Brazil
| Topic | Details |
| Key facts |
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| Population | 214.9 million |
| Gross national income (GNI) per capita | USD 7,850 |
| Business environment |
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| Profile |
Brazil is a country in South America, bordering the Atlantic Ocean. It has a continental territory and a diversity of geographies and climates that vary from north to south. In the 1980s, together with the promulgation of the current Federal Constitution, a liberalization of the economy took place – the basis for the current open and free-market economic configuration. Brazil is a republican and unitary state, with presidential elections every 4 years. The country is the largest economy in Latin America and one of the world’s largest engines of economic growth (it is expected to become the fifth-largest economy on the planet by 2050). Brazil's economy is very diversified and one of the largest consumer markets in the world, with a highly productive agriculture sector, a broad and sophisticated industrial base, one of the most solid and prudently regulated financial sectors in the G20, and the largest stock market in Latin America. It has abundant natural resources, including those that generate energy. Foreign investment plays a crucial role in helping the country work to achieve sustainable growth and development; for foreign investors, Brazil is among the most sought-after markets. According to UNCTAD’s World Investment Report 2022, Brazil saw foreign direct investment inflows of USD50 billion, being ranked 6th in the countries with the highest FDI inflow in 2021. |
Brazil
The general legal framework for the Brazilian energy sector is established in the Brazilian Federal Constitution. According to the Federal Constitution, the government shall, directly or by means of authorization, concession or permission, promote the rendering of public services.
Based on the above, since the late 1980s, the energy sector has experienced several restructurings, aiming to facilitate private investment and create sector security.
The federal government has passed the following laws, which represent the main legal framework for the power market in Brazil: (i) Law No. 8,987/95 (Public Concessions Law); (ii) Law No. 9,074/95 (Power Concessions Law); (iii) Law No. 9,427/96 (Creation of ANEEL); (iv) Law No. 10,848/04 (Power Trading), amongst others. The sector is also heavily regulated by ANEEL, the agency responsible for sectorial oversight, which issues rules and resolutions applicable to the power sector and its agents.
The development of energy projects in Brazil is subject to the granting of authorizations by the government. Depending on the nature and size of the project, the right to explore a resource or provide a power-related service (such as transmission and distribution) shall be awarded through public bidding procedures.
The power trading market is divided into the regulated market and the free market. The first has the goal of providing power to distribution companies at a certain price by means of a public bidding procedure. Captive consumers (natural persons and small businesses) are also included in this context, since they are only allowed to buy electricity from the local distribution company. In the free market, in contrast, power generators, traders and free consumers are allowed to buy and sell power at market conditions, being the contractual terms fully negotiable by the parties. In order to be a free consumer, such consumer must have a power demand of at least 1 MW, as of January 2022, being such amount reduced to 500kW as of January 2023. Nevertheless, the sector is currently discussing further opening of the free market, which could enable all high-tension consumers to access the free market by as early as 2024 and a complete opening, to all consumers, in the following years.
According to ANEEL, Brazil has over 17,000 operational power plants, with more than 183 GW in authorized capacity. When considering projects under development and construction, Brazil reaches the figure of over 270 GW in authorized capacity, generated by almost 20,000 power plants.1
The country’s generation capacity in 2021 was divided into the following sources2:
- Hydro – 55,3%
- Natural gas – 13,2%
- Wind – 11%
- Biomass – 7,9%
- Oil products – 2,8%
- Coal – 2,7%
- Solar – 2,6%
- Other – 2,3%
- Nuclear – 2,2%
1. See ANEEL’s Generation Information System (SIGA)
2. See Electric Energy Statistic Yearbook 2022
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Brazil is a world leader in renewable energy, with over 75% of its generated power provided by renewable sources in 2021. The country’s natural resources enabled the development of hydro power plants, which represented 55,3% of the country’s energy generation last year, as well as biomass, wind and solar projects1.
Brazil has a massive portfolio of hydro assets and the natural resources to enable the exploration of hydro power plants, but recent water crises and climate change have shown how dependent Brazil is on hydro. When reservoirs and rivers are not sufficient to generate enough power to meet market demands, this can create issues in energy supply. In this sense, diversification via the renewables matrix is currently viewed as a sector priority.
Just in 2020-2021, solar generation grew 56% and is expected to be one of the country’s major sources in the future, attracting significant investment, both local and international.
