- Email: [email protected]
Analysis of Brazilian SHP policy and its regulation scenario
Energy Policy 39 (2011) 6689–6697
Contents lists available at ScienceDirect
Energy Policy journal homepage: www.elsevier.com/locate/enpol
Communication
Analysis of Brazilian SHP policy and its regulation scenario Geraldo Lu´cio Tiago Filho a,n, Camila Rocha Galhardo b,1, Adriana de Ca´ssia Barbosa c,2, Regina Mambeli Barros d,3, Fernando das Grac- as Braga da Silva d,4 a
´, Av. BPS, 1303, Itajuba ´-MG, CEP 37500-903, Brazil CERPCH, National Resources Institute, IRN, Federal University of Itajuba ´-MG, CEP 37500-903, Brazil CERPCH, RRPP, Av. BPS, 1303, Itajuba c ´-MG, CEP 37500-903, Brazil CERPCH, Av. BPS, 1303, Itajuba d ´, Av. BPS, 1303, Itajuba ´-MG, CEP 37500-903, Brazil CERPCH, RRPP, National Resources Institute, IRN, Federal University of Itajuba b
a r t i c l e i n f o
abstract
Article history: Received 9 November 2010 Accepted 1 July 2011 Available online 10 August 2011
This article presents the main regulatory changes that occurred in the Brazilian power sector in 2009, along with the impacts these changes caused on the market, especially related to small hydropower ( o 30 MW). This study addresses regulatory issues based on inventory studies and records of basic projects, changes related to the compensation of the assured energy of SHPs in the Brazilian energy reallocation market, the socio-economic impact resulting from the construction of SHPs, SHPs in alternative resource auctions and finally the general outlook for the growth scenario for SHPs in Brazil according to the ten-year plan (2010–2019). The overall conclusions of this investigation were that the 2008/2009 biennium was a period of great changes in the regulation of small hydropower plants in Brazil, and the SHP market has shown maturity. Additionally, despite SHP being a type of technology that is completely dominated by domestic industry, in recent years, they have experienced policy disincentives caused by changes to rules that inhibit their growth. & 2011 Elsevier Ltd. All rights reserved.
Keywords: Legislation Regulation Energy Market
1. Introduction According to Ludwig (2009), ‘‘The development of clean energy can be understood as a conflict prevention factor’’, which refers to its political and economic relationships in the national and international scene, and in this field, the current concept of clean energy is increasingly taking its place within public policies in various international settings. With regard to renewable energy reserves, Brazil finds itself in a specific scenario that can be seen in its plentiful alternative energy sources, both conventional and unconventional. Currently, the country presents itself as one of the leading global players in terms of programs and projects for clean and unconventional energy, such as the production of ethanol and bio-diesel, as well as having an electric energy matrix based on hydroelectric generation. While the world’s participation with respect to
n
Corresponding author. Tel.: þ55 35 36291454; fax: þ 55 35 36291265. E-mail addresses: [email protected] (G.L. Tiago Filho), [email protected] (C.R. Galhardo), [email protected] (A. de Ca´ssia Barbosa), [email protected] (R.M. Barros), [email protected] (F.G.B. da Silva). 1 Tel.: þ55 35 36291443; fax: þ 55 35 36291265. 2 Tel.: þ55 35 362914434; fax: þ 55 35 36291265. 3 Tel.: þ55 35 36291224; fax: þ 55 35 36291265. 4 Tel.: þ55 35 36291485; fax: þ 55 35 36291265. 0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.07.001
renewable energy does not surpass 14%, Brazil’s participation alone reaches 46% and is showing a growth trend, which now extends to wind farms in the national system and large hydroelectric plants currently under construction on the Madeira River and, in the near future, on the Xingu River. Within this scenario, small hydropower plants (SHP) stand out, and in Brazil, these are characterized as recovered energy with power between 10 and 30 MW. In 2008, the country had 310 small hydropower plants (SHPs) in operation, which amounted to an installed capacity of 2209 MW, along with another 77 plants under construction that would add an additional 1264 MW to the national energy matrix. At the end of 2009, there were 358 SHPs operating in the country, representing 3018 MW of installed capacity. There were also 73 new plants under construction, corresponding to 998 MW. Thus, within one year, the participation of SHPs in the national hydroelectric matrix rose to 3.9%. This represents great progress, and considering the investment in basic projects based on an inventory study on a river, permitting and financing is the private investor’s responsibility and risk. It is worth mentioning that during this period, there have been important changes in the regulatory frameworks that place restraints on the market for small hydropower plants within the country. The main regulatory changes that occurred in Brazil in 2009 and the market impacts caused by these changes are described below.
6690
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
2. Main changes in the regulatory frameworks of SHPs, which occurred in 2008/2009
2.2. Changes related to the compensation for the guaranteed energy generated by SHPs in the energy reallocation market
2.1. Procedures regarding documentation and the preparation of inventory studies and the records of basic projects
According to Decree 2.656/1998 and ANEEL Resolution 169/2001, the Energy Reallocation Market (MRE) is governed by the principle of sharing hydrological risks within hydroelectric plants, including those that are not centrally dispatched, which is the case for small hydroelectric plants. The Energy Reallocation Mechanism (MRE) was established with the objective of minimizing the impacts of hydropower generation projects due to arbitrary causes of power outages. That is, if the index of determined availability of the plant is found to be lower than the reference value considered in the calculation of its assured energy, the plant will be subject to the reallocation of missing energy, which will be provided by the market depending on the excess energy generated by another plant. However, it was understood that the MRE was not to cover the portion of the outage exceeding the value established by ANEEL when calculating Assured Energy (AE). Additionally, it was understood that if plants are not centrally dispatched, there should be a physical guarantee by the entrepreneur that the assured energy is consistent with the generation capacity of the plant and that its failure would only occur occasionally (Fig. 1).
Inventory studies define fall partitions as its principle that deliver the maximum power generation at a smaller cost and with a minimal impact on the environment, in accordance with the scenarios of multiple use of water resources in a water basin. In 2008, the National Agency of Electrical Energy (ANEEL), through The ANEEL 343 Resolution changed the protocol governed by Resolution 395/1998, as shown in Table 1. Requests for registration: previously, based on the ANEEL 395 Resolution, these were not costly, and a registration guarantee began to be demanded. In other words, a monetary deposit is now required, which will be refunded once the study is completed. Study preparation and delivery deadlines were as follows: based on Resolution 395, these were previously set by the agent, and a deadline has now been given. The accepted analysis of basic project recovery was defined in the studies: under Resolution 395, more than one winning bid was previously allowed on a project, whereas now only one winner is determined using the criteria established in the resolution. Authorization grants to begin construction were also not costly before, and a deposit is now required to provide a guarantee of faithful compliance on schedule. According to the ANEEL343/2008 Resolution, a guarantee was established that at least 40% of the inventoried potential for exploitation be intended for those who performed the inventory study. Therefore, the costs rendered by the inventory study become part of the entrepreneurs’ responsibility for environmental compensation. Since the implementation of this new edition of this resolution, ANEEL has encouraged those interested in a particular water basin to collaborate to share costs for the collection of field data, whether those data are socio-economic, environmental or aerophotogrammetric. Finally, the resolution stipulates the need to develop, along with the environmental permits officer, an Integrated Environmental Assessment (AAI) of the inventoried basin to define it prior to the preparation of basic projects that will actually be permitted to be built. Therefore, a decrease in the type of conflicts that have typically occurred during the environmental licensing of SHPs with Environmental Councils is expected.
EAREDUCED ¼ EACALCULATED FID where FID ¼
Determined Availability ðabout 60 monthsÞ Availability as declared by agent
100 MW medium
90 80
Assured
Genareted
Alocated
ENERGY -Situation Fig. 1. Allocation of Energy under the Reduction of Energy Reallocation Mechanism (ERM).
