Early Years

The development of the power industry in Brazil started at the turn of the 20th century with small and localised private investments, made to serve specific companies or municipal lighting. Canadian Light and the American & Foreign Power Company (“Amforp”) later entered the market by means of a series of acquisitions of these existing assets and development of additional ones. The industry was therefore originally developed and owned by private companies. 

However, a very important change took place around 1930, during the government of President Getúlio Vargas – with the Great Depression affecting international investment and political nationalism growing in the country, the federal government passed new legislation, increasing oversight and tariff regulations, leading to diminishing returns. Public companies – such as Chesf, Cemig, CEEE, and Eletrobras – were then created to compensate for the lack of private incentives for investments, marking a new phase of direct government intervention in the sector. 

The phase of public investment in the power sector began to be reversed with the transition from a military dictatorship to a liberal democratic regime. When the current Federal Constitution was enacted in 1988, it provided that services related to power facilities may be performed either directly by the federal government or indirectly through the granting of concessions, permissions or authorisations.

The Development of a Market-Driven Industry in the 1990s

In the 1990s, in the context of a broader privatisation programme, the Brazilian government implemented a series of measures to increase private investment in the power sector and to privatise three federal and 20 state-owned power generation and distribution companies.

In 1995, Law No 8,987, also known as the “Concessions Law”, established the general rules for concessions and permissions relating to public services, and Law No 9,074 introduced the concepts of independent power producers and free customers with open access rights to all distribution and transmission facilities. 

In 1996, Law No 9,427 created the National Electricity Regulatory Agency (Agência Nacional de Energia Elétrica or ANEEL), an independent federal regulatory agency that regulates and supervises the power industry in accordance with the policies set forth by the Ministry of Mines and Energy (Ministério de Minas e Energia or MME). 

In 1998, Law No 9,648 completed the legal framework for the development of a market-driven industry, as it established a regime of free power contracting among holders of concessions, permissions and authorisations of power services, as well as certain initial rules for the unbundling of power companies in the generation, transmission, distribution and trading segments. Such law also created the Power Wholesale Market (Mercado Atacadista de Energia Elétrica or MAE), which was later replaced by the CCEE, as defined below, and the National Electric System Operator (Operador Nacional do Sistema Elétrico or ONS), a non-profit private entity that co-ordinates and regulates the power generation and transmission operations in the National Interconnected System (Sistema Interligado Nacional or SIN) under ANEEL’s regulation and supervision. 

Power Shortage and Reforms After 2001

After a serious power shortage crisis in 2001, the federal government carried out extensive reform of the power industry to further attract private investment in power generation, transmission and distribution facilities with the purpose of providing customers with a stable power supply at reasonable prices. Accordingly, Law No 10,848/2004 created: 

• the free and regulated power contracting markets and the Electricity Trading Chamber (Câmara de Comercialização de Energia Elétricaor CCEE), a non-profit private entity responsible for, among other things, registering, accounting for and clearing all energy sale and purchase transactions in the free and regulated markets; 
• the Energy Research Company (Empresa de Pesquisa Energética or EPE), a federal public company responsible for conducting strategic studies and research in the energy sector; and 
• the Power Sector Monitoring Committee (Comitê de Monitoramento do Setor Elétrico or CMSE), a committee of the executive branch responsible for monitoring power service conditions and recommending preventative measures to ensure power supply safety. 

It also indicated new attributions for the National Energy Policy Council (Conselho Nacional de Política Energética or CNPE), which provides advice to the president of the Republic of Brazil regarding the development and creation of national energy policies. 

Law No 10,848/2004 also imposed an additional level of unbundling of the power industry by preventing the power distribution concessionaires from developing power generation and transmission activities, selling power to free-market customers, holding equity interests in other companies, and performing activities unrelated to power distribution services. 

In 2012, the Brazilian government enacted: 

• Provisional Measure No 577, later converted into Law No 12,767/2012; and 
• Provisional Measure No 579, later converted into Law No 12,783/2013, also known as the “Concession Renewal Law”. 

Law No 12,767/2012 established the obligation of the granting authority to render power services in the event of a termination of a power concession, as well as new rules related to the intervention of the granting authority in power concessions to ensure adequate performance of utility services. 

The Concession Renewal Law established new rules that changed concessionaires’ ability to renew concession agreements. Under this Law, generation and distribution concessionaires were allowed to renew their concession agreements that had been in effect since 1995, and transmission concessionaires were allowed to renew their concession agreements that had been in effect prior to and after 1995 for an additional period of 30 years, provided that the concessionaires agreed to amend their concession agreements to reflect a new tariff regime established by ANEEL.

