Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

The Brazilian legal framework does not have a legal definition of ‘renewable energy’.

Nevertheless, Law No. 9,478, dated 6 August 1997, sets national policies for the rational use of energy resources based on certain principles such as the use of alternative sources of energy through the economic use of raw materials available and the applicable technologies and protection of the environment.

Also, for the purpose of ANEEL’s regulation, some renewable energy projects are entitled to obtain a discount applicable to connection tariffs for the use of transmission and distribution systems; namely, hydro power plants with a power equal to or less than 50MW (limited to the amount of 30MW of energy injected into the system) and solar, wind and biomass or qualified cogeneration, in accordance with ANEEL’s regulatory definition, with power equal to or less than 300MW.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

The Brazilian power sector has two different energy markets: the free market (ACL) and the regulated market (ACR). In the ACL, the generation companies and traders can freely negotiate the price for sale of energy to other generation companies, traders and free and special consumers.

In the ACR, distribution companies buy energy from generation companies that have won public auctions organised by the federal government. The conditions, amounts and rates for sales of energy are determined through the auctions. Also, the auctions may be organised only for renewable energies and, in that case, by securing a specific commercialisation environment for renewables and long-term power purchase agreements, the federal government has fostered the development of such market in Brazil.

With the purpose of constructing and operating renewable energy projects, entrepreneurs must obtain licences to be issued by the federal government, represented by the MME or ANEEL.

The licence can be granted through two different procedures:

  • an administrative procedure carried out by ANEEL, through which the entrepreneur asks the regulatory agency to issue a specific licence after presenting legal, technical, economic and financial accreditation documents and information; or
  • participation in ACR public auctions, after which, in addition to receiving the relevant licence, the power agent executes regulated power purchase agreements (CCEAR) or reserve energy agreements (CER) for the sale of electricity under ACR.

After obtaining a licence, renewable energy projects must comply with the milestones of the construction schedule defined by a referred licence. When reaching the test operation and commercial operation phase, respectively, the projects shall request to ANEEL’s approval to become operational.

In relation to project financing, see questions 29 and 30.

The environmental attributes of the renewable energy projects in Brazil were essentially related to the Clean Development Mechanism (CDM) in order to sell the certified emission reductions (CERs) among the Annex I parties of the Kyoto Protocol. During the enforcement of the Kyoto Protocol, Brazil was allowed to trade CERs with developed countries - and a significant part of these certificates involved renewable energy projects. Currently, taking into account the signature and ratification of the Paris Agreement, a new legal and local framework is due to be approved and, in this case, is closely related to the nationally determined contributions (NDCs) presented by Brazil.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

In 2002, the government created a programme to foster renewable sources (PROINFA) with the purpose of increasing the participation of renewable energy sources in the Brazilian power mix through the implementation of small hydropower plants, wind and biomass plants.

Under PROINFA, the commercialisation of energy from such projects is secured by long-term power purchase agreements entered into with Centrais Elétricas Brasileiras SA - Eletrobras, as offtaker of the energy, under fixed and predetermined prices.

PROINFA was executed through a simplified bidding procedure, in which selection criteria included priority for such projects with environmental licences.

By the end of the PROINFA, despite the delays associated with the start of commercial operation, 119 renewable energy projects were constructed and are already in operation.

Regarding other incentives, Law No. 9,427, of 26 December 1996 authorised ANEEL to grant a discount to TUST and TUSD fees (fees for the connection to transmission and distribution systems) for wind, solar, biomass and small hydropower plants.

In addition, Law No. 13,203/2015 provides that biomass, wind and solar power plants will receive a 50 per cent discount on TUST and TUSD fees as long as their production capacity is lower than 300MW provided that the projects participated in energy auctions on or after 2016 and the projects were granted with licences during or after 2016.

ANEEL authorised a further discount of 80 per cent for solar plants that begin operations by 31 December 2017, with a reduction to 50 per cent after the tenth year of operation. Nevertheless, as explained in question 9, in accordance with public hearings carried out by MME in 2017, the Federal Government is currently studying the possibility of revoking TUSD and TUST discounts applicable to future renewable energy projects since it understands that the benefit has already achieved its purpose; namely, the growth of the Brazilian clean energy market.

In addition, as mentioned in question 4, the government may organise at its own discretion auctions whereby only renewable producers participate and sell to distribution companies. Auctions of this kind were held in 2007, 2010 and 2015.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Renewable energy policies and incentives are established on a national level by the authorities described in question 1. However, some states have been developing incentives for renewable energies. For instance, some states have been regulating tax incentives for distributed generation, and the State of Pernambuco has carried out solar energy auctions to foster the industry in the Brazilian northeast.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

The Paris Agreement became nationally enforceable on 6 June 2017, owing to the enactment of Federal Decree No. 9,073/2017 and the prior signature and ratification of the treaty within the local jurisdiction.

The Brazilian government launched a public consultation, which was open until 30 July 2017, that aims at collecting inputs for the national strategy for implementing and financing Brazil’s Nationally Determined Contribution (NDC). In this regard, we expect the development of new executive measures to promote programmes, financing and credit lines in order to implement the Brazilian NDC. Additionally, renewable energy projects tend to generate a great market, considering that local NDCs aims to achieve 45 per cent renewables in the energy mix by 2030.

Also, in 2017, MME opened two public hearings aimed at receiving contributions from market players to reformulate and improve the Brazilian power sector’s legal framework. The first public hearing discussed general principles and guidelines applicable to the sector, while the other approached specific measures that could positively affect the market. These public hearings resulted in a draft of Bill of Law, which is now under discussion by the Brazilian Congress.

The main provisions addressed by the public hearings that affect the Brazilian renewable energy market are:

  • change in the tariff benefits related to renewable energy;
  • expansion of access to the energy free market. This expansion was already implemented by means of the issuance of MME Ruling No. 514/2018, which provides for the gradual reduction of the access requirements from 2.5MW to 2MW from July 2019 to January 2020; and
  • creation of capacity public auctions.

The public hearings recommended the end of discounts applicable over the TUSD and TUST fees for new renewable energy projects. Such recommendation was based on the fact that Brazil has already developed a sustainable and strong renewable energy market. The public hearings also recommended an ‘incentive award’ that would replace the aforementioned discounts, which would vary according to the amount of energy produced by the plants. The first draft of the Bill of Law prepared after the public hearings accepted the first suggestion but it provided, alternatively, an obligation for the Federal Government to create policies to stimulate the use of renewable energies up to 31 March 2020.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

In the ACR, the conflict will hardly rise from the energy pricing, as the price is set according to the bids presented by energy producers in public auctions. However, the conflict may rise from different understandings in connection with the application of Trading Rules enacted by CCEE or from the failure of any of the parties to comply with their contractual obligations. If this occurs, first the parties will try to solve the conflict amicably and then, if it is not possible to solve the conflict amicably, the parties shall discuss the dispute at the Conciliation and Arbitration Chamber of the Getulio Vargas Foundation (FGV) in Rio de Janeiro.

In the ACL, based on the Trading Convention approved by ANEEL Resolution No. 109/2004, the parties shall also elect the Conciliation and Arbitration Chamber of FGV as conflict resolution mechanism under power purchase agreements.