Table 1 Conditions for registration of basic projects of SHPs with ANEEL according to the new Resolution 343 in comparison with the old Resolution 395. Source: ANEEL (2010 apud Hubner, 2010). Phase/Status
Request for registration Project preparation and delivery Acceptance for the purpose of project analysis Project analysis Promotion of HDR with the ANA or State Organs Definition of RDH Analysis of Flow Restrictions in RDH Obtaining prior license—PL Project approval of basic project Authorization grant Obtaining the Installation License—IL Supervision
Instrument
Guarantee registration Order of acceptance Technical opinion
Resolution 395
343
Inexpensive Defined by agent There may be more than one winner
Expensive Set deadline Only one selected
Inexpensive
Faithful compliance assurance (expensive)
RDH Provisional License—PL Expedition of approval Installation License—IL
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
However, over the years, despite the ERM, several problems have been found regarding the guarantee of assured energy, such as the following:
The performance of SHPs falling short of their assured energy:
historically, 46% of SHPs with a record of 5 or more years in the Electric Energy Chamber of Commerce (CCEE) generated less that 80% of the assured energy. The ERM failing to detect this poor performance: for example, there were SHPs for which generation during the period did not exceed 13%, of the assured energy. With an unavailability factor of 100%, causing an imbalance in the ERM; Many plants asked for a guarantee of purged assured energy, which was usually cited due to their citing low water availability. This indicated that the hydrology was overestimated in the calculation of energy assurance and was inconsistent with the actual hydrology; Despite detailed and insightful analysis of what the hydrology–hydraulic parameters were, as declared by the entrepreneur, there was always a large amount of asymmetric information between the agent and ANEEL.
These problems, among others, led ANEEL to propose new policies for calculating the physical guarantee (NT 039/2009-SGR/ ANEEL) and the permanence of SHPs in the market of energy reallocation (AP 049/2009). Given this scenario, at the end of 2009, the Ministry of Mines and Energy (MME) revised Ordinance No. 463/2009, with some adjustments being made in market policies, such as the following: The initial calculation of assured energy has continued to be based on hydrology and the availability and performance of generators, as stated by the entrepreneur. However, in the first 48 months of a plant’s commercial operation, excluding the first 12 months, the average generation cannot be less than 80% or greater than 120% of the guaranteed energy value. Within the first 60 months of commercial operation, excluding the first 12 months, the average generation (historical growth) cannot be less than 90% or greater than 110% of the physical guarantee. At public hearing 049/2009, modification of the ERM was proposed for SHPs and for the criterion for determining the Average Generation (AG) to remain in the MRE, resulting in Ordinance No. 463/2009, which had the objective of addressing the hydrologic variability and outages inherent in plant operations. Average Generation (AG) ranges were created, as shown in Table 2, the calculation of which disregarded the first 12 months following the initiation of the operation of a first generation unit, reforms and/or upgrades. 2.3. Regarding the authorization of hydropower plants up to 500 MW
6691
Statute No. 11,943 of May 28, 2009 was edited. This statute amended Article 26 of Statute 9.427/96 by giving permission to the grantor and to ANEEL, by delegation, to authorize potentially advantageous hydraulic power sources greater than 1000 kW and less than or equal to 50,000 kW for independent production or self-production, regardless of whether these production modes are associated with SHP features, and exempting power plants in the range of 30–50 MW from the bidding process.
3. Evolution of the generation capacity of SHPs in 2008/2009 According to Table 3, in 2008, the SHP market found itself fully expanded. Among the SHPs in operation, under construction, permitted, in the basic design project and in inventory process, 1834 corresponded to 16,184 MW, and there were 297 MHPs (micro-hydroelectric power with less than 1 MW), corresponding to 169 MW. In 2009, these numbers rose to 3158 SHPs, corresponding to a power generation of 297 MW, and 22,455.72 MHPs corresponding to 169 MW, representing a 72% increase in the number of SHPs and a 38.7% increase in power. There are no records regarding MHP evolution, as shown in Table 4. According to the data shown in Table 5, in Brazil in 2009, there were 738 hydroelectric plants in operation, generating 77,136 MW, and 97 plants under construction, with a projected 8782.4 MW of generation. In these two situations, SHPs accounted for 48.5% of the hydropower plants in operation, with a 3.9% share of the
Table 3 Status of SHPs in Brazil in the biennium 2008/2009. Source: ANEEL, 08/13/2008. Status
SHP 2008 Qty
In operation Under construction Permitted (granted) Inventoried In process of preparation In process of acceptance In process of analysis Available Basic projects In process of registration In process of acceptance In process of analysis In process of analysis (WITHOUT Environmental Permit) TOTAL
2009 MW
Qty
MW
310 77 161
2.209 1.264 2396
358 73 145
3.018 998 2067
169 20 86 484
– 560 1775 2649
470 52 129 396
1042 560 4443 8738
215 30 282
1421 385 3525
1133 59 48 295
1834
16,184
297
317.37 697.40 574.95
22,455.72
In 2009, government action was taken to expand the market for self-generation and independent production of energy when Table 2 Criterion of permanence of SHPs in the MRE according to MME Ordinance No. 463/ 2009. Source: Hubner (2010).
Table 4 Status of MHPs* in 2008/2009. Source: ANEEL, 01/14/2010. Status
Number of months under commercial operation (m)
GM GF
36 r mo 48 48 r mo 60 60 r mo 72 72 r mo 84 84 r mo 96 m Z96
Z 10% Z 55% Z 60% Z 65% Z 75% Z 85%
GM—Average Generation; GF—Physical Guarantee.
MHP
100 2008
In operation Under construction Permitted (Grants) n
2009
Qty
MW
Qty
MW
221 1 75
117 0.8 51.2
221 1 75
117 0.8 51.2
CGH —Hydroelectric Generation Plant—(Po 1000 kW).
6692
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
Table 5 Status of hydropower plants in Brazil in 2009. Status
LHP (UHE)
SHP (PCH)
MHP (CGH)
Total
No.
MW
No
MW
No
MW
no
MW
In Operation Quantity Participation
159 21.5%
74,001 95.9%
358 48.5%
3018 3.9%
221 29.9%
117 0.2%
738 –
77,136 –
Under Construction Quantity Participation
23 23.7%
7783.6 88.6%
73 75.3%
998 11.4%
1 1.0%
0.8 0.0%
97 –
8782.4 –
Total Quantity Participation
182 21.8%
81,784.6 95.2%
431 51.6%
4016 4.7%
222 26.6%
117.8 0.1%
835 –
85,918.4 –
Fig. 2. Evolution of the number of registrations with ANEEL in 2008 and 2009. Source: Hubner (2010). (For interpretation of the references to color in this figure, the reader is referred to the web version of this article.)
hydroelectric power generation in the country. Regarding the projects under construction, SHPs accounted for 75.3% of projects in progress, with an outlook of representing an 11.4% increase in power generation when they begin operation. When the construction of these hydropower plants is completed, the country will have 431 SHPs, which will correspond to 51.6% of all hydropower plants in the country and to participation of 4.7% in the hydroelectric matrix. In 2008, the large growth in SHPs recorded by ANEEL was mainly due to the issuing of Resolution No. 343, as shown in Fig. 2. At this time, there was a rush in the registration of Basic Projects with ANEEL to avoid the new rules. In the three months prior to the issuing of the resolution, ANEEL received more than 700 requests for registration, and the number of such requests fell to almost zero after its issue (Figs. 3 and 4).
4. Financing for renewable energy in Brazil and specifically for SHPs In Brazil, government and private investment banks and development agencies operate under clear, similar rules, which basically consist of the following Machado et al. (2008):
Excessive chargeability of additional guarantees; Requirement for PPA (purchase and sale of energy contract);
Chargeability of an internal rate of return according to the
profitability required within the project, conditioned by the bank’s board of credit for linear amortization of contracted debt; 2% interest rates with a 3% spread.
In Brazil, SHP investments are generally made through bank loans, mainly from the National Bank of Social Development (Banco Nacional de Desenvolvimento Social, BNDES) for which the principal credit line is project finance, following the premises listed here:
Loans participation of up to 80% in power generation, SHP and transmission lines and up to 60% in energy distribution;
Shortage deadline of up to six months after the submission of the project begins commercial operation;
Amortization Deadlines: generation—up to 14 years; trans
ference—up to 12 years; SHP—up to 12 years; distribution —up to 6 years; Amortization: constant amortization system.
However, entrepreneurs have found some degree of difficulty in obtaining financing to meet capital requirements, such as the following:
A lender’s score with the financial agent being excessively high; Terms of insufficient funding to achieve the balance point between maturation versus the terms of the capital return;
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
6693
1.400
90 80
1.200
70 1.000
60
800
50
600
40 30
400 20 200 0
1998 Power (MW) 34 Amount 7
10 1999 173 22
2000 71 6
2001 344 28
2002 546 37
2003 961 61
2004 1.265 82
2005 537 41
2006 744 45
2007 664 49
2008 815 74
2009 778 63
0
Basic SHP Projects between 1998-2009 Fig. 3. Evolution of the number of Basic SHP Projects approved by ANEEL in Kneeling the years between 1998 and 2009. Source: Hubner (2010).