Re-allocation of Hydrological Risks

In 2015, the Brazilian government enacted Provisional Measure No 688/2015, later converted into Law No 13,203/2015, to revise the allocation of the hydrological risks borne by hydroelectric power plants that share hydrological risks under the Energy Reallocation Mechanism (Mecanismo de Realocação de Energia or MRE). In 2014 and 2015, given the poor hydrological conditions, the MRE participants generated less power than their assured energy (garantia física), which was confirmed by a significant decrease in the Generating Scaling Factor (GSF), a measurement of the proportion between the power generated by the MRE participants and their respective assured energy. These generation deficits resulted in losses for the MRE participants, given their exposure to hydrological risks.

As a consequence, Law No 13,203/2015 established an optional mechanism that allows each generation plant to transfer these risks to final customers upon payment of a risk premium to the Brazilian government, as well as certain temporary extensions of generation concessions and authorisations to compensate for losses during such period. While the government attempted to solve the issue in 2015, the option then was only attractive to power generators in the regulated market and left those hydropower plants with sales in the free market mostly unassisted. 

New Re-allocation of Hydrological Risks

The Brazilian government launched a new framework with Law No 14,052/2020, and ANEEL Normative Resolution No 895/2020, to address additional structural issues in the MRE, this time specific to the free market. In exchange for withdrawing certain lawsuits regarding the GSF, the hydropower generators who chose to adhere to this new framework received an extension of their generation concessions and authorisations.

Impact of COVID-19

Also in 2020, the COVID-19 pandemic affected the financial situation of utilities with a reduction in energy consumption and an increase in payment defaults. As a result, Decree No 10,350/2020, further regulated by ANEEL Normative Resolution No 885/2020, created the so-called “COVID Account”, providing a centralised credit line to support the liquidity of the power distribution concessionaires to be passed on to tariffs.

At the turn of 2021, Provisional Measure No 998, converted into Law No 14,120/2021, implemented measures to reduce the tariff impacts arising from the COVID-19 pandemic and the privatisation of power utilities in the north and north-east regions. It also ended the benefit of discounts on power transmission and distribution tariffs for renewable energy projects with authorisations requested after March 2022.

Privatisation of Eletrobras

After a long period of study, the Brazilian government enacted Provisional Measure No 1,031/2021, converted into Law 14,182/2021, determining the privatisation of the largest power company in Latin America, Eletrobras, created in 1954 in the phase of strong public investment. The transaction was structured and implemented by the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social or BNDES) and the privatisation was successfully concluded in June 2022 with a market capitalisation of BRL29.3 billion to BRL33.7 billion. This has been the first privatisation in Brazilian history implemented by means of a public offering, and the largest privatisation in terms of absolute numbers. 

The developments from the enactment of the 1988 Constitution to the privatisation of Eletrobras have enabled the relevant increase in private investment in the electricity sector in Brazil, which represents the vast majority of the power generation, distribution and transmission assets, and few companies involved in power production remain state-owned today.

Inclusion of Storage Systems in the Regulatory Framework

The current Brazilian power regulatory framework does not include storage systems, nor pumped-storage hydroelectric power plants. ANEEL has started the proceedings to fill this gap and promote the necessary regulatory improvements by launching Public Consultation No 039/2023 to collect contributions on the possible impacts of such new regulation. 

ANEEL intends to adjust the regulations in order to establish a procedure for obtaining authorisation for storage projects; to enable its connection to the national electric grid; and to define the proper payment mechanism for such projects. ANEEL expects to have a definition of the aforementioned regulation adjustments by 2025.

Federal State-Owned Entities

A few companies are still under the control of federal states, as follows:

• Companhia Energética de Minas Gerais – CEMIG, controlled by the state of Minas Gerais;
• Centrais Elétricas de Santa Catarina SA – CELESC, controlled by the state of Santa Catarina;
• Petróleo Brasileiro SA – Petrobras, the federal state-owned oil and gas company in Brazil, which also owns certain thermal power generation assets; and
• Empresa Brasileira de Participações em Energia Nuclear e Binacional SA – ENBPar is a federal state-owned company that was incorporated in the context of Eletrobras’s privatisation to ensure that the federal government would maintain its control of Eletronuclear SA (which owns Angra 1, 2 and 3 nuclear power plants) and Itaipu Binacional (which holds a 50% stake in Itaipu hydropower plant).

