President Jair Bolsonaro early January signed into law the legal framework for local energy generation, the so-called distributed generation. It generated urgency in the development of new projects in Brazil. The sector foresees a “gold rush” this year to guarantee the use of the distributors network, the so-called Tusd. The haste is explained because the new regulation establishes that the ventures that request connection to the network up to 12 months after the law was signed off will not pay for this connection fee during 23 years.
The Brazilian Association of Distributed Generation (ABGD) predicts that the sector can reach 100% growth in 2022, with injection of up to 8 gigawatts (GW) of installed capacity and investments of approximately R$35 billion in the year.
A feasibility study by consultancy Clean Energy Latin America (Cela) in the concession areas of 25 distributors showed that photovoltaic solar generation projects installed on the roofs of consumers themselves will continue to be advantageous even with changes in tariffs in the coming years. However, the scenario is different for remote distributed generation projects, in which the customer contracts the service of a company that builds solar farms in the concession area of the same distributor, in exchange for a discount on the energy tariff.
The consultancy shows that remote generation projects that request access until January 2023 will remain competitive, but some initiatives will become more restricted over the years, especially in the case of plants with a capacity above 500 kilowatts (kW). “There will be a huge demand for new projects in the next 12 months, as everyone will want to conform to the old law. This year we will see, by far, the largest volume of new distributed generation projects in Brazil,” says the consultancy’s CEO Camila Ramos.
Cela’s study shows that the new rules may impact the ability of remote generation projects to offer discounts on regulated tariffs, mainly in regions of the states of Pará, Maranhão, Piauí, and Tocantins. According to Ms. Ramos, companies will need to pay more attention to strategic planning, in addition to seeking to become familiar themselves with the regulatory framework and tariff calculations to proceed with the implementation of projects with the new rules.
“From now on, it will be more important in the companies’ strategy to define the location and size of projects. Consumers in some states will have more viable projects than in others,” says Ms. Ramos.
About 80% of the investment planned for 2022 in the sector will be in microgeneration, below 75 kW, a consumer profile that has been consolidated in Brazil for years, according to ABGD. “It is better to install [a photovoltaic system] this year because we will have a better compensation condition. Yes, there will be a race for the sun,” says the association’s executive president, Guilherme Chrispim.
Cela’s CFO, Marília Rabassa, recalls that the payback periods for investments in distributed generation vary according to the tariff in each region and the incidence of solar radiation.
In this context, large banks and investment funds have shown greater interest in the segment, despite the rise in interest rates. This is the case of Itaú BBA, which has operations that total more than R$1 billion. The bank has seen demand for financing in the sector grow, according to the head of energy in the project finance area, Allan Batista. “Now we have a framework, we know the modeling, how to assess risk and scenarios. That sensitivity brings a little more appetite in terms of credit and investments,” he says.
Mr. Batista believes that the 12-month window after the landmark legislation can bring above-average investments. He highlights that the current volatility in interest rates is not likely to inhibit investors in the sector, who tend to have a long-term view. “We see delays in projects and a lot of cost overruns due to [prices of] commodities. We have a break-even dynamic this year: on the one hand, we have a time lag to have a greater benefit in 2022, and on the other hand, this extra cost,” he says.
The sector has experienced a strong movement in search of resources in recent months. Meu Financiamento Solar, Banco BV’s financing platform, provides for R$1 billion per month in operations this year.
Evolua Energia, a company based in Minas Gerais that started operating in 2020, raised R$123 million in August last year, through the issuance of a real estate receivables certificate (CRI), advised by Banco Modal. The company intends to carry out a similar new issuance, in addition to using its own cash to finance the expansion of the current generation capacity to 90 MW from 32 MW by the end of the year. According to the company’s CEO, Tarcísio Neves, the capacity could double in 2023, with the acceleration of the implementation of projects requesting access to the network in the coming months.
Evolua’s idea is to expand its operations beyond Minas Gerais, with new projects in the Northeast region. “We are accelerating the request for access opinions in 2022 to ensure the continuity of the implementation of the parks. Thus, we will develop a portfolio of projects now to support new investments in plants in 2023 and 2024 with current conditions”, explains Mr. Neves.
Mr. Chrispim, with ABGD, states, however, that there are possible obstacles to the growth of distributed generation in Brazil this year, such as the difficulty of expanding the skilled workforce, which has already affected the deadlines of some projects. Other factors, such as exchange rates, freight costs, rising commodities, high global demand, and an election year will continue to put pressure on the sector. “We had recent global inflation and everything went up. This movement already happened in 2021 and now we see that the price has stopped going up but is not going down. There is an expectation of stability, but not of reduction,” he says.
Source: Valor International