120
SHP Grant Evolution (1998-2009)
100 80 60 40 20 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Amount
1.800 1.600 1.400 1.200 1.000 800 600 400 200 -
Power (MW)
Fig. 4. Evolution of the number of SHP projects approved by ANEEL between 1998 and 2009. Source: Hubner (2010).
The historical lack of business expertise within the energy
generation for the mitigation of risks surrounding the project/ jobsite/operation; A lack of collateral to support any default; A lack of initial capital for project complementation of costs and project processes until a fundable phase is reached, with all licenses included; A lack of capital to cope with the equity related to the contracted loan; A lack of tools to mitigate risks, used as collateral in financing engineering, supported by international insurers confronted by investors.
In general, it can be considered that an important part of the problem is the lack of experience of the enterprises and the banking sector in financing renewable energy projects.
5. Scenario related to the development of research and technological innovations in SHPs With regard to Research and Technological Development (Pesquisa e Desenvolvimento Tecnolo´gico, P&D), in Brazil, according to Statute 9.991/2000, all utilities are required to invest a percentage of their revenues in P&D. In the case of generation
companies, they should invest 1% of their gross profit in technology research for the industry. Currently, research in progress is aimed at improving the quality of hydraulic turbines through numerical procedures for molding the flow in the turbines, the distribution of losses in electric generators, the use of automated operation systems and the monitoring of generators and the use of generators with variable rotation. In the environmental sector, there are studies underway on the interaction of hydraulic turbines with fish, the behavior of Brazilian ichthyofauna for preservation purposes, the implementation farms and stocking in rivers and the development of procedures for the design of appropriate mechanisms to protect tropical fish and those of temperate climates. Due to a major campaign regarding the participation of large reservoirs in global warming, there are developmental studies taking place on the emission of methane in these reservoirs and the effects of sediment retention on life in the reservoir and the stretches of river downstream of plants. Based on the current market, there is an interest in developing new technologies applied to plants with low falls, such as developing national technology for projects and manufacturing turbines suitable for low and very low heads, small power and low rotation generators, new layouts for dams built to house machinery and the use of the concept of mobile dams and fuse
6694
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
country were set up for service providers for studies and small plant projects, including environmental and geological studies, and potential mining projects reignited the national industry of hydromechanical equipment and electrical components. Additionally, as a result of the deployment of new SHP projects, the industry’s development of information technology can be credited with developing new monitoring and remote controlled systems that lower costs and increase the reliability of operations but also decrease or virtually eliminate the presence of the operator in the engine room. Tiago Filho et al. (2008) showed that up to 122 jobs at different technical levels can be directly generated by an SHP during the project and study phases. Additionally, as shown in Table 6, there is a capacity to generate more than 5100 direct and indirect jobs associated with the deployment of a 20 MW SHP.
sluices. Recently, a search for alternative materials has begun for the construction of dams, such as for building metal dams and the use of tubes made of composite materials with fiber and resin glass. Brazil has sought to establish partnerships with other countries, such as Canada, with which an agreement has been signed for the development of appropriate technologies for low head plants. An agreement has also been made for the dissemination of technology in Latin America, for example, in Argentina where an agreement is in the final preparatory phase, and negotiations are also still underway with Colombia and Chile, among other countries. Additionally, partnerships with regional development officers are making considerable progress such as with the Andean Development Corporation (Corporac- a~ o Andina de Fomento, CAF), which provides support for the development of procedures for the exploitation of potential geo-referenced hydropower. Under the agreement between Brazil and Canada, the Ministry of Science and Technology (Ministe´rio de Ciˆencia e Tecnologia, MCT) has provided resources for upgrades to the Hydromechanical Laboratory for SHPs that was built on the campus of the Federal University of Itajuba´ (UNIFEI) in the 1980s to comply with the National Program of SHPs, representing the first governmental effort to restore the role of SHPs in the national energy matrix as an agent of regional, social and economic development. It is also worth mentioning the Brazilian Electric Power (Eletrobra´s, 2000) project, which encourages technological development in northern Brazil in the electric power sector by means of the implementation and consolidation of plants that excel in generating and transferring electricity. In Tucurui Hydro Power Plant, Eletrobras has a partnership with the Federal University of Para´, and in Rio Branco, in the state of Acre, has a partnership with the Federal University of Acre.
7. SHP regulation issues under discussion in the market, regulatory and environmental offices 7.1. Payment of financial compensation for SHPs According to Statute No. 7.990/1989, every enterprise that generates electric power is obligated to collect 6% of its revenue for the purpose of providing financial compensation to its associated wetland. Additionally, in Article 4 of this statute, it is stated that there is an exemption of this fee for SHPs. In recent years, the relief given as an incentive has come to be seen as an obstacle in reaching agreements with municipalities to implement new projects, particularly in southern and southeastern cities. Public hearings have become common in state legislative assemblies in catchment committee discussions about the constitutionality of non-payment of financial compensation for SHPs.
6. The socio-economic impact resulting from the construction of SHPs
7.2. Integrated environmental assessment at catchments for the purpose of generating electricity
SHPs have strong social appeal with respect to creating jobs and generating income. The deployment of an SHP creates expectations in local communities. Initially, expectations may be negative resulting from the expropriations of land and the interference of projects in tourist attractions in the region. However, due to the number of jobs that can be generated during the construction phase of these projects and the constraints imposed by environmental agencies, these issues are often overcome. Brazil can now be described as exhibiting a rebirth of hydropower engineering, as this type of activity was absent for a long period of time after the 1980s, when the country had ceased establishing new major developments in hydropower generation. With the advent of SHPs and the maturation of the market for self-producers and independent producers, offices across the
The licensing process for SHP was established according to the parameters laid down in environmental legislation. It aims to create mechanisms to control and mitigate the impacts of human actions on the environment and is based on Environmental Impact Assessments (EIA) and an Environmental Impact Report (EIR). The EIA is more comprehensive and must cover all technical aspects of the enterprise, its physiological description and where the social and economic venture will impact the region where it will be located. The EIR is presented in a more simplified language and manner to translate these studies to the communities involved, as well as all societies in general. These studies guide the licensing offices with respect to licensing at different stages prior to installation and operation.
Table 6 Estimated generation of jobs for a 20 MW SHP, 4200 Cost/MW (BR$ thousand) installed and 84,000 (BR$ thousand) for Total Investment. Source: Tiago Filho et al. (2008). Participation (%)
Civil construction Equipment setup Environmental Varied Subtotal Total jobs (SHP 20 MW) Jobs per MW
40 42 5 13
Considered direct jobs
298 55 60 94 507 5164 258
Indirect BNDS
Indirect BNDS
Income effect
Considered income effect BNDS
768 768 576 576
307 323 29 75
4288 3584 8904 3904
1715 1505 195 508
733
3923
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
However, due to the intense use of natural resources that is particularly associated with hydropower, it has been observed that individual evaluations of projects cannot capture the synergies of joint ventures to be installed in a specific area, especially when referring to advantages within a given catchment, as is the case for sequential exploitation, which is common in most SHP inventory studies. This has led many environmental councils to suggest that licensing for this type of venture should include an Integrated Environmental Assessment (IEA), preferably preceded by the definition of the axes to be approved. Initially, the assessment should enable the analysis of the interaction of the impacts identified, as in the case of multiple uses of water resources in a catchment. In theory, this proposal is reasonable. However, the implementation of this type of study is still in the discussion phase among regulators and some state legislative assemblies. Although this type of assessment has not yet become a legal procedure and is not available in terms of reference, such assessments have increasingly been requested and/or suggested by different councils. This results in legal instability and market uncertainties, especially with respect to SHPs. 7.3. Redistribution of taxes collected from power generation Currently, the taxes levied on revenues generated from hydropower generation are as follows (Junqueira et al., 2002):
With respect to annual revenues from the sale of electric
energy, they are levied at J 2.5–3% of annual quotas regarding the Global Reversal Reserve (RGR). This is a value established by ANEEL. J 0.5% on the ANEELInspection Fee (TFSEE) for which the value is established annually by ANEEL. – ICMS rates vary from state to state. The taxes may vary depending on the option of actual or presumed profit of income taxes, as follows: J Real Profit – PIS 1.65%; COFINS 7.6%; ISS 2–5% (varies according to municipality); social contribution 8%; income tax 15%. J Presumed Profit – PIS 0.65%; COFINS 3%; ISS 2–5% (varies according to municipality); social contribution 2.88%; income tax 4.8%.
