Power policy

Since 2009, Brazil has implemented reverse auctions to contract new clean energy generation capacity to supply the regulated utility market. The country is a pioneer of competitive renewable energy auctions, which have led to 30GW of renewable energy contracted to date. After holding none in 2020 due to the Covid-19 crisis, Brazil returned to holding energy auctions in 2021, holding two in July and another in September. Sharp competition among project developers has typically resulted in low average wind and solar prices, including an average solar auction price of $17.5/MWh in July 2019, which remains the lowest recorded in Brazil to date.

Net metering has also been a widely utilized clean energy policy. Retail electricity customers may install up to 5MW self-generation facilities, connect to the grid, deliver surplus generation and obtain compensation in the form of a subsequent billing credit. The incentive has led to a distributed solar boom, with small-scale PV capacity jumping from around zero in 2015 to over 8GW (DC) as of September 2021. However, Brazil appears to be nearing the end of a lengthy process of reforming its distributed generation regulations. The latest version of the new regulations, if approved, would leave its generous net metering rules in place through 2045 for those who have solar systems already or who add them within 12 months of the law being enacted. New systems installed after that will face a six-year transition period to a new tariff schedule that will gradually pare back compensation.

Power prices and costs

Retail electricity prices are among the highest in Latin America. However, commercial and industrial (C&I) customers with power demand greater than 500kW are eligible to purchase electricity from Brazil’s deregulated wholesale market. Consumers with demand between 500kW and 1.5MW (special consumers) choosing this option must purchase wholesale power generated from incentivized renewable sources, including wind, small hydro, biomass and solar. The maximum threshold for special consumers fell from 2MW to 1.5MW in January 2020 and will decline by 0.5MW every January until 2023.

Power market

Brazil has the largest power market in Latin America, with total installed capacity of 180GW in 2020. The power sector is fully unbundled. Several distinct actors participate in generation, transmission, distribution and retail, and the power market is fairly evenly split between state-owned and private-sector players. ONS operates the national power system and CCEE is responsible for the country's wholesale market. Brazil’s matrix remains highly reliant on hydropower and has experienced recurring crises resulting from low rainfall in certain years, most recently in 2020-21. The current crisis has exposed the market to costly fossil-fuel generation, sending power prices soaring and temporarily raising the prospect of electricity rationing.

Doing business and barriers

Despite Brazil's power matrix being around 80% renewable energy, most of it comes from hydropower and there have not been significant grid balancing issues. Most of Brazil's clean energy capacity is contracted through auctions, which offer standardized PPAs. Brazil regularly holds capacity auctions to ensure grid reliability. There are clear rules and processes defined for interconnection of projects to the grid, as well as regularly updated and published grid expansion plans. Net metering regulation is defined and efforts to reform it have involved substantial industry and public input, however, storage-specific targets or regulation do not yet exist.

All PPAs are set in local currency, potentially exposing developers to substantial foreign-exchange risk. As the Brazilian real has depreciated significantly in recent years, developers have suffered from lower foreign currency-denominated revenue from long-term contracts and higher costs of imported energy equipment, which has increased capital costs. Rising inflation has prompted Brazil’s central bank to hike the benchmark Selic interest rate to 7.75% in October from 2% at the start of 2021, potentially exposing developers to increased borrowing costs. Economic growth is forecast to slow to under 2% in 2022.

EV market

Brazil’s EV market is growing, but is still at an early stage. As Latin America’s largest auto market, Brazil leads the region in EV sales. Growth has been driven by rising sales of plug-in hybrid electric vehicles, concentrated in the luxury market, which account for the vast majority of sales. Adoption remains very low as a percentage of new passenger vehicles sales, at well under one percent. All passenger EVs are imported in Brazil and there are currently no large-scale plans to manufacture batteries or vehicles domestically.

EV policy

Policy support for EVs is somewhat limited in Brazil. In 2015, import tax rates were lowered from 35% to 0% for battery electric vehicles, and set at a range of 0-7% for plug-in hybrids and hybrids, depending on criteria such as weight and energy efficiency. However, EVs still pay higher IPI (federal excise tax) and ICMS (state sales tax) taxes. In 2018, the annual car ownership tax (IPVA) was set at 4% and EVs are exempt from this in seven states (Ceará, Maranhão, Pernambuco, Piauí, Rio Grande do Norte, Rio Grande do Sul and Sergipe) and enjoy a reduced rate in Mato Grosso do Sul, Rio de Janeiro and São Paulo. Other incentives include exemption from circulation restrictions in Sao Paulo since 2014 which prevent vehicles from entering the city during cetain peak hours, depending on the final numbers on their license plates.

Buildings market

Overall, Brazil's energy efficiency plans have not been well structured. The country has established many policies and plans over the past decades, but these have been mainly in reaction to crises rather than the result of structured, long-term planning. In 2011, the government published the National Energy Efficiency plan (Plano Nacional de Eficiencia Energetica), establishing the main goals of the sector. However, this has yet to translate into new policies or regulations. The efficiency certification of end products is the most successful initiative in the broader energy-efficiency space.

Buildings policy

As of August 2021, the government has yet to implement substantive policy support in this sector. Brazil does not appear to have mandatory residential or commercial building efficiency codes. The Regulation for Energy Efficiency Labeling of Commercial, Service and Public Buildings was released in February 2009 and the Regulation for Energy Efficiency Labeling of Residential Buildings was released in November 2010, however, the labeling of residential, commercial and service buildings is voluntary, while the labeling of federal public buildings is mandatory since 2014. The low-carbon heat market remains largely irrelevant given Brazil’s tropical and subtropical climate.