One of the pillars of the current development of Brazil’s solar capacity is distributed generation. First regulated by ANEEL in 2012 by means of Normative Resolution No. 482/2012 (REN 482/2012), the regulatory framework of distributed generation allows consumers (both natural persons and entities) to generate their own power and inject it in the local distribution grid, creating credits to offset their power consumption bills. As of July, 2022, Brazil had over 1,131,000 distributed generation units; more than 99% of these units are solar projects, located in 5,492 cities, with over 12 GW of installed capacity.2 The recently sanctioned Law No. 14,300/22 establishes the regulatory framework of generated distribution going forward. Prior to such law, which has been extensively discussed by the sector’s entities, the only regulatory framework was REN 482/2012, as amended. One of the main differences between these two rules is the change in net metering regulations applicable to generated distribution, with some incentives being reviewed for future projects with the establishment of a transition period.
Despite the changes on the horizon, recent studies by EPE (Empresa de Pesquisa Energética) have shown that distributed generation projects are expected to receive more than BRL120 billion in investments from 2022 to 2031, and the applicable installed capacity is projected to reach over 37 GW in the same period.
Wind generation already represents a relevant portion of the power matrix and is expected to increase even further going forward, including with the installation of offshore plants. For reference purposes, wind generation increased almost 27% between 2020 and 20213. In mid-2022, wind projects have reached the important milestone of 22 GW in installed capacity, divided into 831 operational projects, with additional 414 projects under development with an authorized capacity of 15 GW.4 In addition, it is worth mentioning that the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) has received over 40 environmental licensing requests for offshore wind generation projects, with 133 GW in total.
Biomass is currently the fourth main source of power generation in Brazil. It reached over 600 operational biomass power plants in mid-2022, representing more than 16 GW in authorized capacity. Brazil’s strong sugar cane industry, one of the main sources of biomass to the power sector, is also expected to see significant growth in the next years.
1. See Electric Energy Statistic Yearbook 2022
2. See ANEEL’s Distributed Generation Information System
3. See Electric Energy Statistic Yearbook 2022
4. See ANEEL’s Generation Information System (SIGA)
Brazil
- One of the main issues currently being discussed in the context of Brazil’s renewables industry is the diversification of power sources. As mentioned above, 55% of the country’s power generation in 2021 was provided by hydro plants, which makes the country highly dependent on this source. Although Brazil has a great number of hydro assets, in the last few years the hydrological conditions have been constantly below average and, in some cases, reaching their lowest records ever registered, causing the risk of power outages.
In this sense, other sources such as solar (including by means of distributed generation), wind and biomass are expected to have a significant increase of their share in Brazil’s energy matrix. One example of regulatory incentive for diversification is the newly enacted ANEEL’s Normative Resolution No. 954/21, which provides for the regulation of hybrid power plants, combining more than one power source. - Up until 2021, Law no. 9,427/1996 granted a discount of at least 50% in the distribution/transmission system usage tariffs (known as “TUSD” and “TUST”) both for the power generator and for the energy consumers contracting renewable sources. Law no. 14,120/2021, however, provided for the end of such discounts, establishing a transition period and providing for the creation of a mechanism to assess the environmental benefits of each source. The Brazilian Ministry of Mines and Energy recently promoted a public hearing to discuss the guidelines for such mechanism –thus, further regulation is still under discussion.
- Regulation of offshore wind is still under discussion. Decree no. 10,946/2022 established guidelines for regulating offshore wind projects in Brazil – as such, it represents an important step towards the construction of a robust regulatory framework for offshore wind projects. However, according to the aforementioned Decree, the Ministry of Mines and Energy - MME must still publish supplementary rules until December 15, 2022.
- A main obstacle to the further development of renewable projects is the location of power plants, which are usually far from the main consumption centers, creating the need for major investments in transmission and distribution capacities. While most of the potential for hydro, wind and solar generation is located in Brazil’s north and northeast regions, the largest population centers, such as São Paulo and Rio de Janeiro, are located in the southeast region.
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- In large-scale renewables projects, the most common funding sources are two government-controlled Brazilian development banks, BNDES (Banco Nacional de Desenvolvimento Econômico e Social), Brazil’s main development bank, and BNB (Banco do Nordeste), both being extremely active in the sector.
BNDES, for example, is expected to finance more than BRL40 billion in renewables projects in the upcoming years. - Certain local development banks, such as BDMG (Banco de Desenvolvimento de Minas Gerais), are also active in the development of renewables projects.
Brazil
The wind farm Lagoa dos Ventos, the largest wind project in South America, with 716 MW of installed capacity, started operating on June 2021. This is the largest wind farm in Enel Green Power’s portfolio in the world. An expansion of this plant is currently under construction, with the additional capacity of 396 MW.