From these taxes, the municipality in which the SHP is located receives very little income. This has resulted in resistance from municipal authorities regarding the implementation of new SHPs
6695
within their municipalities. That being said, it is important to have detailed discussions with regulatory agencies, the National Congress and state legislatures to define a way to pass on more resources to municipalities because they ultimately bear all social and environmental impacts arising from the implementation of an SHP.
7.4. Relief from SHPs in alternative resource auctions As production associations have recently been confronted with practices adopted by the government to encourage alternative resource auctions, they have put forth calls for tax relief for the SHPs that will come to participate with them. As was the case for the recent auction of wind energy, the reduction of taxes, such as the IPI and ICMS for SHPs, has been requested, which would permit a reduction of approximately 6.5% in the sales of the energy of SHPs, making them more competitive in the market, as the auction of wind energy has led to the marketing of energy from this source in the range of R$153.00–R$139.00 per MW-hour. Moreover, unlike SHPs, during these auctions, the developments associated with other renewable energy sources, such as biomass and wind, have their projects reviewed in advance by ANEEL. It is believed that in the next auction, reviewed prior to the auction even if SHPs are not exonerated, they may participate with a potential of up to 1500 MW.
8. General outlook for the growth scenario of SHPs in Brazil according to the ten-year plan (2010–2019) According to the ten-year plan (2010–2019) published by the Company of Energy Studies (Empresa de Estudos Energe´ticos, EPE), in the next ten years, Brazil is expected to exhibit increased participation regarding renewable sources of power generation. However, there has been some stagnation and even reductions in fossil fuel contributions. As shown in the graph in Fig. 2, the EPE is signaling that the expansion of generation within the country should be fundamentally based on the recruitment of renewable energy beginning as early as 2013. A shown in Table 7, SHPs are expected to increase from their current generation of 4010 MW to 6996 MW by 2019, which would represent a growth rate of 300 MW per year. This is quite significant considering that the current rate of SHP installations in the country has suffered a sharp decline.
Table 7 Development of Installed Capacity in Brazil—Ten-Year Plan (2010–2019). Source: EPE SOURCE a
HYDRO URANIUM NATURAL GAS COAL OIL FUEL DIESEL FUEL PROCESS GAS SHP BIOMASS WIND TOTALb
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
83,169 2007 8860 1765 338 1728 687 4043 538 1436 112,455
85,483 2007 9856 2486 4820 1903 687 4116 6083 1136 118,375
2007 9856 3205 5246 1703 687 4116 6321 3241 122,676
2007 11,327 3205 8864 1365 687 4516 6671 3641 130,774
2007 11,533 3205 8864 1149 687 5066 7071 4041 133,305
3412 11,533 3205 8864 1149 687 5566 7421 4441 140,935
3412 11,533 3205 8864 1149 687 5816 7621 4841 147,605
3412 11,533 3205 8864 1149 687 6066 7771 5241 15,208
3412 11,533 3205 8864 1149 687 6416 8121 5641 15,763
341 115 321 886 115 687 697 852 604 167
Note: The value in the table represent the installed power in December of each year, considering the motorization of the LHP.The evolution of the participation of selfproduction of energy as described in Chapter II. a b
Includes an estimate of imports of Itaipu not consumed by the electrical system of Paraguay. It does not consider the self-production for energy studies, and is represented as charge abatement.
6696
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
Fig. 5. Evolution of energy generation in Brazil, as presented in the TYP 2010–2019. Source: translated from EPE (2010).
Fig. 6. Correlation between ‘‘based on GDP-corrected growth with a decreasing growth rate’’, and ‘‘growth measured by ANEEL’’, as described by Tiago Filho et al. (2011).
According to the ten-year plan (2010–2019), the current 3.9% growth in the participation of SHPs in the national matrix will surpass 4.17% in the end of 2019 (Fig. 5). However, despite the optimism of the EPE and the involvement of SHPs, there is a lack of studies of long-term planning being conducted by CERPCH. However, Tiago Filho et al. (2011) carried out a study on the projection of the evolution of installed power capacity with consideration of the influence of GDP growth. This can be seen to decrease the economic attractiveness of a project as good projects become scarce (Fig. 6). According to the ten-year plan (2010–2019), SHPs should grow as presented in Table 7. However, according to the red curve shown in Fig. 2, the ten-year plan predicts growth for SHPs above the growth rate of the GDP, without consideration of the increasing technical complexity associated with these plants or the attraction of new ventures, which are a function of short-term market conditions, both for regulated and free projects, and in the interest of investors. One way to reverse this situation is to plan for the long-term growth of this energy resource, and to do so, it will be necessary to demonstrate to industry agents how much available
hydroelectric power there is in our country and where the remaining power is located.
9. Conclusion Although the 2008/2009 biennium has been a period of great changes in the regulation of small hydropower plants in Brazil, the market has shown maturity, with steady growth despite paradigm shifts. Energy policies clearly promote socio-economic development through mechanisms that provide safe, preferably affordable energy, using renewable energy sources. In general, the current incentives provided to non-conventional renewable sources of energy, such as wind and biomass, has also provided incentives to SHPs. Additionally, incentives have occurred with the environmental legislation and licensing procedures first applied to SHPs, and now a new cycle begins in which environmental agencies and councils also have to evaluate generation projects involving renewable energy sources, such as biomass and wind power plants.
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
Despite SHPs being a type of technology that has been completely dominated by domestic industry, in recent years, SHPs have experienced policy disincentives caused by changes in the rules that inhibit their growth. Additionally, by means of non-governmental organizations, the society has positioned itself (often inadvertently) against the implementation of SHPs. Through participation in public hearings, members of society have shown their reluctance in terms of environmental licensing for SHPs, claiming environmental damage to natural assets or damage to economic activities, such as eco-tourism, and arguing that the implementation of new ventures is only of interest to their investors, who are simply looking for a profit. Collective effort is necessary on behalf of everyone involved in the production chain to seek programs with the objective of raising awareness among different sectors of society and regulatory agencies toward the end of focusing the decision-making process on meeting market demands from an environmental point of view, as well as social, economic and market perspectives. Hence, there is a need to define clear rules that are both perennial and non-discriminatory for the different sources of renewably energy in a way that ensures the expansion of energy supplies
6697
from different sources, providing more stability to the system and looking to further the country’s sustainable development. References Eletrobra´s, 2000. Guideline for SHP Studies and Projects, Eletrobra´s (Ed.), RJ, (in Portuguese). EPE, 2010. Ten-Year Plan 2010–2019, RJ. Hubner, N., 2010. ANEEL’s and SHP’s involvement in the National Energy Matrix. Inaugural Class in the II SHP Specialization Course—CEPCH, Unifei/Cerpch/ Fupai, Itajuba´, 26/02/2010, (in Portuguese). Junqueira, A.A. et al., 2002. Report, Porto Alegre, 04/06/2002, (in Portuguese). Ludwig, F., 2009. The Socio-economic Impacts of Bio Fuel in Brazil. Website: /www.revistaautor.com/S article published on 30 June, 2009, made available on 17 March, 2010, (in Portuguese). Machado, E.F.G. et al., 2008. Economic and Financial Analysis of SHPs in Auctions in the New Sector Electric Model, VI Brazilian Symposium on Small and Medium Hydropower, Belo Horizonte, MG, 21A 25/04/2008, T21-A03, (in Portuguese). Tiago Filho, G.L., et al., 2008. Socio-economic impacts of small hydropower plants introduced in the incentive program for alternative energy sources—PROINFA. Brazilian Energy Journal 14 (1) (in Portuguese). Tiago Filho, G.L., Barros, R.M., Silva, F.G.B., 2011. Trends for the growth of installed capacity of Small Hydro Power (SHP) in Brazil, based on their Gross Domestic Product (GDP). Renewable Energy 37 (1), 403–411. doi:10.1016/ j.renene.2011.05.021.
