Brazil’s distributed generation investments shining bright, but challenges cloud the horizon

Investments in Brazil’s distributed generation (DG) segment are set to reach 25bn reais (US$4.4bn) in 2025, according to ABGD.

The local trade group also expects installed DG capacity to see strong growth of 20-25% next year.

In this interview, ABGD president Carlos Evangelista tells BNamericas about the outlook for the segment and also discusses legislative and regulatory proposals that could support or hinder its expansion.

BNamericas: What are the prospects for Brazil's DG market in the coming years?

Evangelista: The market continues to show promising prospects, with continued growth driven by the search for renewable sources and the diversification of the energy matrix, all in line with the energy transition so desired by the world's major economies. 

Photovoltaic solar energy, in particular, has stood out as the main source of DG, accounting for most of the energy injected into the grid within the DG model. This trend is expected to continue in the coming years, with the expansion of installations in homes, businesses, industries and rural properties.

BNamericas: With what level of installed power is the DG segment set to end 2024 and what level is it likely to reach next year?

Evangelista: We should close this year with just over 35GW of installed power, which represents growth of 31% in 2024. 

The growth forecast for 2025 is between 20% and 25%, depending on government policies, economic conditions and technological advances.

BNamericas: What investments are planned?

Evangelista: With this growth forecast we’ll reach a cumulative 162bn reais since 2012, when [regulator] Aneel instituted distributed micro and mini generation. We can say that with an increase of 22% in 2025, additional private investment will be around 27bn reais. These funds will go towards installing new distributed generation systems, benefiting millions of consumer units across the country.

BNamericas: Are there still difficulties in making new DG connections? Are there many cases of denial on the part of the distribution concessionaires?

Evangelista: Although the DG sector has advanced significantly, there are still challenges related to making new connections. Some distribution concessionaires have shown resistance, resulting in connection processes being denied or delayed. These difficulties are often attributed to technical issues, such as network expansion capacity, and bureaucratic barriers imposed by the distributors.

BNamericas: Is flow inversion one of the main problems?

Evangelista: Yes, this represents a technical challenge. In some cases, traditional grids require adaptations to the infrastructure and management to guarantee stability and quality in the energy supply. However, most of the time the flow inversion argument is without a robust technical basis and is used as a justification for denying the connection.

Editor’s note: Flow inversion in the grid occurs when the amount of energy generated by DG systems exceeds the demand of connected consumers.

BNamericas: What can or should be done to overcome these challenges?

Evangelista: To overcome the challenges associated with DG, it’s essential to invest in the modernization of distribution grids, implementing smart grid technologies that facilitate bidirectional energy management. In addition, it’s crucial to improve regulations to have total information transparency by establishing clear rules and agile procedures for connecting new DG systems, as well as promoting technical training for the professionals involved.

BNamericas: What bills and regulatory proposals that are in the pipeline could help or hinder the DG segment?

Evangelista: There are several in progress, but we'll cite two examples here, one with a negative impact and one with a positive impact on the Brazilian electricity system.

The lower house recently approved the urgency regime for bill 4831/2023, which aims to limit the insertion of DG into the operations area of electricity distributors. This proposal, if approved, will restrict the growth of the DG segment, harming thousands of Brazilians and hindering the right of more than 90mn consumers to produce their own energy.

On the other hand, bill 576/2021 has a provision that proposes extending by 24 months the deadline for micro and mini generators that already have the so-called ‘connection budget’ [access authorization] to build and finalize their plants, as numerous delays and problems caused by distributors have systematically prevented them from exercising their right to produce their own energy within the deadline set by law 14.300/2022 [the DG regulatory framework].

It’s important to note that what bill 576 is proposing is not an extension of the deadline for requesting new access budgets, but rather an extension of the deadline for building the plants that already have an access budget. This doesn’t increase the costs involved in the public policy to promote DG as it’s not a question of opening up new projects, but rather a longer period of time to implement existing projects. 

It’s worth noting that, with the deadline set by the law today, there are around 17GW in solar DG applications that could lose access to the distribution grid, representing 71bn reais in halted investments.

Editor's note: Law 14.300/2022 sets deadlines for access requests. Until January 6, 2023, consumers could request the DG connection budget and be guaranteed total exemption from rates for the use of transmission and distribution grids until 2045. As of January 7, 2023, solar generation projects that applied for connection had to pay some tariff components.