With a provisional presidential decree, federal government extends deadline for accessing discounts on use of power grid

04/11/2024

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Alexandre Silveira — Foto: Valter Campanato/Agência Brasil

President Lula signed a provisional presidential decree on Tuesday that drew criticism from the power industry. The decree extends the deadline for wind and solar power projects to access subsidies on grid usage by an additional 36 months. It also aims to reduce tariffs using funds from the privatization of Eletrobras. This initiative has put the sector on alert due to concerns about potential increases in tariffs, which are seen as a significant factor contributing to high electricity costs in the country.

At the ceremony at the Planalto Palace, Alexandre Silveira, Brazil’s minister of Mines and Energy, said that the provisional presidential decree will enable over 30 gigawatts of clean and renewable energy in Brazil, with the construction of new wind and solar power generation projects. Overall, the government estimates that the resources will reach R$165 billion in investments and create over 400,000 jobs.

With this measure, the government reopens the deadline for owners of wind and solar plants to access discounts on the use of the power grid. The original deadline had already ended during the Bolsonaro administration but had been extended by him at the time with the signing of the provisional presidential decree 998/20. It triggered an avalanche of requests for new projects with benefits at the Brazilian Electricity Regulatory Agency (ANEEL).

Members of the government itself complained about the weight of the new wave of subsidies on the account that centralizes tariff charges, the Power Development Account (CDE). This is a point that displeases this group of experts and is classified as “absurd” by a source consulted by Valor. The source calculates that the benefit will increase the cost of charges borne by consumers via tariffs by R$4 billion annually. “Those who pay the CDE are the middle class, industry, and commerce, which are not in the free market and necessarily consume power from distribution companies,” they said.

The provisional presidential decree signed Tuesday includes two compensatory mechanisms to alleviate high tariffs in the country. The first provides for the use of funds from the privatization of Eletrobras to prepay loans contracted by distributors during the COVID-19 pandemic and the 2021 hydrological crisis, thus reducing tariffs by 3.5% to 5% nationwide.

“We will pay off loans from the Covid Account and Hydrological Scarcity Account. There will be R$11 billion less in Brazilians’ pockets,” said the minister of Mines and Energy. He added that both financing contracts were signed “irresponsibly” by the previous government and “should never have been passed on to consumers.”

The second mechanism, with a local focus, aims to secure funding for the distribution company of the state of Amapá. This initiative seeks to mitigate the extraordinary tariff revision requested by the local concessionaire last year, which was estimated to be around 44%. Initially planned as a separate measure, it was eventually included in the proposal for benefits to renewable energy generation projects, as previously reported by Valor.

Minister Silveira and Chief of Staff Rui Costa said on Tuesday that the debate with sector members will be deepened to seek a structural solution to the problem of expensive electricity in Brazil. At the Presidential Palace, Mr. Costa said that a meeting will be held this Wednesday to discuss how to “harmonize the world’s cheapest production with the bill that should be one of the cheapest in the world for the poor and the middle class” in the country.

Mr. Silveira also said that a “permanent discussion forum” has already been established with the sector. “Tomorrow [Wednesday], we will have a slightly broader meeting,” he said, referring to the participation of representatives of entities and experts. According to Mr. Silveira, the government has the ongoing challenge of correcting distortions in the electricity sector, which result in higher tariffs. He said that after listening to the sector, a solution will be presented to Mr. Lula.

Following the government event, the National Front of Energy Consumers criticized the proposal, labeling it as “inconsistent and harmful.” They argue that the rules increase the charges within the tariff and anticipate future resources, thereby creating an additional expense that will ultimately burden consumers in the years ahead. The organization highlighted that subsidies currently constitute 16% of the Brazilian electricity bill. “With the new presidential measure, this cost will escalate further and immediately.”

The Brazilian Association of Energy Consumers (Abrace Energia), which represents industrial consumers, calculated that the extension of subsidies for renewable energy will represent a future increase that could reach R$4.5 billion per year in the tariff. “Therefore, it considers it important that these measures be evaluated together with several others that could structurally reduce the price of power,” the statement said.

*Por Rafael Bitencourt, Mariana Assis, Estevão Taiar — Brasília

Source: Valor International

https://valorinternational.globo.com/