Investor-Owned Entities

Generation

Some of the main investor-owned companies in the generation segment are: 

• Centrais Elétricas Brasileiras SA – Eletrobras;
• Engie Brasil Energia SA; 
• Norte Energia SA; 
• Santo Antonio Energia SA; 
• China Three Gorges Brasil Energia Ltda; 
• Energia Sustentável do Brasil SA; 
• SPIC Brasil; 
• Companhia Paranaense de Energia – COPEL;
• Empresa Metropolitana de Águas e Energia SA – EMAE;
• AES Tiete Energia SA; 
• Energias do Brasil SA – EDP Brasil; 
• Neoenergia SA; 
• CPFL Energia SA e CPFL Energias Renováveis SA; 
• Enel Brasil SA; 
• Eneva SA; 
• Companhia Estadual de Geração de Energia Elétrica – CEEE-G;
• Novta Energia Renovável; 
• Centrais Elétricas de Sergipe SA – Celse; 
• Gás Natural Açu – GNA; 
• New Fortress Energy; 
• EDF; 
• Ceiba Energy;
• Casa dos Ventos Energias Renováveis SA; 
• PEC Energia;
• Atlas Renewable Energy; 
• Auren Energia; 
• Alupar Investimentos SA; 
• Companhia Energética de São Paulo – CESP; 
• Light SA; 
• Cubico SA; 
• Brennand Energia; 
• Rio Energy; 
• Canadian Solar; 
• Omega Geração SA; 
• Aliança Energia; 
• Voltalia SA; 
• Statkraft Energias Renováveis SA; 
• CER Energia; 
• Atlantic Energias Renováveis; 
• Echoenergia Participações SA; 
• Acciona Energía;
• Enerfin do Brasil; 
• Total Eren; and
• Diamante Energia.

Transmission

Some of the principal investor-owned companies in the transmission segment are: 

• Centrais Elétricas Brasileiras SA – Eletrobras;
• Companhia de Transmissão de Energia Elétrica Paulista – Isa CTEEP; 
• Transmissora Aliança de Energia Elétrica SA – TAESA; 
• State Grid Brazil Holding SA; 
• Alupar Investimentos SA; 
• Engie Brasil Energia SA; 
• Companhia Paranaense de Energia – COPEL;
• Equatorial Energia SA; 
• Energias do Brasil SA – EDP Brasil; 
• Grupo Energisa SA; 
• CPFL Energia SA; 
• Neoenergia SA; 
• Argo Transmissão de Energia SA; 
• Celeo Redes; and 
• Evoltz (acquired by Ontario Teachers’ Pension Plan Board). 

Distribution

The principal investor-owned companies in the distribution segment are: 

• Equatorial Energia SA; 
• Grupo Energisa SA; 
• Enel Brasil SA; 
• CPFL Energia SA; 
• Companhia Paranaense de Energia – COPEL; 
• Neoenergia SA; 
• Energias do Brasil SA – EDP Brasil; and 
• Light SA.

Federal Control of Nuclear Power

The only restriction to private investment in the power industry – whether foreign or domestic – is in nuclear power generation, as the Brazilian Federal Constitution provides for the federal government’s monopoly over this and does not provide for delegation of such activity through the granting of concessions, permissions or authorisations.

Treatment of Foreign Companies

Basic equality

The Sixth Constitutional Amendment of 1995 revoked Article 171 of the Brazilian Federal Constitution, which provided for preferential treatment for companies controlled by Brazilians over companies directly or indirectly controlled by foreigners. Since then, equal and non-discriminatory treatment of companies, whether controlled by Brazilians or foreigners, is a constitutional principle. 

Restrictions

There are certain restrictions to the acquisition or lease of rural lands by foreign companies or Brazilian companies directly or indirectly controlled by foreign companies, which commonly impact power generation, transmission and distribution projects, but there are alternative legal structures for foreign investors, which have been accepted by lenders and stakeholders in the development of power projects in Brazil. There are also restrictions on the acquisition of land within the country’s border areas, but this restriction is not usually relevant in the development of power projects in Brazil.

Finally, concessions, permissions and authorisations related to power activities must be granted to companies incorporated pursuant to Brazilian laws. 

The Concessions Law provides that the transfer of the concession or the control of the concessionaire is subject to prior approval of the competent authority, and the interested party must meet the requirements of technical and financial capacity, as well as legal and tax compliance, and must commit to comply with all the terms and conditions of the concession agreement. This provision in the Concessions Law was confirmed after passing judicial scrutiny by the Federal Supreme Court.

