Renewable Energies marketing models Brazil

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 Feed-in-Tariff

​Status Quo

Differently from some developed countries such as Germany, at the moment the feed-in-tariff is not applicable in Brazil. The most similar model currently used is “Net Metering”. This model allows the small energy generator that produces for self-consumption purposes to use the surplus of energy generated to compensate in future energy bills or other consumer-related units. Pursuant to the current legislation1 micro-generators are those that produce up to 75kW, whereas mini-generators produce between 75 kW and 3MW (hydric source) up to 5MW (others than hydric sources generators). Please see more details in “Self-Consumption” section.

 

Current Challenges

Feed-in-tariff could be a good alternative for Brazil to increase the Renewable Energy share in the country’s Energy Matrix. However, this model seems to be far away from being applied effectively or even discussed by the legal authorities. Currently, the authorities are still shaping and defining the Net Metering (mentioned in the previous topic). 

 

Outlook

The implementation of feed-in-tariff in Brazil is unlikely to happen in the short or mid-term. The country is still absorbing and implementing other models such as Net Metering. However, the renewable energy sector is rising sharply, with an increase in investments mainly in PV and Wind. To keep and increase this growth, the authorities might consider the implementation of this model in the future.

 

1 Normative resolution No. 482, of April 17, 2012

 Self-consumption

Status Quo

The market volume of Self-Consumption is still not significant in Brazil, but it has increased. According to a research released by ABSOLAR in 2018 (i.e. non-governmental entity specialized in PV energy), the majority of distributed generation in Brazil comes from PV installation (99.4%). It currently represents approx. more than 430 MW of installed capacity. Still, PV only provides a small margin of energy compared to the entire energy matrix as the total installed capacity in Brazil is around 160 GW.


Currently, there is an energy compensation system (Net Metering) allowing micro & mini-generators  to inject the exceeding amount of energy generated (comparing to the effective energy consumed) into the public grid. Pursuant to the current legislation2 micro-generators are those that produce up to 75kW, whereas mini-generators produce between 75 kW and 3MW (hydric source) or 5MW (others sources). The generator can compensate this surplus in future energy bills or even in other consumer-owned units placed in the region covered by the same distributor. It may be used within sixty months. Note that comparing to some developed countries such as Germany, the business model runs differently. For instance, in Germany the consumer can sell the energy surplus placed into the grid, receiving cash as collateral (feed-in-tariff).


It is worth to say that until 2019 any new micro or mini-generator can take advantage of only paying the distribution fees (“TUSD”) in case of incurring more consumption then generation. For instance, if it has generated 100 KW while consumption was 150 KW, the generator shall only pay the TUSD over 50 KW basis.

 

Current Challenges

There are two big challenges for the growth of the Self-Consumption model in Brazil.

  • Excessive bureaucracy: To implement this model in-house the consumer needs to complete several bureaucratic steps, which are very time-consuming. From the initial request until the beginning of using the Distributed Generation it takes a minimum of five months. In case something goes wrong during the process the time can increase substantially.
  • Misinformation from the market: Overall, the potential micro & mini-generators are not well-informed about the possibility of being part Self-Consumption model. There is a high challenge to educate people to choose a renewable energy source as well as to present the benefits of being a micro-generator.

 

Outlook

It appears that the Self-Consumption model has great potential in Brazil. Notably, the banks have provided special financing credit lines to potential mini-generators as well as to all the supply chains (e.g. PV panels producers). Additionally, the trade deal between Mercosur and EU will be defined and may be implemented in the years to come. Among other definitions and agreements, the trade may decrease or even eliminate tariffs and import taxes between the participants. The German business community expects that the trade agreement will probably boost and facilitate trade between mature markets in Europe (e.g. Germany) and Brazil.

 

Moreover, in 2015 a national incentive program3 (“ProGD”) was established aiming to expand and stimulate the generation of renewable energy. The main program’s goal is to increase the share of generated distribution in the Brazilian Energy Matrix, specially focusing on solar PV. This program covers a spectrum of measures including the implementation of new tax incentives as well as creating several lines of credit to the sector. Therefore, it is expected that the Net-Metering system will become more commonplace in Brazil.

