SAO PAULO – The proposed tax on solar power generation in Brazil is pitting President Jair Bolsonaro, who has called for a “zero rate” on consumers who generate their own energy, against regulators, who want to end the incentives provided to the industry.
Since 2012, when the power generation system was regulated, Brazil, one of the countries with the greatest solar power potential in the world, has seen some 140,000 consumers, including individuals and businesses, start generating their own electricity using photovoltaic (PV) systems.
Today, the South American country’s installed capacity from micro and mini power generation systems is 1.6 GW and, according to official estimates, that capacity is projected to reach nearly 22 GW by 2035, surpassing the 14 GW installed generating capacity of the Itaipu hydroelectric power complex.
Itaipu, the world’s second-largest hydroelectric power plant, is jointly run by Brazil and Paraguay.
The shift by consumers to generating electricity on a small scale was bolstered by a series of subsidies provided by the National Electric Energy Agency (ANEEL), the regulatory body that now wants to gradually eliminate them.
ANEEL’s plans have been strongly opposed by the Bolsonaro administration and Congress.
The subsidies have mostly benefited power consumers with the financial resources to cover the high cost of installing electricity generation equipment on their properties, despite the fact that the price of solar panels has fallen about 43 percent in the past few years.
ANEEL introduced the so-called “electric energy compensation system” to offset consumers’ high cost of setting up independent power generation systems, allowing them to keep the surplus power produced and use it in the future without paying for the use of the distribution grid.
The electricity distribution utilities contend that the system is not fair.
“It generates what is known as a death spiral,” engineer Felipe Gonçalves, who is in charge of energy research at the Getulio Vargas Foundation (FGV), told EFE.
The reason? The more people you have generating their own electricity, the higher the bills will be for customers in the distribution market, thus penalizing those who lack the financial means to install solar panels at their homes or businesses.
This is because the electricity distribution system’s costs are spread out among all its customers, Gonçalves said, adding that the customers left will pay more.
In light of the explosive growth in distributed generation, which really took off in 2015, the ANEEL wanted to spread out the costs among all users of the grid when it introduced new regulations covering new options, such as remote electricity production.
Last year, the regulatory agency held public hearings on the proposal to gradually phase out the incentives, ANEEL officials told EFE, adding that a decision on the matter will likely be made in the first quarter of 2020.
Bolsonaro, a leader of Brazil’s ultra-right and a supporter of the free-market system, said on Monday that any kind of “taxation of solar energy” by ANEEL would be “buried” by Congress via legislation.
“Our position is a zero rate,” the president said after meeting with Chamber of Deputies speaker Rodrigo Maia and Senate leader Davi Alcolumbre, who share his views on solar energy taxation.
The Brazilian Distributed Generation Association (ABGD), whose members include business executives, manufacturers, professionals and academics, praised the president’s position.
The ABGD said the tax proposed by the ANEEL would put the brakes on an industry that barely accounts for 1 percent of Brazil’s electricity generation and creates “economic benefits of 1.5 billion reais (about $375 million) annually.”
The distributed generation industry is projected to create “600,000 new jobs by 2035,” the trade group said.
“Our energy is very expensive and we offer an alternative that is beneficial (and) progressive due to its low cost,” ABGD government relations director Heber Galarce told EFE.