ANEEL is the entity in charge of approving the transfer of concessions, permissions or authorisations, or the change of control of companies that hold concessions, permissions or authorisations related to power activities. 

As a general rule, the transfer of concessions, permissions or authorisations (asset deal) is subject to ANEEL’s prior approval, while the change of control of companies (equity deal) in the power industry may or may not be subject to ANEEL’s prior approval. 

ANEEL Normative Resolution No 948/2021 (Module III) provides the rules applicable to change of control of companies in the power industry and, in summary, requires the prior approval of ANEEL for the following companies: 

• power generation, transmission and distribution companies that hold concessions and permissions; and 
• hydro and nuclear power generation companies, whether holders of concessions or authorisations. 

In accordance with the guidelines of the Concessions Law, ANEEL Normative Resolution No 948/2021 (Module III) establishes that the potential purchaser must submit evidence to ANEEL with respect to its financial and technical capacity; legal, tax and regulatory compliance; and commitment to comply with the terms and conditions of the concession, permission or authorisation. 

The change of control of oil, coal, gas, biogas, biomass, wind and solar power generation companies is usually not subject to prior approval by ANEEL. Nevertheless, the purchaser has an obligation to inform ANEEL about the change of control within 30 days after implementation of the transaction, upon the competent corporate registration.

The central authority that oversees and administers the technical aspects of the electricity supply and the development of transmission facilities to ensure the reliability of the electricity system and the adequacy of supply to satisfy the demand is the ONS, which is a non-profit private entity comprised of generation, transmission, distribution, importation and exportation companies and free customers. 

The primary role of the ONS is to co-ordinate and regulate the generation and transmission operations in the SIN, subject to ANEEL’s regulation and supervision. 

The main responsibilities of the ONS include, among others: 

• operational planning for the generation industry; 
• organising the use of the SIN and international interconnections; 
• ensuring that industry participants have access to the transmission network in a non-discriminatory manner; 
• proposing plans to the MME for extensions of the SIN; and 
• formulating regulations regarding the operation of the transmission system, subject to ANEEL’s approval. 

The MME is responsible for planning the expansion of the electricity system, with the support of the EPE and ONS, and it determines directives by which ANEEL conducts generation and transmission auctions.

The market operator that oversees and manages the electricity trade is the CCEE, which is also a non-profit private organisation comprised of generators, distributors, traders and consumers. 

The CCEE is responsible for comparing the actual measurements of electrical energy consumption and generation with the agent’s respective agreements for the purchase and sale of energy, and for calculating the settlement price difference (Preço de Liquidação de Diferenças or PLD).

Other of the CCEE’s main responsibilities include:

• collecting measurement data for generation and consumption;
• registering power purchase agreements;
• conducting regulated auctions for the supply of power distributors or for back-up reasons; 
• conducting competitive procedures for the sale of energy surplus by power distributors; and
• managing sectoral funds.

There have been several material changes in the laws and regulations of the power industry over the past few years.

Foreign Exchange Law

The Foreign Exchange Law (Law No 14,286/2021, which came into effect on 30 December 2022) revoked Decree-Law No 857/1969 and expressly authorised the contractual parties to stipulate the foreign currency indexation in agreements (eg, PPAs) entered into between exporters and holders of concessions, permissions, authorisations or lessees in infrastructure sectors (eg, power companies).

Distributed Generation Law

The Distributed Generation Law (Law No 14,300/2022) established the new distributed generation legal framework and redefined the corresponding net metering rules. It also provided the transition process from the prior distributed generation regime set by ANEEL Normative Resolution No 482/2012 (recently revoked by ANEEL Normative Resolution No 1,059/2023). 

New Distributed Generation Regulation

The New Distributed Generation Regulation (ANEEL Normative Resolution No 1,059/2023) regulates the new rules established by the Distributed Generation Law. It revoked ANEEL Normative Resolution No 482/2012 (prior distributed generation regulation) and amended ANEEL Normative Resolution No 1,000/2021 (which establishes general conditions for power supply to consumers by utilities).

Legal Framework for Offshore Power Generation

The Legal Framework for Offshore Power Generation (Decree No 10,946/2022) established the first legal framework for offshore power generation, which establishes that the federal government will assign offshore areas to the winning bidders under public bidding processes, followed by ANEEL’s authorisation to implement the power generation project in these assigned offshore areas.

