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. 9,074/1995, 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 50MW designed for public services;
    • exploitation of hydraulic potentials above 50MW designed for independent power production; and
    • use of public assets, exploitation of hydraulic potentials above 50MW, which are designed for exclusive use of the self-producer;
  • authorisation regime:
    • thermopower plants (except for nuclear) above 5MW designed for exclusive use of the self-producer and for independent power production; and
    • small hydropower plants (PCHs) above 5MW and equal to or below 50MW designed for exclusive use of the self-producer and for independent power production; and
  • registration with the granting authority:
    • hydraulic potentials and implementation of thermopower plants equal to or below 5MW.

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. 10,438, 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 3.3GW 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. 9,427/1996, 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 self-producers that generate power from small hydroelectric plants with capacity lower than 5MW or solar, wind or biomass plants with capacity lower than 50MW.

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 in 2018 to level the distributed generation of hydropower plants with other sources at a maximum of 5MW, and further regulatory changes are expected in the near future upon presentation of a new normative resolution by ANEEL based in the results of the public consultation conducted by ANEEL in the first semester of 2019.

The 2027 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 2.5GW 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 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, such as Belo Monte, Jirau and Santo Antônio, are run-of-the-river power plants.

Oil and coal thermopower generation is being replaced by the dispatch of natural gas thermopower plants, as the natural gas emits less carbon dioxide than other sources.

Storage

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

Law No. 9,991 dated 24 July 2000 established mandatory investment in research and development projects as well as energy efficiency.

Based on this legislation, ANEEL approved 11 proposals in 2017 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.

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

Transmission facilities that are contemplated in the SIN are subject to concession of public service upon previous public bidding.

On the other hand, transmission facilities designed for international interconnections and connected to the basic network are also subject to previous execution of the applicable international treaty.

Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Law No. 9,074/1995 and Law No. 9,648/1998 granted open access to the transmission and distribution systems for different agents supplying and consuming electricity.

In this regard, ANEEL regulations establish general conditions for obtaining access to the transmission system, including contracts for connection to and use of the system. The power generator requesting access to the transmission system shall carry out technical and economic studies, and undertake projects and activities, related to its facilities of exclusive use (if any) and proper access to the system. The conditions for access shall be consolidated in the access report issued by ONS.

Such ANEEL regulations also set forth standardised clauses for contracts to be entered into with transmission companies being accessed and ONS (contracts for the use of the transmission system and for connection to the transmission system), as well as provisions with respect to charges for connection to and use of the transmission system.

Transmission facilities of exclusive use of an agent may also be accessed by another interested agent or consumer that complies with the applicable legal and technical requirements and specific regulation issued by ANEEL.

Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

EPE shall prepare studies required for the transmission system expansion plans on a short-, mid- and long-term basis. Such expansion is a result of auctions called by the government for construction and operation of transmission facilities.

Pursuant to Law No. 9,648/1998, ONS shall also propose the expansion of transmission facilities to the granting authority.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The transmission system integrating the SIN is operated by ONS and each transmission agent must enter into specific agreements with ONS to ensure that the operation of its facilities will occur in accordance with ONS’s determinations.

Public services related to the transmission system are governed by ANEEL tariff policies, which basically consist of the stipulation by ANEEL of a RAP to be perceived by each concessionaire or permissionaire by means of the TUST to be paid by each agent that accesses the transmission grid. In order to determine the TUST, ANEEL shall consider the results of the applicable transmission public auctions conducted by the government and the RAP to be paid to the transmission agents as from the commencement date of operation of their respective facilities. RAP is subject to periodical revisions in accordance with each applicable concession agreement.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

Both ONS and ANEEL are responsible for the reliability of the transmission grid.

Pursuant to Law No. 9,648/1998, ONS is responsible for:

  • the planning and programming of operations and centralised dispatch of power generation, envisaging optimisation of inter­connected systems;
  • the supervision and coordination of operational centres of electrical systems;
  • the supervision and control of the operation of electricity systems for national and international interconnections;
  • the contracting and administration of transmission services and the respective access conditions;
  • proposing to the granting authority the expansion of transmission facilities; and
  • proposing rules for the operation of transmission facilities of the SIN, which are approved by ANEEL.

ANEEL is responsible for regulation and overview of production, transmission, distribution and commercialisation of power, in accordance with policies and guidelines established by the federal government.