On 30 October Brazil’s congress passed legislation that grants consumers the right to choose their power supplier, provides tax breaks and compensations for renewable energy, and increases the amount of royalties oil companies must pay.
Analysis:
Approval of the bill by both chambers of congress yesterday prevented the presidential decree (‘medida provisória’, MP), which is the basis for the legislation and was issued on 11 July, from expiring at the end of next week. The energy bill helps cap the price of electricity and ensure its supply in the future. It also heightens competition by granting consumers more choice. That could make power cheaper and improve the quality of service. In addition, it forces the power grid operator (ONS) to find innovative ways to deal with inevitable fluctuations of renewable energy.
- Within 24 months, commercial and industrial customers will be able to choose from which power company to buy electricity. Residential consumers will be able to do so in 36 months. In the meantime, by-laws will be drafted and consumer awareness campaigns launched. The bill establishes a supplier of last resort as a backup to ensure consumers are covered in case of emergencies, contractual disputes or other problems. Currently only large-scale users can freely choose their supplier.
- Subsidies for social welfare or other public interest programmes granted through the Conta de Desenvolvimento Energético (CDE), a fund financed through surcharges on power rates, will be capped from 2027. That helps limit additional costs and thereby the price of electricity in the long run.
- Generators of renewables will be compensated when their output is capped due to an ‘oversupply’ in the market. A surcharge was removed on renewable energies designed to limit their rapid expansion, which has made it difficult for the ONS to manage sudden spikes or declines in supply.
- Investments in storage of renewable energy will receive full exemptions on the IPI industrial tax and the PIS/Cofins social contributions tax in 2026.
- The bill changes the calculation of royalties that companies such as state oil firm Petrobras pay the local, state, or federal government. That is likely to increase tax revenues but reduce the ability to pay dividends or reinvest profits. Shares of Petrobras fell on the news.
Looking Ahead: Opposition legislators voiced their hope that President Luiz Inácio Lula da Silva could use a line-item veto to reverse the royalty measure affecting Petrobras. He is expected to sign the bill into law in the coming days.
