Brazil's electricity distributors ‘are meeting demand for connections’

Bnamericas Published: Tuesday, January 31, 2023
Brazil's electricity distributors ‘are meeting demand for connections’

The number of requests for the connection of new distributed generation systems (DG) in Brazil rose from 40,000 to more than 100,000 per month between November 2022 and early January this year, according to information from Abradee, the association of local power distributors.  

That high growth was primarily a reflection of the race to obtain the distribution tariff exemption for new DG projects, the deadline for which expired on January 7. 

In this interview with BNamericas, the president of Abradee, Marcos Madureira, questioned the merit of complaints made to the electricity industry regulator Aneel about delays in responding to connection requests from distributors. 

BNamericas: In early January, Brazilian solar power association Absolar sent a letter to Aneel citing difficulties reported by its members in obtaining grid access for new DG systems from power distributors. What does Abradee have to say about that?

Madureira: This was a one-time thing. We had an excess of requests in the last few months of 2022 – very large growth in the number of requests from distributors, rising from 40,000 to more than 100,000 requests per month. There were cases of an 800% increase in the number of orders, especially in November, December and the first seven days of January.

Many of these requests even came with incomplete material, because they wanted to guarantee that their request was submitted before the deadline. These were momentary, circumstantial problems. 

BNamericas: So, after this exceptional period of high demand because of the end of the deadline to obtain the rate exemption for DG, will the distributors be able to cope with the demand for new connections?

Madureira: The distributors are meeting the demand. Two years ago, we had 400 new connections per day. Now there are more than 2,000 connections per day, which allowed us to reach more than 17GW of connected [DG] energy by the end of 2022. So how can they question that there is a problem when faced with this magnitude? In 2021, EPE [federal energy research company], predicted that by the end of 2022 we’d have something like 10GW [of installed capacity], but we reached 17GW. 

What we have is an exaggerated volume of connection requests. And the cost of this to society is very high. We’re still going to update the figures with the requests that have come in since November. But until then we calculated a cost of more than 238bn reais [US$47bn] by 2045 that the other consumers will have to pay to support the subsidies for DG. 

The impacts of distributed generation can be felt beyond distribution. The ONS [national grid operator] has already made considerations regarding the effect of the expansion of DG on the transmission system, requiring additional transmission investments because of solar intermittency. 

This sector has had internal rates of return of over 30%, 35%. If subsidies were removed, it would have a rate of return of 18%, which is still high. The normal rate in the electricity sector is around 12%. 

BNamericas: What are Abradee's requirements considering in this scenario?

Madureira: There are a number of distortions that need to be corrected. For example, so-called remote generation was created to serve a certain consumer who carried out a project in another location. But a trading company system was created to be able to sell energy, that is, groups that are investing in DG to market this product. A large investor in remote generation sells that energy using apps. I think this is a distortion of the law. 

We need to unburden the Brazilian electricity rate. Today it is high because of the enormous amount of direct subsidies, such as the CDE [national development account] and cross-subsidies, as in the case of DG. We’re talking about a very high volume of unequal treatment for some parts of society, whether consumers or generators, and this increases the power rates. 

BNamericas: Meanwhile, with the growth of the free [non-regulated] power market, the distributors are experiencing the problem of over-contracting in the regulated environment. Is the outlook for contracting in the Aneel auctions in 2023 still low?

Madureira: Yes, we have systemic over-contracting, a result of the expansion of DG and the migration of consumers to the free market. With the forecast that this will continue to grow in the future, it doesn't make sense to participate in the auctions to increase the over-contracting. 

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