Bidding and Term Extension of Existing Power Transmission Concessions

Bidding and Term Extension of Existing Power Transmission Concessions (Decree No 11,314/2022) establishes a new bidding process as a general rule for expiring transmission concessions agreements. The extension of a transmission concession’s term may occur exceptionally and at the sole discretion of the MME when the bidding process is deemed (i) unfeasible; or (ii) detrimental to the public interest. From 2025 and, more intensely, between 2030 and 2042, 170 transmission concessions will reach their respective contractual terms, according to data made available by the MME.

IPP Authorisation Issuance Procedures for Power Plants

IPP Authorisation Issuance Procedures for Power Plants (ANEEL Normative Resolution No 1,071/2023) establishes a different mechanism for obtaining Independent Power Producer (IPP) Authorisation for wind, solar, thermal, hybrid and other alternative source power plants. The main innovations are: (i) that it is no longer necessary to provide a performance bond in order to obtain IPP Authorisation for wind power plants (the only source for which a performance bond was required under the previous regulation); and (ii) the execution of grid connection agreements have become a requirement for obtaining IPP Authorisation. 

IPP Authorisation Issuance Procedures for Hydropower Plants up to 50 MW

IPP Authorisation Issuance Procedures for Hydropower Plants up to 50 MW (ANEEL Normative Resolution No 1,070/2023) modifies ANEEL Normative Resolution No 875/2020 to establish that the criterion for classification as a Small Hydropower Plant (“PCH”) is exclusively having an installed capacity greater than 5 MW but less than or equal to 30 MW (under the previous regulation, a maximum reservoir area of 13 km² was also required, but this is no longer applicable). 

Grid Connection Procedures

Grid Connection Procedures (ANEEL Normative Resolution No 1,069/2023) modifies the rules for access to the transmission grid to require developers to provide a financial guarantee equal to three months of connection fees when requesting an access opinion from the ONS. Once the access opinion has been issued, the developer may either request that the guarantee be returned (and the Access Opinion be annulled) or maintain it until execution of the connection agreements in order to be granted access to the grid. 

CCEE Governance Modifications

CCEE Governance Modifications (Decree No 11,835/2023) establishes the new governance structure of the CCEE by modifying the composition of the board of directors and the board of officers. The CCEE board of directors is now composed of eight members, four of whom are appointed by the MME, including the chairman of the board. The other four are appointed by representatives of the production, distribution, commercialisation, and consumption sectors, with one member per sector. Additionally, the administration of the CCEE will now also be carried out by a board of officers composed of up to six officers, with the MME also appointing the chairman of the board. The CCEE Trade Convention was further amended by ANEEL Normative Resolution No 1,087/2024 to incorporate the changes made by the Decree.

Law No 14,120/2021

Extension of the deadline for the implementation of projects affected by Law No 14,120/2021 (Provisional Measure No 1,212/2024) establishes that certain renewable energy projects that are subject to discounts on connection fees and that were subject to a 48-month deadline for commercial operation may request a 36-month extension (totalling an 84-month deadline), provided that such request complies with the requirements of Provisional Measure No 1,212/2024, including the submission of a performance bond. Provisional Measure No 1,212/2024 also provides for the anticipation of debts from the privatisation of Eletrobras in order to reduce the energy bills of final customers. 

Some recent bills of law may materially affect the power industry.

Modernisation of the Power Industry Model

Through Modernisation of the Power Industry Model (Bills of Law No 1,917/2015 and No 414/2021) several improvements have been made to the power industry model as per discussions in MME Public Consultations No 32 and 33/2017. They provide for free market expansion, unbundling of the contracting of capacity and power, and a self-production regime, among other things.

Offshore Generation Bill

The Offshore Generation Bill (Bill of Law No 576/2021) regulates the process for the executive authority to grant authorisations for offshore power generation. Considering that certain provisions of Bill of Law No 576/2021 and Decree No 10,946/2022 are not compatible (both govern the same matter, as mentioned in 1.6 Recent Changes in Law or Regulation), the Infrastructure Services Commission of the Senate proposed certain amendments to the Bill in an attempt to align the directives of the Bill with the existing decree.

