear power seems to continue to hold a place in the energy plans of Brazil, it appears that further expansions would be pursued only in the long term, rather than in the mid-term.