French company Voltalia has started the operation of a solar plant in the state of Rio Grande do Norte with more than 320 MW in installed capacity. It is part of the Serra Branca complex, the largest solar and wind complex in the world, with 2.4 GW in installed capacity.
Chemical company Unigel started on July 26th, 2022, the construction of the first green hydrogen plant in Brazil, which is expected to enter commercial operation by the end of 2023, receiving an initial investment of USD120 million. Other major power companies, such as Enel and CTG, have also announced investments in the development of this power source in Brazil.
One of the most relevant current discussions in the Brazilian power sector concerns the privatization of Eletrobras, a company created in the 1960s that operates in the power generation and transmission sectors in Brazil and in SPVs for the development of power projects. The largest power company in Latin America, it is responsible for more than a third of the country’s generation capacity and for approximately half of the transmission lines of the basic grid.
The privatization was achieved in June 2022, through a capitalization process, in which new shares of the company were offered to the private sector, for an approximate amount of BRL 29 billion. The federal government’s equity in Eletrobras was reduced to approximately 35% of the voting shares. With the completion of the privatization process, Eletrobras is expected to renew its investment capacity (which has been insufficient in the last years), contributing to the further development of the power sector in Brazil. One of the examples of such renewed investment capacity is that Eletronorte – a Eletrobras subsidiary – was awarded with Lot 8 of the Transmission Auction No. 1/22. Prior to this auction, Eletrobras was not able to win any transmission auctions for almost a decade.
Major international companies, among them Engie, Enel, EDP, Statkraft, and Scatec, have renewable projects in Brazil.
Brazil
Renewables companies that participate in the Brazilian power sector must be located in Brazil and incorporated under Brazilian laws. However, there are no restrictions regarding foreign participation in renewables companies, nor on any sort of foreign investments in renewables.
Brazil
- Brazil signed the Paris Agreement in 2015 and ratified the agreement on 12 September , 2016. On 8 December, 2020, Brazil submitted to the UNFCCC its new Nationally Determined Contribution (NDC), under the Paris Agreement.
- By the revisited NCD, Brazil has committed to reduce greenhouse gas emissions by 37% below 2005 levels by 2025, and by 43% below 2005 levels by 2030. Brazil’s NDC also expresses the indicative objective of achieving climate neutrality (net-zero emissions) in 2060.
- All policies, measures and actions adopted by Brazil regarding climate change derive from several rules and norms, such as the following:
- National System of Conservation Units (Law No. 9,985/2000)
- National Policy on Climate Change (Law No. 12,187/2009), which is structured in four axes: (i) mitigation opportunities; (ii) impacts, vulnerabilities and adaptation; (iii) research and development; and (iv) education, training and communication
- Fund on Climate Change (Law No. 12,114/2009) and its regulation (Federal Decree No. 9,578/2018)
- Forest Code (Law No. 12,651/2012), which aims to protect native vegetation
- National Plan for Adaptation to Climate Change (Ordinance No. 150/2016), aiming to "promote the management and reduction of climate risk in the country against the adverse effects associated with climate change, in order to take advantage of opportunities emerging countries, avoid losses and damages and build instruments that allow the adaptation of natural, human, productive and infrastructure systems”
- National Policy for Biofuels (RenovaBio - Federal Decree No. 13,576/2017 and Federal Decree No. 9,888/2019 and Resolution CNPE 17/21) which establishes annual national goals for decarbonization for the fuel sector as well as encourages the increase in the production and participation of biofuels in the country's transport energy matrix. RenovaBio also instituted the decarbonization credit (CBIO)
- National Policy of Payment for Environmental Services (Federal Law No. 14,119/2021) which aims to regulate the payment for environmental services to maintain, recover or improve ecosystem services
- National Green Growth Program (Decree No. 10,846/2021) which aims to provide financing and subsidies to encourage sustainable economic projects and activities, prioritize the issuance of environmental licenses and generate so-called “green jobs”
- Decree No. 10.275/2020 which established the Low Carbon Industry Technical Committee
- Decree No. 10.144/2019 which established the national Commission for the Reduction of Greenhouse Gas Emissions from Deforestation and Forest Degradation.
- Decree No. 10.606/2021 which instituted the Integrated Sectoral Plan Information System for the Consolidation of a Low-Carbon Economy in Agriculture
- Decree No. 11,075/2022 which establishes proceeding for the preparation of Sectorial Plans for Mitigation of Climate Changes and institutes the National System for the Reduction of Greenhouse Gas Emissions – Sinare.