Hydrogen Bill

The Hydrogen Bill (Bill of Law No 2,308) establishes mechanisms for the insertion of hydrogen in the national energy sector and parameters to encourage its use. It provides the definition of renewable and low-carbon hydrogen. It amends the Petroleum Law (Law No 9,478/1997) to provide that the National Agency for Petroleum, Natural Gas and Biofuels (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis or ANP) is competent to regulate, authorise and supervise all activities in the hydrogen chain. The Bill of Law also sets a new Special Regime of Incentives for the Production of Low Carbon Hydrogen (“Rehidro”) for the low-carbon hydrogen chain and renewable power, biogas and biomethane projects destined to produce low-carbon hydrogen. 

Brazil has one of the cleanest electric matrices in the world, as 84.49% of its power generation capacity comes from renewable sources. This share is led by hydroelectric plants (54.34%), followed by wind (15.08%), biomass (8.33%) and solar photovoltaic power plants (6.74%). Brazilian energy is clean and meets international commitments for the environment, such as those signed by Brazil at COP 21 in Paris (Brazil’s first round of commitments). 

Highlights include wind power, which has grown rapidly (especially in Brazil’s north-east region), sugar cane biomass thermal power generation and, more recently, both centralised and distributed solar power generation. 

Investments in renewable energy will continue to flow in parallel with investments in gas-fuelled thermal power plants, which increase the stability and safety of the power supply. 

Brazil is a continental country that has been making continuous investments in energy transmission and distribution facilities, despite the continuous increase of distributed generation resources. 

With an increasing energy generation of 677.1 TWh (reference year: 2022), Brazil is among the top ten countries in the world in terms of electricity demand, and only about 40% of such demand is contracted in the free market – 60% of the demand is still supplied by power distribution companies in the regulated market.

The structure of the electricity market in Brazil is divided between the regulated market (Ambiente de Contratação Regulada or ACR) and the free market (Ambiente de Contratação Livre or ACL).

The Regulated Market

It can be said that the regulated market aims ultimately at serving the retail electricity market, considering that all power distribution utilities mandatorily purchase 100% of the demand of their consumers’ market (“captive customers”) through public auctions defined by the MME and carried out by ANEEL and the CCEE. In these public reverse auctions, power generation companies compete to be awarded long-term power purchase agreements at the lowest electricity prices. This results in regulated prices for consumers. Around 60% of the total energy demand in Brazil is supplied through the regulated market.

The Free Market

On the other hand, the free market covers power sale and purchase transactions freely negotiated among generation companies, trading companies, export and import companies, and free consumers. Due to requirements for entering the free market, it can be said that this currently serves the wholesale electricity market.

Distinctions Between the Two

This distinction between the regulated market and the free market was created in 2004 by Law No 10,848/2004. The regulated market has been primarily responsible for the development of greenfield power generation projects, but recently the free market has been gaining relevance, as: 

• the free market offers lower energy prices;
• requirements for migrating to the free market are being reduced; and
• the BNDES and other lenders have been financing projects in the free market.

Power generation companies have been building mixed portfolios of power purchase agreements to develop greenfield power generation projects, both in the regulated and free markets. 

The importation or exportation of electricity is an activity subject to authorisation by the MME pursuant to MME Ordinance No 596/2011. Pursuant to Decree No 5,668/2006 and ANEEL Normative Resolution No 1,009/2022, electricity import and export transactions are subject to ANEEL’s approval through an importation licence or the exportation registry with the Foreign Trade Integrated System (Registro de Exportação no Sistema Integrado do Comércio Exterior or SISCOMEX). 

MME Normative Ordinance No 60/2022 and MME Ordinance No 418/2019 regulate specific importation and exportation transactions to and from Argentina and Uruguay.

According to information available on ANEEL’s website (reference date: May, 2024), the supply mix of electricity in Brazil comes from the following principal sources, with corresponding rounded percentages based on installed capacity: 

• hydro – 54.34%; 
• wind – 15.08%; 
• biomass – 8.33%; 
• natural gas – 8.86%; 
• solar – 6.74%;
• oil – 3.96%; 
• coal – 1.71%; and
• nuclear – 0.98%.

Law No 12,529/2011, also known as the “Competition Law”, provided for an institutional reorganisation of the Brazilian System for the Defence of Competition. Under this law, the Administrative Council for Economic Defence (Conselho Administrativo de Defesa Econômica or CADE), an independent agency reporting to the Ministry of Justice, is the authority with jurisdiction over the national territory responsible for investigating and ultimately deciding on competition issues. 

Pursuant to the Competition Law, concentration acts (amalgamations, mergers, share or asset acquisitions, associations, consortiums, or joint ventures) must be submitted for CADE’s prior approval if one of the groups involved in the transaction has an annual gross revenue equal to or greater than BRL750 million and the other group involved in the transaction has an annual gross revenue equal to or greater than BRL75 million. 

