MP 1.304, introduced by the Federal Government of Brazil, has once again highlighted the dilemmas facing Brazil’s electricity sector: how to balance tariffs, subsidies and investments without jeopardizing regulatory stability.
The bill creates a Resource Complement Charge (ECR), a mechanism that is triggered if the CDE spending limit is exceeded.
Although MP 1.304 does not repeal Act 14,300 – which established the legal framework for distributed generation – industry insiders have warned that this could pose risks for DG operators. At the same time, however, the new regulations could provide an opportunity to discuss issues such as opening up the country’s free market for energy and establishing a legal framework for energy storage.
To understand the potential impact of MP 1.304, pv magazine Brazil spoke with Barbara Rubim, Vice President of DG at the Brazilian Association of Solar Photovoltaics (ABSolar), and President of Bright Strategies; legal expert in tax and renewable energy Thiago Bao; and Hewerton Martins, chairman of the Free Solar Movement (MSL). All three highlighted the risks, contradictions and opportunities that the legislation could present for DG and the wider electricity sector.
Opinion divided
The heart of MP 1.304 is the ECR. If the CDE is exceeded, a 50% ECR levy will be charged in 2027, and from 2028 the levy will be 100%. The resulting costs will be distributed among agents who are considered grant recipients.
ABSolar’s Rubim said the new rule will saddle consumers with a responsibility that should lie with the government. She said: “It is as if families in the Bolsa Família program, if the budget is exceeded, receive a bill themselves to repay part of the benefit. This is exactly what the ECR rule proposes for the electricity sector.”
The mechanism could dampen investment enthusiasm, according to Bao, who said: “In practice, the ECR is a new expense that needs to be distributed. For existing projects, it may reduce margins. For new projects, it increases regulatory risk and puts pressure on investment attractiveness.”
MSL’s Martins warned that the mechanism could disproportionately punish small solar users. He said: “Small consumers of solar already have a payment rule, until 2029. But large consumers in the open market will continue to receive lifetime subsidies. If the ECR is poorly designed, small consumers, who are already paying, could end up paying even more.”
DG classification
The ECR payment would not be levied on micro-generation systems – classified as DG I – with a scale up to 75 kW, as these are not financed by the CDE. Operators of “DG II” and “DG III” systems – which are in a regulatory transition period provided for by Law 14.300 – would have to pay any ECR.
“If the CDE budget review is serious and thorough, the impact could be minimal,” ABSolar’s Rubim said. “But when there is deliberate underperformance, it becomes a way to shift an additional burden.”
Lawyer Bao warned that contracts registered with the Electric Energy Trading Chamber could lose their legal certainty, saying: “The interim measure opens regulatory gaps for scrutiny. Even for formalized contracts, which are considered safe assets, economic and financial stability may be called into question.”
Regulatory instability
MSL’s Martins said any prospect of regulatory uncertainty could impact Brazil’s DG market, which has been consolidated thanks to stable rules. “Without regulatory certainty, investors will think twice before investing in the sector,” he said. “This could slow the growth of distributed solar in Brazil.”
Bao agreed, adding: “DG grew because the rules were clear. If the legal framework remains contentious and subject to changes that change rates and offsets, capital will migrate to other models, or even to other countries.”
Storage possibilities
MP 1.304 could also open up the free energy market to all consumers. Although not yet confirmed, congressional leaders have said that this point could be discussed again in Senator Eduardo Braga’s report.
Momentum is also building for a legal framework for energy storage. Representatives of ABSolar, the Brazilian Association of Energy Storage Solutions and the Brazilian Wind Energy Association called for regulation during a breakfast at the Federal Senate on Wednesday. Attendees presented models for standalone energy storage systems connected to the transmission grid; for projects linked to generation locations; and for DG equipment used directly by consumers. The associations emphasized that the DG option would be the easiest to regulate in the short term.
ABSolar’s Rubim said: “MP 1,304 could be an excellent opportunity to leverage the development of energy storage, which is part of the solution to the country’s security of supply challenges.”
At stake
MP 1,304 goes far beyond a budget measure to curb CDE spending. It opens the door to a reconsideration of subsidies, a redistribution of burdens and a possible promotion of the opening of the free market for energy and a storage framework.
While industry views differ on the immediate impact of the legislation on DG, the consensus is that regulatory instability poses the greatest risk. Until Senator Braga’s report is presented, the industry will remain on high alert, balancing between a promise of predictability and the fear that new regulations will curb DG Solar’s growth in Brazil.
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