 

On the other hand, a pitfall would be a potential change in the current legislation. As mentioned in the status quo section, the micro & mini-generators do not need to pay distribution fees (“TUSD”) of the total energy consumed. The authorities and the sector itself have discussed to charge those generators at least partially. This action may deaccelerate the growth of the Self-Consumption matrix.

 

2 Normative resolution No. 482, of April 17, 2012

3 Ordinance No. 538, of December 15, 2015.

 PPA

Status Quo

Recently, PPAs have increased substantially in Brazil. One of the main reasons is that the consumers have gained information about the advantages and possibilities of acquiring energy throughout PPAs. However, the current scenario benefits the relatively energy-intensive companies/consumers which fit in the special requirements. In the current legislation, there are two different categories of consumers that can choose to set PPAs such as: 

  • Special Consumers: consumption in a range of 0.5MW to 2.5MW and the energy must necessarily be acquired from renewable sources.
  • Free consumers: consumption is higher than 2.5MW. In this case, the consumer can choose the energy provider without restrictions. However, the consumer can take the advantage of acquiring energy from a renewable energy source by claiming significant discounts on TUSD (Distributor fees) and TUST (Transmitter fees) granted by the government as an incentive, sometimes achieving up to 100 %.

 

Current Challenges

Considering that the possibility of trade PPAs was implemented in Brazil in 1995, the information has been spread slowly throughout the years. This implies a high challenge for the sector to inform and educate the potential consumers to move away from the regulated sector to the “free market” (i.e. an environment where the companies are allowed to trade energy by PPAs). Additionally, the decision to move from the regulated market to the “free market” shall be carefully planned by the consumer. In case the consumer wants to return to the regulated market, it must notify the distribution company of its concession area five years in advance4. It can seriously impact any Company’s business plan.

 

Outlook

PPAs have great potential in Brazil. There are still a lot of potential consumers that have not migrated yet to PPAs. Once the market and its potential become better known and information starts to circulate, more it may bring more adopters. One of the main reasons is the significant price fluctuation in the regulated market, which is dependent on the government’s decision. This fluctuation significantly impacts the companies’ business plan – mainly for those industries where energy is one of the main costs.

 

4 Normative resolution No. 77, of August 18, 2004. 2 Decree No. 5.163, of July 30, 2004.

 Leasing

Status Quo

Leasing contracts (between two non-bank companies) are not that common. Brazil is a country with several challenges to the entrepreneur. Finding a partner to engage in such a long-term contract can be difficult. Usually, generator plants are operated by the same company that built it.

 

Current Challenges

There are several challenges for (foreign) entrepreneurs that should be considered when doing business and investing in Brazil. The country has one of the most bureaucratic systems in the world. According to The World Bank's “Doing Business” Report released in 2017, Brazil is the world leader in time to declare taxes. Just for comparison purposes the Germany is placed in 80th position (the USA 118th). Also, obtaining environmental licenses can be time consuming and the investor might expect delays in the construction schedule. Note that in general these bureaucratic procedures might increase the cost of capital.

 

Outlook

In the last years – mainly from 2014 to 2017 – Brazil's economy was characterized by a number of negative headlines, including political and corruption scandals, rising inflation, and a historic economic crisis. However, it appears that the current government is trying to turn this scenario around with structural reforms and the expectations of the German business scene are positive. Among the reforms being discussed are: Pension reform, Tax reform, and Judicial reform. Such measures result in cautious optimism among investors.

 Direct Marketing

Status Quo

Direct marketing is still not applicable for use in Brazil. There is no indication that this scenario will change in short or mid-term.

 

Current Challenges

Implementing this model is quite challenging in Brazil. Other models are considerably newer in Brazil (e.g. self-consumption; PPAs) which may take most of the authorities attention and could turn out to be a significant barrier for other models. 

 

Outlook

Despite having significant potential, direct marketing is unlikely to be applied in Brazil in short or mid-term. Certainly, it would attract new joiners to the renewable energy sector by encouraging new self-consumption producers. However, it appears not even a topic of the current discussions in the sector.

 

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