The electricity market is divided, according to the case law of CADE, into four distinct relevant markets: 

• generation; 
• transmission; 
• distribution; and 
• trading. 

There are no concentration limits regarding percentage of market share in these segments of the power industry. In general terms, CADE understands that there is “competition by the market” in the power transmission and distribution segments, where concessions are granted after a public bidding procedure with the participation of Brazilian and foreign bidders.

As mentioned in 2.4 Law Governing Market Concentration Limits, CADE is the authority with jurisdiction over national territory responsible for investigating and ultimately deciding on competition issues. ANEEL supports CADE’s activities by analysing concentration acts and behaviours violating competition laws by power companies, pursuant to ANEEL’s Normative Resolution No 948/2021. 

In the event of violation of competition laws, CADE may impose fines for an amount equivalent to 0.1% to 20% of the company’s or group’s gross revenues, as well as other penalties, such as: 

• prohibition from entering into contracts with official financial institutions and participating in public tenders for a five-year period; 
• denial of payment by instalment of federal taxes and cancellation of tax incentives or public subsidies; and 
• the transfer of corporate control, sale of assets or partial suspension of activities. 

Furthermore, companies may be subject to prosecution in the civil sphere and individuals in the criminal sphere.

Pursuant to Law No 9,074/1995 and the Concession Renewal Law, the construction and operation rights of power generation facilities may be granted through concessions or authorisations by the MME or ANEEL, depending on the source and size of the power plant. Both concessions and authorisations grant the concessionaire or authorised agent a 35-year term in which to act as an independent power producer or self-producer. 

The construction and operation of large hydropower plants (equal to or greater than 50 MW of installed capacity) is subject to a concession, which is granted after a public bidding process. The construction and operation of small hydro, wind, solar, biomass and fossil fuel thermal power plants is subject to authorisation by the MME or ANEEL. Power generation projects with installed capacity equal to or lower than 5 MW simply need to register with ANEEL after construction. 

Environmental licences at federal or state level are also required for the construction and operation of power generation facilities, as well as certain construction and operation permits at local level. Depending on the project’s characteristics, other permits may also be required, such as a water-usage permit. 

Access to the electricity grid is also a critical part of the process, and is subject to specific regulations, such as ONS’s Grid Procedures, ANEEL’s Transmission Rules and ANEEL’s Distribution Procedures.

Hydropower generation concessions are usually granted after a public auction, in which the winning bid criterion is the lowest power price, considering the payment of a fee for the use of a public good (Uso do Bem Público or UBP). 

Authorisations for power generation facilities are granted by ANEEL upon fulfilment of certain legal, technical and financial requirements pursuant to ANEEL Normative Resolutions No 875/2020 (small and medium-sized hydropower plants) and No 1,071/2023 (thermal, wind and solar power plants). 

Authorisations are also automatically granted, by the MME or ANEEL, to the winners of the new energy auctions. To participate in these auctions, the projects need to be technically qualified by the EPE upon evidence of certain technical, environmental, real estate, grid connection and fuel supply (if applicable) conditions that confirm the project’s feasibility.

Obligations

Permission to build large hydropower plants may be granted by means of public service concessions or concessions for the use of the public good, since all hydro-resources in Brazil are considered public. Concession agreements for power generation place several obligations on concessionaires regarding the regularity, continuity, safety, efficiency and quality of public services, as well as payment of the UBP, if applicable. 

Authorisation acts make reference to the obligation of authorised agents to comply with ANEEL Normative Resolution No 921/2021, which sets forth the rights and obligations of independent power producers and self-producers under authorisation.

Construction Schedule

Both the concession agreements and authorisation acts of greenfield projects establish a construction schedule with the dates for achieving intermediary milestones and the dates for commencing the commissioning and commercial operation of the power plant; and, specifically for solar, wind and thermal power plants, authorisation acts indicate a 54-month term for commencing their commercial operation. Projects that sell energy in the regulated market, by contrast, usually have the commercial operation date required to meet the supply term for the specific auction in which they negotiated power, unless the entrepreneur requests a shorter term (eg, in order to sell power in the free market by an earlier date).

