The impending end of Brazil’s distributed generation units’ surcharge exemptions is not expected to impede the sector’s market growth.

A legal framework for distributed generation approved in January established that all distributed generation clients who have opted for the off-grid solution through 7 January 2023 will maintain their surcharge-exempt status until 2045. As the change for distributed generation nears, congress has also been discussing a two-year extension of a similar surcharge subsidy for renewable power plants connected to the grid, which was supposed to end two years after project developers filed project authorizations.

Clients who install distributed generation units after the January deadline will be gradually charged distribution and transmission surcharges in 15pc annual increments for seven years, until reaching 100pc of the charge.

The distributed generation market still has ample growth prospects despite these changes. Grid operator ONS expects the sector to add 10GW to the system by 2026.

The distributed generation model has proven to be reliable and has been attracting more consumers who want a less expensive alternative than the regulated market’s conventional supply, according to off-grid cooperative Cogecom’s president Roberto Correa. He says distributed generation is well-positioned to supply the residential market — which represents 60pc of consumers — and cannot opt for bilateral power contracts.

The opening of the bilateral contracts’ market, which would allow consumers to choose power providers freely, is not a threat to distributed generation, according to Correa. Off-grid generation is a part of the regulated market, where consumers still rely on distributors to monitor their power consumption and send them power bills at the end of the month. In the free market, consumers can buy their power at lower prices through bilateral contracts with generators.

The Brazilian federal government has been working on allowing all industrial consumers to transition to the free market until 2024. But the distributed generation sector is focusing on supplying clients that will not be able to migrate to bilateral power contracts yet, such as households and small businesses. The opening of the market will especially benefit mid-sized consumers, since distributed generation prices are not as attractive for these types of clients, Correa said.

Renewable surcharge exemption

Brazil’s lower house approved legislation extending the exemption under distribution and transmission subsidies for renewable power projects for two more years.

Legislation passed in 2021 stipulated that the grid-fee discounts would no longer be granted to renewable projects that begin operating two years after the project developer filed the project authorization. The projects will now have four years to begin generating power.

An additional 10GW in projects would benefit from the fee exemption extension, which would cost consumers up to R10bn ($1.9bn) according to Brazilian association of energy-intensive industries (Abrace). The sector largely criticized the measure, which was included as an amendment on a fuel subsidies bill.