Decree gives the go-ahead for offshore projects

On Tuesday, January 25, 2022, Decree No. 10,946/2022 was published, which provides for offshore power generation projects in Brazilian territorial seas.

Regulation has been highly-anticipated by the power sector, given the regulatory void on the subject, which resulted in a stifling of demand for the development of these projects. Currently, although there are still no projects in commercial operation, there are projects for offshore wind farms with environmental licensing in progress in Brazil.

Check out the highlights of the decree below:

  • Competence. The Brazilian Ministry of Mines and Energy (MME) will have competence over the assignment of use;
  • Assignment of Use Agreement. Its purpose will be (i) the assignment of for-consideration use of the area for the operation of an offshore generator under the independent production or self-production of energy regime; or (ii) the assignment of cost-free use to carry out research and technological development activities related to offshore generation;
  • Authorization from ANEEL. The assignment of use agreement concerns the physical spaces and the use of natural resources in inland waters under the Union’s domain, in the territorial seas, in the exclusive economic zone and on the continental shelf, and the authorization to explore the project under an independent production or self-production regime will continue to be under the competence of the National Power Regulatory Agency (ANEEL);
  • Self-production. The installation of an offshore project intended for self-production, not connected to the National Interconnected System (SIN), must observe the rules established by Decree No. 5.163/2004, related legislation and the authorization granting act, for which ANEEL will have competence over the issuance of such authorization;
  • Assignment modalities. The assignment of use may be (i) planned, which will consist of offering prisms previously demarcated by the MME, whose assignment will be through a bidding process; or (ii) independent, which will involve the transfer of required prisms at the initiative of those interested in operating them.
  • DIP. For the assignment of use, the interested parties must request the issuance of a “Declaration of Prior Interference” (DIP) by the Navy Command, Air Force Command, Ibama, Instituto Chico Mendes, ANP, Ministry of Infrastructure, Ministry of Agriculture, Livestock and Food Supply, Ministry of Tourism and Anatel. Such declaration has the purpose of identifying the existence of interference of the prism in other installations or activities;
  • Auctions for contracting energy. At the discretion of the MME, specific auctions may be held for the contracting of offshore power;
  • ANP and ANEEL. The regulatory agencies will be able to evaluate the possibility of granting prisms in areas that coincide with oil or natural gas production areas.
  • Complementary rules. The MME must issue rules complementary to Decree No. 10,946/2022 by December 12, 2022 (180 days from the entry into force of the decree). In these rules, the MME may also establish: (i) the procedure for integrating offshore energy generation projects in the SIN; (ii) a minimum area limit for the same use assignment agreement; and (iii) rules for issuing the DIP.
  • Validity. The Decree enters into force on June 15, 2022.

 

The Decree also shows an evident concern regarding the risk of distortion of requests for assignment of use by interested parties (possibly resulting in function creep). To this end, it attributes to the MME the power to intervene in the application when there is evidence of intention of speculative use, when there are elements such as (i) applications involving a large area of ​​extension; or (ii) low level of operation of other areas already assigned to the applicant or to companies of its economic group.

According to the National Energy Plan 2050, published by the Energy Research Company (EPE) in 2020, offshore wind farms can expand up to 16GW of installed capacity by 2050, if there is a 20% reduction in CAPEX. In the Brazil Offshore Wind Roadmap, which it also published in 2020, the EPE estimated the existence of a technical potential of around 700GW in locations with a depth of up to 50m.

See the full Decree

Demarest’s Energy and Natural Resources team is available to provide further information or clarification on this and other related matters.