Brazil is the biggest electricity market in Latin America and one of the largest in electricity generation capacity in the world. The current electricity market design in Brazil is a combination of regulated and free markets along with a reserve energy market and contains numerous complexities – but also several opportunities. One of those is self-generation – the production of electricity for companies’ own consumption.
Figures from Brazil’s Energy Research Office (EPE) show that since 2009, the installed capacity of self-generators in Brazil has more than doubled to over 25.3 GW, and for good reason: self-generation enables companies to cut costs, reduce risks of lack of supply and increase the sustainability of their activities.
Lucas Salgado, senior commercial manager at Atlas Renewable Energy, explains the trend and outlines how companies with operations in Brazil can take advantage of self-generation to achieve their energy strategy goals, without having to become experts in the electricity market.
Q: What are the benefits of self-generation of electricity?
A: In Brazil, self-generation has a very clear economic benefit, including savings on sectorial charges like CDE (Conta de Desenvolvimento Energético), CCC (Conta de Consumo de Combustíveis), and Proinfa. Companies can also benefit from incentivized energy and have a 50% discount on transmission or distribution tariffs (see graphic below). This tax applies to electricity consumption, and the rate differs by region and by voltage level. This can represent a saving of as much as 25% on a company’s energy tariff. Beyond the economic benefits, though, self-generation can enable companies to achieve their sustainability goals, since they are supporting the energy transition by investing in renewable energy and can benefit from carbon credits or renewable energy certificates (RECs).
Q: How does self-generation work in Brazil?
A: Industrial self-generators are large energy consumers who build power plants that totally or partially meet their own demands. In Brazil, this has often been in the shape of mining companies that run their own hydropower and thermal power facilities to power their operations, although in recent years there has been a transition to wind and photovoltaic complexes. Nowadays, consumers can enter special-purpose partnerships with electricity producers that enable them to become shareholders in an electricity project, making them self-generators in their own right. A model that has already benefited companies from multiple sectors such as metallurgy, chemical, retail, and data centers as shown on the recent PPAs Atlas has celebrated with Albras and Unipar Carbocloro.
Q: How do these special-purpose partnerships work?
A: Essentially, they create a framework whereby Atlas and the Customer co-invest together in a company, and Atlas can handle the EPC and the financing until reaching the COD of the project, safely based on Atlas’ track record and housed in our proprietary portfolio.
Q: At what phase in the construction and development of a renewable energy project can companies enter into a self-generation partnership?
A: They can enter at any phase of the project and the decision of what point of the project the off-taker will invest in will depend on their risk assessment. We are prepared to support the off-taker at any point in their decision of this process.
Q: Do companies need to be large energy consumers to benefit from self-generation?
A: Our clients do still tend to be the large consumers in sectors such as mining and chemicals, and we’re seeing growth in the green hydrogen sector, too. Usually, projects range from 400 to 700 megawatts of power capacity. However, using the partnership structure, Atlas can offer self-generation to smaller energy consumers. By doing this, we are democratizing access to the self-generation market, and enabling it to reach scale.
Q: Do companies need to be physically located near the power plant?
A: No, the plant doesn’t need to be on-site, and nor does it have to be in the same price market within Brazil. We can offer a portfolio in whichever state or price market best suits the client – one example is the Albras self-generation PPA project that we signed recently. In this case, the client is located in the north of Brazil, while our PV plant is located in the southeastern energy submarket of the country.
We manage the risks for them and deliver the energy into their price market. Our solutions are as tailor-made as possible based on our development portfolio. For example, solar projects in different regions can meet the energy needs of different industrial facilities, but we can also carry out long-term swaps both within our internal energy portfolio and with trading companies to give the client what they need, which is usually 100% renewable energy in the same price market as their industrial plants.
Another interesting factor for our clients is the ESG and sustainability aspect that we embed into each of our projects. This means that as self-generators in partnership with us, clients are not only investors in a renewable energy project, but they are also supporting initiatives that positively impact their community and be part of all of them through our ESG services.
Q: What do companies need to bear in mind when choosing a partner for a self-generation project?
A: First of all, having a partner that understands the legal and regulatory landscape is absolutely vital. Proposed legal changes on the horizon could impact the ability of companies to take advantage of the benefits of self-generation, so there really is a window of opportunity here, but companies need to move quickly. Second, is key to establish a partnership with a company with a strong implementation track-record. A company that is able to develop, finance, and build a large renewable cluster.
This is also a long-term partnership. Some of the key aspects to look out for are the ability of your producer to be able to manage your energy risks, and that the project can be implemented on time. At Atlas, our approach is to engage the whole company in the process. Our finance team talks with the client’s finance team; our legal team talks with the client’s legal team, and so on. This is a joint venture, and there needs to be alignment and trust between both sides.
It doesn’t matter if you’re a large multinational or a smaller energy consumer, you need to have your whole operation engaged in this process because there can be accounting issues, legal issues, and regulatory issues. It is a complex process, but, with the right partner, the benefits it can provide definitely make it worthwhile.