Contents lists available at ScienceDirect
Energy Policy journal homepage: www.elsevier.com/locate/enpol
Communication
Analysis of Brazilian SHP policy and its regulation scenario Geraldo Lu´cio Tiago Filho a,n, Camila Rocha Galhardo b,1, Adriana de Ca´ssia Barbosa c,2, Regina Mambeli Barros d,3, Fernando das Grac- as Braga da Silva d,4 a
´, Av. BPS, 1303, Itajuba ´-MG, CEP 37500-903, Brazil CERPCH, National Resources Institute, IRN, Federal University of Itajuba ´-MG, CEP 37500-903, Brazil CERPCH, RRPP, Av. BPS, 1303, Itajuba c ´-MG, CEP 37500-903, Brazil CERPCH, Av. BPS, 1303, Itajuba d ´, Av. BPS, 1303, Itajuba ´-MG, CEP 37500-903, Brazil CERPCH, RRPP, National Resources Institute, IRN, Federal University of Itajuba b
a r t i c l e i n f o
abstract
Article history: Received 9 November 2010 Accepted 1 July 2011 Available online 10 August 2011
This article presents the main regulatory changes that occurred in the Brazilian power sector in 2009, along with the impacts these changes caused on the market, especially related to small hydropower ( o 30 MW). This study addresses regulatory issues based on inventory studies and records of basic projects, changes related to the compensation of the assured energy of SHPs in the Brazilian energy reallocation market, the socio-economic impact resulting from the construction of SHPs, SHPs in alternative resource auctions and finally the general outlook for the growth scenario for SHPs in Brazil according to the ten-year plan (2010–2019). The overall conclusions of this investigation were that the 2008/2009 biennium was a period of great changes in the regulation of small hydropower plants in Brazil, and the SHP market has shown maturity. Additionally, despite SHP being a type of technology that is completely dominated by domestic industry, in recent years, they have experienced policy disincentives caused by changes to rules that inhibit their growth. & 2011 Elsevier Ltd. All rights reserved.
Keywords: Legislation Regulation Energy Market
1. Introduction According to Ludwig (2009), ‘‘The development of clean energy can be understood as a conflict prevention factor’’, which refers to its political and economic relationships in the national and international scene, and in this field, the current concept of clean energy is increasingly taking its place within public policies in various international settings. With regard to renewable energy reserves, Brazil finds itself in a specific scenario that can be seen in its plentiful alternative energy sources, both conventional and unconventional. Currently, the country presents itself as one of the leading global players in terms of programs and projects for clean and unconventional energy, such as the production of ethanol and bio-diesel, as well as having an electric energy matrix based on hydroelectric generation. While the world’s participation with respect to
n
Corresponding author. Tel.: þ55 35 36291454; fax: þ 55 35 36291265. E-mail addresses: [email protected] (G.L. Tiago Filho), [email protected] (C.R. Galhardo), [email protected] (A. de Ca´ssia Barbosa), [email protected] (R.M. Barros), [email protected] (F.G.B. da Silva). 1 Tel.: þ55 35 36291443; fax: þ 55 35 36291265. 2 Tel.: þ55 35 362914434; fax: þ 55 35 36291265. 3 Tel.: þ55 35 36291224; fax: þ 55 35 36291265. 4 Tel.: þ55 35 36291485; fax: þ 55 35 36291265. 0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.07.001
renewable energy does not surpass 14%, Brazil’s participation alone reaches 46% and is showing a growth trend, which now extends to wind farms in the national system and large hydroelectric plants currently under construction on the Madeira River and, in the near future, on the Xingu River. Within this scenario, small hydropower plants (SHP) stand out, and in Brazil, these are characterized as recovered energy with power between 10 and 30 MW. In 2008, the country had 310 small hydropower plants (SHPs) in operation, which amounted to an installed capacity of 2209 MW, along with another 77 plants under construction that would add an additional 1264 MW to the national energy matrix. At the end of 2009, there were 358 SHPs operating in the country, representing 3018 MW of installed capacity. There were also 73 new plants under construction, corresponding to 998 MW. Thus, within one year, the participation of SHPs in the national hydroelectric matrix rose to 3.9%. This represents great progress, and considering the investment in basic projects based on an inventory study on a river, permitting and financing is the private investor’s responsibility and risk. It is worth mentioning that during this period, there have been important changes in the regulatory frameworks that place restraints on the market for small hydropower plants within the country. The main regulatory changes that occurred in Brazil in 2009 and the market impacts caused by these changes are described below.
6690
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
2. Main changes in the regulatory frameworks of SHPs, which occurred in 2008/2009
2.2. Changes related to the compensation for the guaranteed energy generated by SHPs in the energy reallocation market
2.1. Procedures regarding documentation and the preparation of inventory studies and the records of basic projects
According to Decree 2.656/1998 and ANEEL Resolution 169/2001, the Energy Reallocation Market (MRE) is governed by the principle of sharing hydrological risks within hydroelectric plants, including those that are not centrally dispatched, which is the case for small hydroelectric plants. The Energy Reallocation Mechanism (MRE) was established with the objective of minimizing the impacts of hydropower generation projects due to arbitrary causes of power outages. That is, if the index of determined availability of the plant is found to be lower than the reference value considered in the calculation of its assured energy, the plant will be subject to the reallocation of missing energy, which will be provided by the market depending on the excess energy generated by another plant. However, it was understood that the MRE was not to cover the portion of the outage exceeding the value established by ANEEL when calculating Assured Energy (AE). Additionally, it was understood that if plants are not centrally dispatched, there should be a physical guarantee by the entrepreneur that the assured energy is consistent with the generation capacity of the plant and that its failure would only occur occasionally (Fig. 1).
Inventory studies define fall partitions as its principle that deliver the maximum power generation at a smaller cost and with a minimal impact on the environment, in accordance with the scenarios of multiple use of water resources in a water basin. In 2008, the National Agency of Electrical Energy (ANEEL), through The ANEEL 343 Resolution changed the protocol governed by Resolution 395/1998, as shown in Table 1. Requests for registration: previously, based on the ANEEL 395 Resolution, these were not costly, and a registration guarantee began to be demanded. In other words, a monetary deposit is now required, which will be refunded once the study is completed. Study preparation and delivery deadlines were as follows: based on Resolution 395, these were previously set by the agent, and a deadline has now been given. The accepted analysis of basic project recovery was defined in the studies: under Resolution 395, more than one winning bid was previously allowed on a project, whereas now only one winner is determined using the criteria established in the resolution. Authorization grants to begin construction were also not costly before, and a deposit is now required to provide a guarantee of faithful compliance on schedule. According to the ANEEL343/2008 Resolution, a guarantee was established that at least 40% of the inventoried potential for exploitation be intended for those who performed the inventory study. Therefore, the costs rendered by the inventory study become part of the entrepreneurs’ responsibility for environmental compensation. Since the implementation of this new edition of this resolution, ANEEL has encouraged those interested in a particular water basin to collaborate to share costs for the collection of field data, whether those data are socio-economic, environmental or aerophotogrammetric. Finally, the resolution stipulates the need to develop, along with the environmental permits officer, an Integrated Environmental Assessment (AAI) of the inventoried basin to define it prior to the preparation of basic projects that will actually be permitted to be built. Therefore, a decrease in the type of conflicts that have typically occurred during the environmental licensing of SHPs with Environmental Councils is expected.
EAREDUCED ¼ EACALCULATED FID where FID ¼
Determined Availability ðabout 60 monthsÞ Availability as declared by agent
100 MW medium
90 80
Assured
Genareted
Alocated
ENERGY -Situation Fig. 1. Allocation of Energy under the Reduction of Energy Reallocation Mechanism (ERM).
