Brazil’s Attempt at Distributed Generation: Will Net Metering Work?

On April 17, 2012, the Brazilian Federal Energy Regulatory Agency (ANEEL) enacted new rules aimed at reducing barriers for the incorporation of distributed power generation (DG Regulation) into utility procurement and into Brazil’s distribution planning processes. To achieve the goal of enabling production of renewable energy on a broad scale but without reliance on long-distance transmission lines, the DG Regulation establishes the following measures: 
A net metering program (Sistema de Compensação de Energia) allowing small-scale power production generators of 1 MW or less to offset their electricity bills with credits from the energy they provide to the grid.
Ease the interconnection regulatory bur­den and improve grid integration for small-scale renewable energy production generators.

The DG Regulation’s Net Metering Program

ANEEL’s DG Regulation lays out the framework for implementation of a net metering program in which owners of small distributed generators with renewable energy systems installed on site, and those that generate energy in excess of the amount of power consumed in a given month, would be allowed to receive credits (in kWh) on their electricity bill for the power that they generate and feed back to the grid. If the generating capacity of the participating consumer’s facility is less than the amount of power consumed, the generator would only be required to pay for the difference between the energy consumed and the energy generated. The regulation provides that the credits earned by the micro or mini generators expire after 36 months from the invoice date and should be applied back to the generator “preferably” on the same billing cycle of when the energy has been produced, taking into account the differences in the electricity rate structure throughout the day (i.e., peak/off-peak tariffs) for calculation purposes.

According to the regulation, qualifying small distributed generators include:
Distributed Microgenerators: Any energy generating facility with installed capacity of 100 kW or less that utilizes an incentivized energy source (solar, wind, biomass, hydro and cogeneration) and is interconnected at the concessionaire’s distribution network through consumer-installed systems.
Distributed Minigenerators: Any energy-generating facility with installed capacity between 100 kW and 1 MW that utilizes an incentivized energy source and is interconnected at the concessionaire’s distribution network through consumer-installed systems.

Notably, while the costs associated with the on-site infrastructure and meter upgrades are to be borne by the small power producer who adheres to the program, the distribution concessionaire will be responsible for routine operation and maintenance of the meter (and related equipment), including conducting adequacy testing and eventual replacements. The distribution concessionaire also will be required to periodically collect data from the small power production generators and providing such data to ANEEL.

Moreover, as mentioned above, ANEEL intends to significantly expedite the application process for interconnection to the grid – in comparison with the process for integration of larger-scale energy generation systems — by, for instance, implementing procedures that would streamline review and processing of applications; requiring the concessionaire to conduct interconnection evaluations and studies at no cost to the applicant/participating consumer; reducing the deadline for the concessionaire to issue its interconnection report; and simplifying contractual requirements (qualifying small distributed generators will not be required to execute an interconnection agreement, just for example).

The potentially paradigm-shifting regulation allows for the net metering credits obtained and not used by a generating facility to offset the excess energy consumption of other sites provided that (i) the site having its excess energy consumption offset by net metering credits must be registered as such; (ii) both sites are serviced by the same distribution concessionaire; and (iii) ownership of both sites is the same or, if different ownership, provided that the sites consuming the electricity have shared interests as a matter of law or fact. Importantly, the latter possibility would allow net metering program participants to distribute/transfer credits among multiple electric service accounts, for instance, on a multi-tenant commercial property. It would also encourage the development of “community” renewable energy installations, which has been well-accepted in other countries, particularly in the United States and Germany.

Although the DG Regulation covers other “incentivized” renewable energy sources such as wind and biomass, it was essentially designed to stimulate solar power generation. Brazil has made it clear that it wants to add solar energy generation to its energy mix at a fast pace. Since net metering might significantly spur consumer investment in solar without the need to construct new long distance transmission lines, it is not surprising that ANEEL released another resolution in conjunction with the DG Regulation that provides specific tax benefits for solar power deployment. In particular, ANEEL will increase the existing discounts in transmission and distribution system usage charges (TUST and TUSD, respectively) from 50 percent to 80 percent for qualifying solar systems up to 30 MW and those applicable up to the first 10 years of operation.

The Debate is Just Getting Started

Pursuant to the DG Regulation, the distribution concessionaires have 240 days from April 17, 2012 to adjust their billing and operating systems and elaborate — or revise — technical requirements so that access to net metering can be made available upon request to captive customers.

As in California, the debate in Brazil likely will be centered on whether net metering will cost distribution concessionaires (and retail consumers who do not opt in) more than not having the program in place. The DG Regulation is not clear as to whether net metering consumers have to pay or co-pay to use the concessionaires’ distribution networks to transport the power from the location where the energy is produced to where the energy is consumed (if different). Depending on the success of net metering following the 240-day period mentioned above (particularly among big power users), a controversy may also arise regarding a potential increase in the energy bills of “non-net metering” ratepayers as a result of the possible cost-shift noted above and the discounts in the TUST and TUSD for solar systems.

Forgetting for a moment the myriad of benefits and savings from net metering — which range from cutting costs of line losses, to the need of new transmission capacity, to avoiding electricity shortages and rationing (a problem Brazilians are unfortunately accustomed to) — any cost-increase argument likely will not hold in Brazil.

In other countries, net metering may face inherent limitations on its ability to promote widespread distributed generation given that consumers may consider installation of a distributed generation system too expensive when compared with the retail price of energy paid. However in Brazil, because the cost of electricity is already extremely high (average between R$500 and R$600/MWh), distributed generation (particularly from solar installations) can be economically feasible in short order and competitive with centralized distribution and some of the country’s conventional sources of power, such as thermoelectric and large hydropower plants.