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Provisional measure on renewable energy and tariff reduction published

April 15th, 2024

On April 10, 2024, Provisional Measure No. 1,212/2024 (“MP”) was published, amending Laws No. 9,427/1996, No. 9,991/2000 and No. 14,182/2021.

In short, this provisional measure, which had been highly anticipated by the market, authorizes the extension of the 48-month period for the implementation of projects, originally required by Law No. 14,120/2021 as a condition for maintaining the 50% discount on the Tariffs for the Use of Transmission and Distribution Systems (“TUST/TUSD”), and regulates the use of certain funds to reduce energy tariffs.

Below are the MP’s highlights:

  1. TUST and TUSD

Law No. 14,120/2021 (which amended Law No. 9,427/1996) established rules on the grant and maintenance of the 50% discount on TUST/TUSD for new electricity generation projects.

According to the law, projects that applied for an authorization grant or amendment to an existing authorization grant to increase their installed capacity by March 02, 2022, would be entitled to a 50% discount on TUST/TUSD, provided that the commercial operation of all their generating units initiated within 48 months from the respective ANEEL authorizing resolution (grant or extension).

In addition to the 48-month period provided for in Law 14,120/2021, the MP adds a 36-month period for generating units to initiate operations:

    • by requesting the deadline extension to the National Electric Energy Agency (“ANEEL”) by June 09, 2024;
    • by providing a performance bond (in the form of a cash deposit, bank guarantee or guarantee insurance) by July 09, 2024, corresponding to 5% of the estimated project value – to be established by an act of the Ministry of Mines and Energy (“MME”);
    • by initiating their works by October 10, 2025 (under the terms of the MME); and
    • by signing an adhesion term to the provisions established in the MP.

The performance bond may be used to cover penalties imposed for total or partial non-compliance with the obligations under the authorization grant, in the event of failure to initiate the works, failure to implement the power plant, non-compliance with the conditions established in the authorization grant regarding the installed power, or revocation of the authorization grant. The performance bond offered must remain in force for up to six months after the last generating unit goes into commercial operation.

According to data from ANEEL, more than 3,000 projects have been authorized by ANEEL and are expected to go into commercial operation in the next few years. Most are planned for 2029, and 90% of these projects have not yet initiated construction works. Within this context, the MP provides additional time for these projects to set up their plants and benefit from the TUST/TUSD discounts.

  1. Tariff reduction

The MP also amends Laws No. 9,991/2020 and No. 14,182/2021, and establishes the following measures aimed at reducing energy tariffs:

    • Use of funds earmarked for research and development programs at ANEEL and energy efficiency that are not allocated to projects contracted or initiated by September 01, 2020, or whose execution has not been verified, for reversion to reasonable tariffs or allocation to the Energy Development Account (“CDE”).
    • Reduction of part of the funds earmarked for reducing the structural costs of generating energy in the Legal Amazon for reasonable tariffs, as decided by the MME. These funds should only be applied to the distribution concessions in the states where the São Francisco and Paraíba River basins, the Legal Amazon, Madeira River and Tocantins River are based.
    • Authorization from the Electric Energy Trading Chamber (“CCEE”) to negotiate advance payments of CDE receivables resulting from the payment by Eletrobras and its subsidiaries of the amount added to the grant by the new contracts, in accordance with Law No. 14,182/2021. These receivables would be used for early discharge of the Covid-Account and the Water Scarcity Account, as well as to reduce tariffs for consumers in the regulated environment, following guidelines to be established by the MME.

Next steps: although the MP generates immediate legal effects, some measures are pending an order of MME, such as:

  • characterization of the beginning of the construction works for TUST/TUSD discount purposes;
  • appointment of the estimated project value to provide the performance bond; and
  • definition of the guidelines, along with the Ministry of Finance, for the CCEE to negotiate the anticipation of CDE receivables.

In addition, the MP’s definitive conversion into ordinary law requires analysis by a joint committee of the Brazilian House of Representatives and the Federal Senate (which may propose amendments), followed by a vote by the Plenary. In this regard, five amendments to the MP have already been submitted.

The MP must be converted into law within 60 days, a period that can be extended for 60 more days if the vote is not concluded in both houses of Congress.

Demarest’s Energy and Natural Resources team is available to provide any further clarifications on the matter.

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