Table 1 Conditions for registration of basic projects of SHPs with ANEEL according to the new Resolution 343 in comparison with the old Resolution 395. Source: ANEEL (2010 apud Hubner, 2010). Phase/Status
Request for registration Project preparation and delivery Acceptance for the purpose of project analysis Project analysis Promotion of HDR with the ANA or State Organs Definition of RDH Analysis of Flow Restrictions in RDH Obtaining prior license—PL Project approval of basic project Authorization grant Obtaining the Installation License—IL Supervision
Instrument
Guarantee registration Order of acceptance Technical opinion
Resolution 395
343
Inexpensive Defined by agent There may be more than one winner
Expensive Set deadline Only one selected
Inexpensive
Faithful compliance assurance (expensive)
RDH Provisional License—PL Expedition of approval Installation License—IL
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
However, over the years, despite the ERM, several problems have been found regarding the guarantee of assured energy, such as the following:
The performance of SHPs falling short of their assured energy:
historically, 46% of SHPs with a record of 5 or more years in the Electric Energy Chamber of Commerce (CCEE) generated less that 80% of the assured energy. The ERM failing to detect this poor performance: for example, there were SHPs for which generation during the period did not exceed 13%, of the assured energy. With an unavailability factor of 100%, causing an imbalance in the ERM; Many plants asked for a guarantee of purged assured energy, which was usually cited due to their citing low water availability. This indicated that the hydrology was overestimated in the calculation of energy assurance and was inconsistent with the actual hydrology; Despite detailed and insightful analysis of what the hydrology–hydraulic parameters were, as declared by the entrepreneur, there was always a large amount of asymmetric information between the agent and ANEEL.
These problems, among others, led ANEEL to propose new policies for calculating the physical guarantee (NT 039/2009-SGR/ ANEEL) and the permanence of SHPs in the market of energy reallocation (AP 049/2009). Given this scenario, at the end of 2009, the Ministry of Mines and Energy (MME) revised Ordinance No. 463/2009, with some adjustments being made in market policies, such as the following: The initial calculation of assured energy has continued to be based on hydrology and the availability and performance of generators, as stated by the entrepreneur. However, in the first 48 months of a plant’s commercial operation, excluding the first 12 months, the average generation cannot be less than 80% or greater than 120% of the guaranteed energy value. Within the first 60 months of commercial operation, excluding the first 12 months, the average generation (historical growth) cannot be less than 90% or greater than 110% of the physical guarantee. At public hearing 049/2009, modification of the ERM was proposed for SHPs and for the criterion for determining the Average Generation (AG) to remain in the MRE, resulting in Ordinance No. 463/2009, which had the objective of addressing the hydrologic variability and outages inherent in plant operations. Average Generation (AG) ranges were created, as shown in Table 2, the calculation of which disregarded the first 12 months following the initiation of the operation of a first generation unit, reforms and/or upgrades. 2.3. Regarding the authorization of hydropower plants up to 500 MW
6691
Statute No. 11,943 of May 28, 2009 was edited. This statute amended Article 26 of Statute 9.427/96 by giving permission to the grantor and to ANEEL, by delegation, to authorize potentially advantageous hydraulic power sources greater than 1000 kW and less than or equal to 50,000 kW for independent production or self-production, regardless of whether these production modes are associated with SHP features, and exempting power plants in the range of 30–50 MW from the bidding process.
3. Evolution of the generation capacity of SHPs in 2008/2009 According to Table 3, in 2008, the SHP market found itself fully expanded. Among the SHPs in operation, under construction, permitted, in the basic design project and in inventory process, 1834 corresponded to 16,184 MW, and there were 297 MHPs (micro-hydroelectric power with less than 1 MW), corresponding to 169 MW. In 2009, these numbers rose to 3158 SHPs, corresponding to a power generation of 297 MW, and 22,455.72 MHPs corresponding to 169 MW, representing a 72% increase in the number of SHPs and a 38.7% increase in power. There are no records regarding MHP evolution, as shown in Table 4. According to the data shown in Table 5, in Brazil in 2009, there were 738 hydroelectric plants in operation, generating 77,136 MW, and 97 plants under construction, with a projected 8782.4 MW of generation. In these two situations, SHPs accounted for 48.5% of the hydropower plants in operation, with a 3.9% share of the
Table 3 Status of SHPs in Brazil in the biennium 2008/2009. Source: ANEEL, 08/13/2008. Status
SHP 2008 Qty
In operation Under construction Permitted (granted) Inventoried In process of preparation In process of acceptance In process of analysis Available Basic projects In process of registration In process of acceptance In process of analysis In process of analysis (WITHOUT Environmental Permit) TOTAL
2009 MW
Qty
MW
310 77 161
2.209 1.264 2396
358 73 145
3.018 998 2067
169 20 86 484
– 560 1775 2649
470 52 129 396
1042 560 4443 8738
215 30 282
1421 385 3525
1133 59 48 295
1834
16,184
297
317.37 697.40 574.95
22,455.72
In 2009, government action was taken to expand the market for self-generation and independent production of energy when Table 2 Criterion of permanence of SHPs in the MRE according to MME Ordinance No. 463/ 2009. Source: Hubner (2010).
Table 4 Status of MHPs* in 2008/2009. Source: ANEEL, 01/14/2010. Status
Number of months under commercial operation (m)
GM GF
36 r mo 48 48 r mo 60 60 r mo 72 72 r mo 84 84 r mo 96 m Z96
Z 10% Z 55% Z 60% Z 65% Z 75% Z 85%
GM—Average Generation; GF—Physical Guarantee.
MHP
100 2008
In operation Under construction Permitted (Grants) n
2009
Qty
MW
Qty
MW
221 1 75
117 0.8 51.2
221 1 75
117 0.8 51.2
CGH —Hydroelectric Generation Plant—(Po 1000 kW).
6692
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
Table 5 Status of hydropower plants in Brazil in 2009. Status
LHP (UHE)
SHP (PCH)
MHP (CGH)
Total
No.
MW
No
MW
No
MW
no
MW
In Operation Quantity Participation
159 21.5%
74,001 95.9%
358 48.5%
3018 3.9%
221 29.9%
117 0.2%
738 –
77,136 –
Under Construction Quantity Participation
23 23.7%
7783.6 88.6%
73 75.3%
998 11.4%
1 1.0%
0.8 0.0%
97 –
8782.4 –
Total Quantity Participation
182 21.8%
81,784.6 95.2%
431 51.6%
4016 4.7%
222 26.6%
117.8 0.1%
835 –
85,918.4 –
Fig. 2. Evolution of the number of registrations with ANEEL in 2008 and 2009. Source: Hubner (2010). (For interpretation of the references to color in this figure, the reader is referred to the web version of this article.)
hydroelectric power generation in the country. Regarding the projects under construction, SHPs accounted for 75.3% of projects in progress, with an outlook of representing an 11.4% increase in power generation when they begin operation. When the construction of these hydropower plants is completed, the country will have 431 SHPs, which will correspond to 51.6% of all hydropower plants in the country and to participation of 4.7% in the hydroelectric matrix. In 2008, the large growth in SHPs recorded by ANEEL was mainly due to the issuing of Resolution No. 343, as shown in Fig. 2. At this time, there was a rush in the registration of Basic Projects with ANEEL to avoid the new rules. In the three months prior to the issuing of the resolution, ANEEL received more than 700 requests for registration, and the number of such requests fell to almost zero after its issue (Figs. 3 and 4).
4. Financing for renewable energy in Brazil and specifically for SHPs In Brazil, government and private investment banks and development agencies operate under clear, similar rules, which basically consist of the following Machado et al. (2008):
Excessive chargeability of additional guarantees; Requirement for PPA (purchase and sale of energy contract);
Chargeability of an internal rate of return according to the
profitability required within the project, conditioned by the bank’s board of credit for linear amortization of contracted debt; 2% interest rates with a 3% spread.
In Brazil, SHP investments are generally made through bank loans, mainly from the National Bank of Social Development (Banco Nacional de Desenvolvimento Social, BNDES) for which the principal credit line is project finance, following the premises listed here:
Loans participation of up to 80% in power generation, SHP and transmission lines and up to 60% in energy distribution;
Shortage deadline of up to six months after the submission of the project begins commercial operation;
Amortization Deadlines: generation—up to 14 years; trans
ference—up to 12 years; SHP—up to 12 years; distribution —up to 6 years; Amortization: constant amortization system.
However, entrepreneurs have found some degree of difficulty in obtaining financing to meet capital requirements, such as the following:
A lender’s score with the financial agent being excessively high; Terms of insufficient funding to achieve the balance point between maturation versus the terms of the capital return;
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
6693
1.400
90 80
1.200
70 1.000
60
800
50
600
40 30
400 20 200 0
1998 Power (MW) 34 Amount 7
10 1999 173 22
2000 71 6
2001 344 28
2002 546 37
2003 961 61
2004 1.265 82
2005 537 41
2006 744 45
2007 664 49
2008 815 74
2009 778 63
0
Basic SHP Projects between 1998-2009 Fig. 3. Evolution of the number of Basic SHP Projects approved by ANEEL in Kneeling the years between 1998 and 2009. Source: Hubner (2010).
