Electricity generation from the solar source is still in its early stages in Brazil especially in the light of related costs that make the final price of energy high when compared with other sources. Nevertheless, recent studies and incentives to the infrastructure sector have brought about new expectations for expansion that may change this scenario. Market experts envisage that solar energy may be sold at specific solar energy auctions, held by the Ministry of Mines and Energy (MME), in the next few years. This memorandum looks at the most recent alterations and measures taken as incentives for the electric power generation sector to foster the solar source.
According to studies available on the websites published by the National Electric Energy Agency (ANEEL) and the MME, Brazil holds favorable conditions for the development of the entire solar energy production line, including:
- A high level of solar radiation, with more than 2,500 hours of sunlight per year and a generating capacity of more than 4 kWh/m2;
- High-quality quartz reserves – around 95% of the world's total – suitable for production of pure silicon, one of the most important raw materials for solar cells and panels1;
- Availability of large non-productive areas for the implementation of greenfield projects, especially in the Northeast Region of Brazil, which presents a high level of solar radiation;
The current regulatory framework provides a number of incentives for energy generation from renewable sources, including:
- Solar energy generation centers with less than 5MW of installed capacity can benefit from a simplified registration system with ANEEL without the prior approval requirement. Centers with a potential of more than 5MW are subject to an authorization system that has also been greatly simplified;
- Discounted Distribution System's Usage Tariffs (TUSDs) and the Transmission System Usage Tariffs (TUST) for power plants of up to 30MW which use the solar source, ranging from 50% to 80%;
- Exemption from the annual payment of 1% of the net operating income on research and development of the electricity sector;
- Exemption from Value-Added Tax on Sales and Services ("ICMS") for certain equipment and components designed to make use of solar energy;
It is worth highlighting that the Federal Government has been adopting R&D measures seeking to develop the solar energy generation market.
Recent changes in the regulatory framework of the electricity sector have allowed a great advance in distributed generation by mini and micro generators:
- Introduction of the 'net metering' model by means of the electric energy compensation system, within which excess energy produced by a generation plant is inserted into the local distribution system, whilst the corresponding credit can be used to compensate the consumption during the subsequent months;
- Simplified access procedure to the distribution network for mini and micro-generators using the solar source.
Furthermore, several infrastructure projects, such as the new stadiums which will be hosting the Soccer World Cup in 2014, are contemplating the installation of solar panels, demonstrating concern for the environment and growth opportunities in the sector.
As far as centralized generation is concerned, although the issue of energy prices is still an obstacle, we already have special financing conditions2 through the National Economic and Social Development Bank ("BNDES"), including:
- The Renewable Energies Climate Fund, which finances up to 90% of a project for a period of up to 15 years;
- The PROESCO Energy Efficiency Project Support program, which finances as much as 80% of installations.
It is worth noting that the recently introduced tax incentives that allow the adoption of a differentiated tax income regime relating to debentures issued by Special Purpose Companies engaged in infrastructure priority projects, as defined by the MME on case-by-case basis. The investments raised through debentures can also be used to cover costs, expenses or debts relating to periods prior to the date of issue, and the same tax incentive regime applies to investment funds dedicated to infrastructure projects.
Felsberg e Associados
Felsberg e Associados has extensive experience in the electrical energy sector and in structuring projects in relation to energy generation from renewable sources, and is equipped to provide legal assistance to lenders and sponsors in all phases of a project, from structuring the legal model until the effective operation of the plant, including:
- Establishment of SPVs, JVs and drafting of all the corresponding corporate documents;
- Legal structuring of the financing, insurance and guarantees package ( project finance);
- Issuance of securities, including debentures (debentures incentivadas);
- Regulatory procedures with ANEEL and state energy agencies, environmental licensing and interaction with the related bodies;
- Drafting and negotiation of related agreements, such as EPCs, O&Ms, etc.;
- Administration of post-closing and claims.
2 Other lines of credit are also available, please refer to http://www.bndes.gov.br
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.