PV Magazine: The Brazilian solar market is complex, and it seems that it is a very different market at different scales. We have the utility-scale sector, and we have the distributed sector. Can you talk about how the Brazilian market looks at these two different scales?
Dr. Sauaia: Yes, definitely. Well, in regards to the distributed market, what is driving the market is regulation 482-2012, that was devised by ANEEL, which is the electricity regulation agency of the country, in 2012, as I mentioned. This is basically a system similar to net metering.
Unfortunately, we are still facing a few obstacles for the long-term development of this policy in the country. The two most important of these obstacles are financing and taxation. We will talk about this later on.
In regards to the centralized market or utility-scale projects, we have the central government now driving this market through a specific auction, which is the first of its kind for the country, it happening on the 31st of October 2014, and for this auction we already have around 10.8 GW of projects which have presented their interest to participate.
PV Magazine: Yes, this auction is very exciting. This is the reserve auction in late October. And there was a previous solar-only auction in the state of Pernambuco. And yet there are still barriers. When I speak with market analysts, they speak about financing being a key barrier in the utility-scale segment.
Now BNDES has recently announced that it will provide financing for solar projects which use domestic content. Can you speak a little about your view on this move by BNDES and a little bit about the broader landscape for financing solar projects in Brazil?
Dr. Sauaia: Sure. ABSolar, on behalf of the companies which are its associated members, has been discussing this subject of financing with the government for quite a while now. We also had the opportunity to discuss this directly with BNDES through meetings with several of its employees and especially with its president as well in Rio di Janeiro.
The funding options which are available for this coming auction are based on two programs, which are Fundo Clima, with very attractive interest rate, and also conditions for lets say the timeframe for you obtain this financing, and the other one is FINEM, BNDES-FINEM. Basically through BNDES you can get up to 80% of your financing for the project, provided that you have some local content on it.
The local content is phased in three steps, up to 2017, from 2018 to 2019, and up from 2020 onwards. It is three different phases. And the amount of local content that you need on your project increases from one phase to the other.
Normally to get access to the funding what you need is for your equipment to be part of a list of funded goods from the bank. And for that to happen, you need to comply with some of these local conditions. For the beginning, for these first projects, the conditions include mounting the module in the country, and having the frame of the module, the aluminum frame, produced in Brazil. And those are the module requirements.
In terms of PV system requirements, also the mounting structures, the racking needs to be with Brazilian local content, and cabling and connectors. These are the conditions for the moment.
PV-Magazine: To talk a little bit about the distributed generation sector, I understand that Brazil has passed a policy which is net metering, but that there are still difficulties because the output of the PV plants is taxed. Unlike other nations where the output is not taxed and is essentially a trade of electricity. Can you talk a little bit about the economics of the distributed generation sector, and what can be done to move this sector forward?
Dr. Sauaia: Well, first of all I have to say that in the Brazil at the moment we don’t have a real net metering. Although the idea of the regulation 482-2012 was exactly to promote net metering, the problem is that taxation is being applied to the electricity that is compensated.
So what do I mean by that? If you have for example a client that is producing 500 kWh of electricity and is consuming from the distribution grid 1,000 kWh of electricity, you normally would expect that he would pay only for the difference between the two the difference between what he consumes and what he generates. In this case, 500 kWh.
But unfortunately, what is happening is he pays for the generation part of the tariff, 500 kWh, but for the taxes part of the tariff he pays over the 1,000 kWh he is consuming everything. In spite of the fact that this client had compensated some of this electricity.
So it is not a real net metering at the moment. As a result, about 33% of the value of the electricity which is injected into the electricity grid is lost.
So this is something that right now we are discussing with the states, it is the states which decide this taxation system, so it is more complicated than simply talking to the governments, we have to talk to the 26 states plus the federal districts. It is rather a battle, but we are facing this battle and we are sure of the victory.
PV-Magazine: When I look at the Brazilian market I see a market which is not very large at present, but where there is so much interest the drivers are so strong. How would you characterize what you expect in the next two or three years in Brazil?
Dr. Sauaia: Putting it in perspective, what Brazil has at the moment around 42 MW of installed capacity. This is about 12 MW connected to the grid, plus 30 MW of off-grid systems. If we think that last year we had the first auction, with around 120 MW of installed capacity to be built up until to 2017. And this year we have an expectation of between 500 MW and 1 GW to be contracted in this single auction happening in October, well it is basically a game changer.
So this market will grow significantly, and therefore we expect a lot of interest from international players into the Brazilian market.
PV- Magazine: Is there anything that we haven’t touched on that is important for our readers to know about the Brazilian solar market and about ABSolar’s role in it?
Dr. Sauaia: Well, I can mention a few points that could be relevant. First of all, we talked about some of the current barriers, I think both for distributed generation, and for large-scale projects financing has been a barrier. We now have a little more certainty with BNDES funding that there are conditions available for funding of the projects. There is still a little uncertainty about local content, if companies will be able to build factories and really deliver on this local content, this is something for the near future.
On the other hand, we also have issues with taxation. Not only the taxation of electricity which we discussed here, but also taxation of materials, components, goods throughout the whole value chain. This is something that ABSolar is working on directly with the government, with the ministries. The other thing is that we are working with some local and regional governments to try to create subsidies or support schemes for photovoltaic to grow locally and regionally.
For example, we are evaluating a system similar to the American ITC, which has good success, and could be a driver. This is a bit difficult b
ecause it requires law, regulations, specific laws, and this takes a while in Brazil. Our legislative system it is rather difficult. But, it is a possibility.
The other thing is regulations in cities, for example. Such as what the city of New York has, which is an abatement for taxes for those which have PV systems. We are already with one law draft being discussed for a similar abatement for the city of São Paulo, which is the biggest city in the country.
If this passes, this would be a good driver as well.