120
SHP Grant Evolution (1998-2009)
100 80 60 40 20 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Amount
1.800 1.600 1.400 1.200 1.000 800 600 400 200 -
Power (MW)
Fig. 4. Evolution of the number of SHP projects approved by ANEEL between 1998 and 2009. Source: Hubner (2010).
The historical lack of business expertise within the energy
generation for the mitigation of risks surrounding the project/ jobsite/operation; A lack of collateral to support any default; A lack of initial capital for project complementation of costs and project processes until a fundable phase is reached, with all licenses included; A lack of capital to cope with the equity related to the contracted loan; A lack of tools to mitigate risks, used as collateral in financing engineering, supported by international insurers confronted by investors.
In general, it can be considered that an important part of the problem is the lack of experience of the enterprises and the banking sector in financing renewable energy projects.
5. Scenario related to the development of research and technological innovations in SHPs With regard to Research and Technological Development (Pesquisa e Desenvolvimento Tecnolo´gico, P&D), in Brazil, according to Statute 9.991/2000, all utilities are required to invest a percentage of their revenues in P&D. In the case of generation
companies, they should invest 1% of their gross profit in technology research for the industry. Currently, research in progress is aimed at improving the quality of hydraulic turbines through numerical procedures for molding the flow in the turbines, the distribution of losses in electric generators, the use of automated operation systems and the monitoring of generators and the use of generators with variable rotation. In the environmental sector, there are studies underway on the interaction of hydraulic turbines with fish, the behavior of Brazilian ichthyofauna for preservation purposes, the implementation farms and stocking in rivers and the development of procedures for the design of appropriate mechanisms to protect tropical fish and those of temperate climates. Due to a major campaign regarding the participation of large reservoirs in global warming, there are developmental studies taking place on the emission of methane in these reservoirs and the effects of sediment retention on life in the reservoir and the stretches of river downstream of plants. Based on the current market, there is an interest in developing new technologies applied to plants with low falls, such as developing national technology for projects and manufacturing turbines suitable for low and very low heads, small power and low rotation generators, new layouts for dams built to house machinery and the use of the concept of mobile dams and fuse
6694
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
country were set up for service providers for studies and small plant projects, including environmental and geological studies, and potential mining projects reignited the national industry of hydromechanical equipment and electrical components. Additionally, as a result of the deployment of new SHP projects, the industry’s development of information technology can be credited with developing new monitoring and remote controlled systems that lower costs and increase the reliability of operations but also decrease or virtually eliminate the presence of the operator in the engine room. Tiago Filho et al. (2008) showed that up to 122 jobs at different technical levels can be directly generated by an SHP during the project and study phases. Additionally, as shown in Table 6, there is a capacity to generate more than 5100 direct and indirect jobs associated with the deployment of a 20 MW SHP.
sluices. Recently, a search for alternative materials has begun for the construction of dams, such as for building metal dams and the use of tubes made of composite materials with fiber and resin glass. Brazil has sought to establish partnerships with other countries, such as Canada, with which an agreement has been signed for the development of appropriate technologies for low head plants. An agreement has also been made for the dissemination of technology in Latin America, for example, in Argentina where an agreement is in the final preparatory phase, and negotiations are also still underway with Colombia and Chile, among other countries. Additionally, partnerships with regional development officers are making considerable progress such as with the Andean Development Corporation (Corporac- a~ o Andina de Fomento, CAF), which provides support for the development of procedures for the exploitation of potential geo-referenced hydropower. Under the agreement between Brazil and Canada, the Ministry of Science and Technology (Ministe´rio de Ciˆencia e Tecnologia, MCT) has provided resources for upgrades to the Hydromechanical Laboratory for SHPs that was built on the campus of the Federal University of Itajuba´ (UNIFEI) in the 1980s to comply with the National Program of SHPs, representing the first governmental effort to restore the role of SHPs in the national energy matrix as an agent of regional, social and economic development. It is also worth mentioning the Brazilian Electric Power (Eletrobra´s, 2000) project, which encourages technological development in northern Brazil in the electric power sector by means of the implementation and consolidation of plants that excel in generating and transferring electricity. In Tucurui Hydro Power Plant, Eletrobras has a partnership with the Federal University of Para´, and in Rio Branco, in the state of Acre, has a partnership with the Federal University of Acre.
7. SHP regulation issues under discussion in the market, regulatory and environmental offices 7.1. Payment of financial compensation for SHPs According to Statute No. 7.990/1989, every enterprise that generates electric power is obligated to collect 6% of its revenue for the purpose of providing financial compensation to its associated wetland. Additionally, in Article 4 of this statute, it is stated that there is an exemption of this fee for SHPs. In recent years, the relief given as an incentive has come to be seen as an obstacle in reaching agreements with municipalities to implement new projects, particularly in southern and southeastern cities. Public hearings have become common in state legislative assemblies in catchment committee discussions about the constitutionality of non-payment of financial compensation for SHPs.
6. The socio-economic impact resulting from the construction of SHPs
7.2. Integrated environmental assessment at catchments for the purpose of generating electricity
SHPs have strong social appeal with respect to creating jobs and generating income. The deployment of an SHP creates expectations in local communities. Initially, expectations may be negative resulting from the expropriations of land and the interference of projects in tourist attractions in the region. However, due to the number of jobs that can be generated during the construction phase of these projects and the constraints imposed by environmental agencies, these issues are often overcome. Brazil can now be described as exhibiting a rebirth of hydropower engineering, as this type of activity was absent for a long period of time after the 1980s, when the country had ceased establishing new major developments in hydropower generation. With the advent of SHPs and the maturation of the market for self-producers and independent producers, offices across the
The licensing process for SHP was established according to the parameters laid down in environmental legislation. It aims to create mechanisms to control and mitigate the impacts of human actions on the environment and is based on Environmental Impact Assessments (EIA) and an Environmental Impact Report (EIR). The EIA is more comprehensive and must cover all technical aspects of the enterprise, its physiological description and where the social and economic venture will impact the region where it will be located. The EIR is presented in a more simplified language and manner to translate these studies to the communities involved, as well as all societies in general. These studies guide the licensing offices with respect to licensing at different stages prior to installation and operation.
Table 6 Estimated generation of jobs for a 20 MW SHP, 4200 Cost/MW (BR$ thousand) installed and 84,000 (BR$ thousand) for Total Investment. Source: Tiago Filho et al. (2008). Participation (%)
Civil construction Equipment setup Environmental Varied Subtotal Total jobs (SHP 20 MW) Jobs per MW
40 42 5 13
Considered direct jobs
298 55 60 94 507 5164 258
Indirect BNDS
Indirect BNDS
Income effect
Considered income effect BNDS
768 768 576 576
307 323 29 75
4288 3584 8904 3904
1715 1505 195 508
733
3923
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
However, due to the intense use of natural resources that is particularly associated with hydropower, it has been observed that individual evaluations of projects cannot capture the synergies of joint ventures to be installed in a specific area, especially when referring to advantages within a given catchment, as is the case for sequential exploitation, which is common in most SHP inventory studies. This has led many environmental councils to suggest that licensing for this type of venture should include an Integrated Environmental Assessment (IEA), preferably preceded by the definition of the axes to be approved. Initially, the assessment should enable the analysis of the interaction of the impacts identified, as in the case of multiple uses of water resources in a catchment. In theory, this proposal is reasonable. However, the implementation of this type of study is still in the discussion phase among regulators and some state legislative assemblies. Although this type of assessment has not yet become a legal procedure and is not available in terms of reference, such assessments have increasingly been requested and/or suggested by different councils. This results in legal instability and market uncertainties, especially with respect to SHPs. 7.3. Redistribution of taxes collected from power generation Currently, the taxes levied on revenues generated from hydropower generation are as follows (Junqueira et al., 2002):
With respect to annual revenues from the sale of electric
energy, they are levied at J 2.5–3% of annual quotas regarding the Global Reversal Reserve (RGR). This is a value established by ANEEL. J 0.5% on the ANEELInspection Fee (TFSEE) for which the value is established annually by ANEEL. – ICMS rates vary from state to state. The taxes may vary depending on the option of actual or presumed profit of income taxes, as follows: J Real Profit – PIS 1.65%; COFINS 7.6%; ISS 2–5% (varies according to municipality); social contribution 8%; income tax 15%. J Presumed Profit – PIS 0.65%; COFINS 3%; ISS 2–5% (varies according to municipality); social contribution 2.88%; income tax 4.8%.
