How new tax benefits will impact distributed generation in Brazil

Brazil's mines and energy ministry (MME) has published ordinance regulating the provision of tax benefits under the special incentive regime for the development of infrastructure (Reidi) for distributed generation (DG).

Reidi allows tax breaks (suspension of PIS and Cofins) during the implementation phase of infrastructure projects, including power generation developments.

In a release, the local DG association ABGD said that the measure will stimulate new investments and make DG projects even more competitive and attractive.

The total installed DG capacity in the country is currently around 30GW, based mainly on solar energy, according to the sector’s watchdog Aneel. There are 2.6mn installations spread over 5,548 municipalities.

For Tiago Severini, customs/tax partner at law firm Vieira Rezende, the government's ordinance removes the legal uncertainty that inhibited some Reidi claims, due to uncertainty about the scope of DG regarding the activities treated as priorities to obtain the benefits.

“This is because the process of obtaining Reidi involves a prior recognition of the project as falling within the activities qualified as priority, so only then is there a request to qualify for the benefit with the federal revenue service,” the lawyer told BNamericas. 

Luiz Serrano, CEO and managing partner of RZK Energia, said that, depending on the tax regime or framework of the beneficiary company, there is a potential reduction of up to 9.25% in the investment costs of a solar plant. 

In the case of RZK, which has an investment plan involving around 550mn reais (US$104mn) up to the end of 2024, the executive foresees a cost reduction of around 55mn reais. 

“Reidi consolidates the progress made since the regulation of DG [in 2022], allowing various economic groups to allocate resources in the short term to new investment projects and acquisitions,” Serrano told BNamericas. 

Felipe Moreira, CEO of GDSOLAR, which is part of the Colibri Capital group, said that the incentives obtained through Reidi will allow the company to expand its portfolio of energy projects.

"We've been working hard on the financial equation of our business, and this is where we understand Reidi will contribute to growth in the coming years. The suspension of the payment of PIS and Cofins on goods and services purchased domestically or imported will bring advantages,” he told BNamericas. 

Daniel Maia, managing partner of Athon Energia, explained that the suspension of PIS and Cofins will encourage the company to invest more in DG. 

"Other types of plants were partly more competitive because of tax incentives. So, insofar as we have a leveling of tax incentives, DG is better positioned as well,” he told BNamericas. 

The CEO of Voltalia's Helexia Brasil, Aurélien Maudonnet, stressed that the new ordinance will allow the company to expand its portfolio of projects, raise funds more easily and strengthen its brand in the market. 

“In addition, we will be better prepared to adapt to economic and regulatory changes, ensuring resilience and long-term sustainability,” he told BNamericas.  

Maurício Barros, CEO of solar equipment manufacturer and distributor MTR Solar, underscored that with the benefits of Reidi, the company will be able to invest in new technologies, increase production capacity and expand its distribution network to win over new customers. 

“The PIS/Cofins exemption will be an important boost for the company's growth and strengthening in the solar energy sector,” he told BNamericas. 

The interviewees also discussed their analyses of the main challenges for the DG segment in Brazil, which we will publish in a new report next week.