GD will not be affected by the government’s withdrawal of incentives for renewables

A MP 998 (Provisional Measure 998/2020), published on Tuesday (2), presents several changes for the electrical sector. Among them, the removal of incentives for renewables. This change has generated questions among professionals in the solar energy segment.

According to the MME (Ministry of Mines and Energy), the MP only affects large-scale generators and does not impact projects in the DG (distributed generation) segment, which are supported by REN 482 (Normative Resolution No. 482/2012) of the ANEEL (National Electric Energy Agency).

In other words, the changes contained in MP 998 will only affect contracts in the Free Energy Market, since the provisional measure makes changes to discounts on tariffs for the use of transmission and distribution systems (contracted demand) of energy consumers who have their contracts in the ACL (Free Contracting Environment) and that purchase energy from incentivized generation sources.

Currently, Free Energy Market consumers who purchase energy from these incentivized sources have a discount on contracted demand that varies from 50% to 100%, making them more attractive compared to conventional energy sources. According to the text of the MP, this discount will no longer exist for PCHs (Small Hydroelectric Plants), biomass, wind and solar.

In an interview with the newspaper O Globo, the minister of MME (Ministry of Mines and Energy), Bento Albuquerque, stated that the incentives already received by renewable sources were sufficient. According to him, the energy matrix is ​​one of the most renewable in the world and will continue to be so. “The growth of renewable sources in the last ten years in Brazil has been very significant. And our ten-year planning already indicates that these sources will occupy 25% of our matrix”, stated the minister.

“Subsidy is to encourage, and we believe that the incentives that these sources received were already sufficient for the development and sustainability of their participation in the matrix. Subsidies have made the cost come down,” she added.

“We will have a transition period of 12 months, respecting current contracts and those that come to fruition in 12 months. And, at the end of this period, we will have other compensatory measures”, concluded Bento.

Conventional incentives remain

In an interview with Canal Solar, Paulo Arbex, president of ABRAPCH (Brazilian Association of Small Hydroelectric Power Plants) stated that the government must verify all incentives granted and not only those for renewable sources.

“Numbers show that last year 65,43% of CDE and REPETRO subsidies went to the oil industry. The government needs to check all energy sources. In thermal plants, for example, it must be analyzed whether the contracting was correct and whether there was an abusive adjustment. Furthermore, it is necessary to verify who most uses the transmission and distribution networks and redistribute the costs considering the use that each source makes”, highlighted Arbex.

“Small hydroelectric plants do not use the transmission system, and use little of the distribution system. Therefore, we advocate an external audit to verify who is using and who is paying for the transmission and distribution networks. This is the most important point to check”, concluded the executive.

This year, the CDE, the CCC (Fuel Consumption Account), the mineral coal subsidy and REPETRO are expected to cost, together, approximately R$40,4 billion. In 2019, the total cost was R$38,2 billion.

{loadmoduleid 348}

Already the CEO of ABSOLAR (Brazilian Association of Photovoltaic Solar Energy), Rodrigo Sauaia, highlighted that in a process of withdrawing incentives, the principle of equality must be applied and that it must be transversal, being applied to all sources and technologies of electric energy generation that have incentives via CDE (Energy Development Account).

“This withdrawal should not only be applied to renewable sources, but also to non-renewable sources that currently access CDE resources as incentives. For example, coal, natural gas, thermoelectric plants and diesel generators are included in the text of the CDE. When we talk about reducing incentives, it needs to be done in an equal manner”, he stressed.

Changes in incentives for renewable sources

“Discounts will be applied to enterprises that request the grant within a period of up to 12 months, counting from September 1, 2020, and that begin the operation of all their generating units within 48 months, counting from the date of grant. ”, explained Pedro Dante, a lawyer specializing in the electrical sector.

Dante also explains that after the transition period, which is yet to be defined, the currently foreseen discounts will not be granted to new developments, which is in line with bills under discussion in the National Congress, especially the bill 232 (PLS 232/2016), authored by senator Cássio Cunha Lima.

Bernardo Marangon, a specialist in regulation and analysis of investments in the electricity sector, stated that the withdrawal of the incentive was expected, but he did not expect the definition to come out this year.

“The positive point is that we now have predictability regarding the future, which is essential for long-term investments. On the other hand, in the proposal it was not clear what will be built to reward the positive environmental requirements that these sources have. The exercise of regulation in an environment like the electricity sector, in which we live with some activities that constitute natural monopolies, is complex, as I see many confusing subsidies with incentives and economic signals. This change should harm small and medium-sized investors, which I consider harmful for a less concentrated and dynamic sector,” said Marangon.

Transition to structuring projects

When publishing the MP, the federal government stated that a transition will be established so as not to impact projects being structured. However, it was not disclosed how this process will be carried out, in addition to not establishing a schedule.

“Removing the incentive without the mechanism for rewarding the environmental attributes of sources being defined harms the projects that are being structured. Because, on the one hand we have a clear definition, which makes future projects less profitable, and on the other hand we do not know the intensity of the benefit to be created for renewable sources”, stated Marangon.

Already the CEO of ABSOLAR He highlighted that the transition period established by the Provisional Measure for the withdrawal of incentives is too short and should occur gradually, following a schedule. According to him, this would provide conditions for the market and sector agents to be able to adapt to the new rules to be implemented.

“This transition needs to be well matched and well linked in time. An incentive cannot be completed without the new mechanism already being structured and effectively implemented, ready to be rolled out”, highlighted Sauaia.

Attributes of renewable sources

After defending that the process occurs in an isonomic way and that a schedule is established, Sauaia highlighted that renewable sources have characteristics that must be valued. “We have electrical, energy, social attributes, such as job creation, economic and environmental attributes. There are also strategic attributes, such as the diversification of the matrix and the use of resources geographically”, stated the executive.

According to Sauaia, considering the attributes that renewable sources have is a fundamental condition so that, when changing the existing incentive model, such as the one proposed by MP 998, there is no imbalance in the sources that are used today in the Brazilian electricity matrix and the competitiveness of sources.

“May the federal government and the National Congress give a signal aligned with the 21st century, of priority for renewable sources for this energy transition. The environmental benefits are fundamental and need to cover renewable sources regardless of the size or profile of the energy generation system.”, concludes the executive.

Marangon also highlighted that it is clear to society the advantages that a clean matrix generates for the planet. “Our biggest concern is the recognition that medium and small investors must be recognized for their importance and encouraged through economic signals. The withdrawal of the incentive harms the CGHs and PCHs sector and delays the start of the feasibility of smaller solar energy projects in the ACL, we see this as a negative point of the MP”, commented the expert.

Processing of MP 998

MP 998 will be analyzed directly in the Chamber Plenary, according to the summary procedure defined by the National Congress during the Covid-19 public calamity period.

Remembering that every MP has the force of law since its publication, but is valid for up to 120 days. If it is not approved by the Chamber of Deputies and the Federal Senate within this period, or if it is rejected, it loses its validity.