From these taxes, the municipality in which the SHP is located receives very little income. This has resulted in resistance from municipal authorities regarding the implementation of new SHPs
6695
within their municipalities. That being said, it is important to have detailed discussions with regulatory agencies, the National Congress and state legislatures to define a way to pass on more resources to municipalities because they ultimately bear all social and environmental impacts arising from the implementation of an SHP.
7.4. Relief from SHPs in alternative resource auctions As production associations have recently been confronted with practices adopted by the government to encourage alternative resource auctions, they have put forth calls for tax relief for the SHPs that will come to participate with them. As was the case for the recent auction of wind energy, the reduction of taxes, such as the IPI and ICMS for SHPs, has been requested, which would permit a reduction of approximately 6.5% in the sales of the energy of SHPs, making them more competitive in the market, as the auction of wind energy has led to the marketing of energy from this source in the range of R$153.00–R$139.00 per MW-hour. Moreover, unlike SHPs, during these auctions, the developments associated with other renewable energy sources, such as biomass and wind, have their projects reviewed in advance by ANEEL. It is believed that in the next auction, reviewed prior to the auction even if SHPs are not exonerated, they may participate with a potential of up to 1500 MW.
8. General outlook for the growth scenario of SHPs in Brazil according to the ten-year plan (2010–2019) According to the ten-year plan (2010–2019) published by the Company of Energy Studies (Empresa de Estudos Energe´ticos, EPE), in the next ten years, Brazil is expected to exhibit increased participation regarding renewable sources of power generation. However, there has been some stagnation and even reductions in fossil fuel contributions. As shown in the graph in Fig. 2, the EPE is signaling that the expansion of generation within the country should be fundamentally based on the recruitment of renewable energy beginning as early as 2013. A shown in Table 7, SHPs are expected to increase from their current generation of 4010 MW to 6996 MW by 2019, which would represent a growth rate of 300 MW per year. This is quite significant considering that the current rate of SHP installations in the country has suffered a sharp decline.
Table 7 Development of Installed Capacity in Brazil—Ten-Year Plan (2010–2019). Source: EPE SOURCE a
HYDRO URANIUM NATURAL GAS COAL OIL FUEL DIESEL FUEL PROCESS GAS SHP BIOMASS WIND TOTALb
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
83,169 2007 8860 1765 338 1728 687 4043 538 1436 112,455
85,483 2007 9856 2486 4820 1903 687 4116 6083 1136 118,375
2007 9856 3205 5246 1703 687 4116 6321 3241 122,676
2007 11,327 3205 8864 1365 687 4516 6671 3641 130,774
2007 11,533 3205 8864 1149 687 5066 7071 4041 133,305
3412 11,533 3205 8864 1149 687 5566 7421 4441 140,935
3412 11,533 3205 8864 1149 687 5816 7621 4841 147,605
3412 11,533 3205 8864 1149 687 6066 7771 5241 15,208
3412 11,533 3205 8864 1149 687 6416 8121 5641 15,763
341 115 321 886 115 687 697 852 604 167
Note: The value in the table represent the installed power in December of each year, considering the motorization of the LHP.The evolution of the participation of selfproduction of energy as described in Chapter II. a b
Includes an estimate of imports of Itaipu not consumed by the electrical system of Paraguay. It does not consider the self-production for energy studies, and is represented as charge abatement.
6696
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
Fig. 5. Evolution of energy generation in Brazil, as presented in the TYP 2010–2019. Source: translated from EPE (2010).
Fig. 6. Correlation between ‘‘based on GDP-corrected growth with a decreasing growth rate’’, and ‘‘growth measured by ANEEL’’, as described by Tiago Filho et al. (2011).
According to the ten-year plan (2010–2019), the current 3.9% growth in the participation of SHPs in the national matrix will surpass 4.17% in the end of 2019 (Fig. 5). However, despite the optimism of the EPE and the involvement of SHPs, there is a lack of studies of long-term planning being conducted by CERPCH. However, Tiago Filho et al. (2011) carried out a study on the projection of the evolution of installed power capacity with consideration of the influence of GDP growth. This can be seen to decrease the economic attractiveness of a project as good projects become scarce (Fig. 6). According to the ten-year plan (2010–2019), SHPs should grow as presented in Table 7. However, according to the red curve shown in Fig. 2, the ten-year plan predicts growth for SHPs above the growth rate of the GDP, without consideration of the increasing technical complexity associated with these plants or the attraction of new ventures, which are a function of short-term market conditions, both for regulated and free projects, and in the interest of investors. One way to reverse this situation is to plan for the long-term growth of this energy resource, and to do so, it will be necessary to demonstrate to industry agents how much available
hydroelectric power there is in our country and where the remaining power is located.
9. Conclusion Although the 2008/2009 biennium has been a period of great changes in the regulation of small hydropower plants in Brazil, the market has shown maturity, with steady growth despite paradigm shifts. Energy policies clearly promote socio-economic development through mechanisms that provide safe, preferably affordable energy, using renewable energy sources. In general, the current incentives provided to non-conventional renewable sources of energy, such as wind and biomass, has also provided incentives to SHPs. Additionally, incentives have occurred with the environmental legislation and licensing procedures first applied to SHPs, and now a new cycle begins in which environmental agencies and councils also have to evaluate generation projects involving renewable energy sources, such as biomass and wind power plants.
G.L. Tiago Filho et al. / Energy Policy 39 (2011) 6689–6697
Despite SHPs being a type of technology that has been completely dominated by domestic industry, in recent years, SHPs have experienced policy disincentives caused by changes in the rules that inhibit their growth. Additionally, by means of non-governmental organizations, the society has positioned itself (often inadvertently) against the implementation of SHPs. Through participation in public hearings, members of society have shown their reluctance in terms of environmental licensing for SHPs, claiming environmental damage to natural assets or damage to economic activities, such as eco-tourism, and arguing that the implementation of new ventures is only of interest to their investors, who are simply looking for a profit. Collective effort is necessary on behalf of everyone involved in the production chain to seek programs with the objective of raising awareness among different sectors of society and regulatory agencies toward the end of focusing the decision-making process on meeting market demands from an environmental point of view, as well as social, economic and market perspectives. Hence, there is a need to define clear rules that are both perennial and non-discriminatory for the different sources of renewably energy in a way that ensures the expansion of energy supplies
6697
from different sources, providing more stability to the system and looking to further the country’s sustainable development. References Eletrobra´s, 2000. Guideline for SHP Studies and Projects, Eletrobra´s (Ed.), RJ, (in Portuguese). EPE, 2010. Ten-Year Plan 2010–2019, RJ. Hubner, N., 2010. ANEEL’s and SHP’s involvement in the National Energy Matrix. Inaugural Class in the II SHP Specialization Course—CEPCH, Unifei/Cerpch/ Fupai, Itajuba´, 26/02/2010, (in Portuguese). Junqueira, A.A. et al., 2002. Report, Porto Alegre, 04/06/2002, (in Portuguese). Ludwig, F., 2009. The Socio-economic Impacts of Bio Fuel in Brazil. Website: /www.revistaautor.com/S article published on 30 June, 2009, made available on 17 March, 2010, (in Portuguese). Machado, E.F.G. et al., 2008. Economic and Financial Analysis of SHPs in Auctions in the New Sector Electric Model, VI Brazilian Symposium on Small and Medium Hydropower, Belo Horizonte, MG, 21A 25/04/2008, T21-A03, (in Portuguese). Tiago Filho, G.L., et al., 2008. Socio-economic impacts of small hydropower plants introduced in the incentive program for alternative energy sources—PROINFA. Brazilian Energy Journal 14 (1) (in Portuguese). Tiago Filho, G.L., Barros, R.M., Silva, F.G.B., 2011. Trends for the growth of installed capacity of Small Hydro Power (SHP) in Brazil, based on their Gross Domestic Product (GDP). Renewable Energy 37 (1), 403–411. doi:10.1016/ j.renene.2011.05.021.