Performance Bond

In relation to greenfield power generation projects that have sold energy in the regulated market, a performance bond must be submitted by the concessionaire or authorised agent to ANEEL, usually for an amount equivalent to 5% of the project’s capital expenditure (CAPEX) – as indicated by bidders in energy auctions in the regulated market – to guarantee the timely implementation of the project pursuant to its approved construction schedule. 

Physical Guarantee

Concession agreements and authorisation acts may also indicate the officially approved power output of the project, the so-called physical guarantee (garantia física), which is the maximum amount of power that the concessionaire or authorised agent is entitled to sell to the market. The project’s physical guarantee can be revised in cases specified in the regulations.

Penalties

Non-compliance with the terms and conditions of concession agreements and authorisation acts is subject to penalties imposed by ANEEL after an administrative proceeding, based on ANEEL Normative Resolution No 846/2019. Depending on the seriousness of the violation, ANEEL may impose penalties of a warning; fine; suspension of works or activities; specific performance; temporary prohibition from participating in public auctions for new concessions, permissions, or authorisations and entering into contracts with ANEEL; revocation of authorisation; intervention and forfeiture of the concession or permission.

If the proponent fails to reach an amicable agreement with landowners over compensation for the construction and operation of power generation facilities on their land, the proponent may request the issuance of a Declaration of Public Utility (Declaração de Utilidade Pública or DUP) by ANEEL, pursuant to ANEEL Normative Resolution No 919/2021, which entitles the proponent to easement or expropriation rights over these lands. Based on the DUP, the proponent may judicially obtain injunctions against landowners to access their land, and the court will define the fair compensation due to landowners, usually based on market value.

However, according to ANEEL’s precedents, the DUP only covers lands required for construction of hydropower plants or high-voltage transmission lines and substations necessary to connect power plants of any source to the electricity grid.

Apart from certain environmental obligations applicable to decommissioning of nuclear power plants, there are no specific requirements for decommissioning of generation facilities in Brazil. 

Power generation facilities under the concession regime will revert to the federal government, upon compensation if the investment by the concessionaire has not been fully amortised. Power generation facilities under the authorisation regime, except hydropower facilities, may be freely disposed of by the authorised agent.

Pursuant to Law No 9,074/1995 and the Concession Renewal Law, the construction and operation rights of power transmission facilities may be granted through concessions following public auctions. The MME defines the transmission facilities to be auctioned, the cap for the annual revenue of each concession (Receita Annual Permitida or RAP) and the deadline for commencement of the commercial operation of such facilities. ANEEL then promotes the reverse auction, where the winning bid criterion is the lowest RAP. The concessions have a 30-year term. 

Environmental licences at federal or state level are also required for the construction and operation of power transmission facilities, as well as certain construction and operation permits at local level. 

Power transmission facilities are composed of transmission lines, substations, and other equipment with voltages equal to or higher than 230 kV. There are over 200 power transmission concessionaires, operating approximately 200,000 km of transmission lines in Brazil, and around 40% of these facilities are operated by Eletrobras.

The winning bidders must submit evidence of their legal, technical, economic-financial and tax qualification after the auction session. The winning bidders are also required to replace their bid bonds with performance bonds, for an amount equivalent to at least 5% of the project’s CAPEX, to guarantee the timely implementation of the project in accordance with the construction schedule set forth in their concession agreements. 

The process from the publication of the auction documents up to the signing of the concession contract usually takes four months.

Concession agreements provide for several obligations on the part of concessionaires regarding the regularity, continuity, safety, efficiency and quality of public services provided, and they establish a construction schedule with dates for achieving intermediary milestones, and dates for commencing the commissioning and commercial operation of power transmission facilities. 

Power transmission concessionaires are subject to regulations established by ANEEL and the ONS’s grid procedures, as well as conditions defined in the concession contract and in the transmission service agreement (Contrato de Prestação de Serviços de Transmissão or CPST), entered into by and between the concessionaire and the ONS, which provides for the payment of the RAP based on the availability of the power transmission facilities.

Similarly, in relation to power generation facilities, if the proponent fails to reach an amicable agreement with landowners over compensation for the construction and operation of power transmission facilities on their land, the proponent may request the issuance of a DUP by ANEEL, in accordance with ANEEL Normative Resolution No 919/2021, which entitles the proponent to easement or expropriation rights over the land. Based on the DUP, the proponent may judicially obtain injunctions against landowners to access the land, and the court will define the fair compensation due to landowners, usually based on market value.

Power transmission concessionaires have an exclusive right to construct and operate the transmission facilities under the scope of their concession agreements. The construction of new facilities or the expansion of the capacity of existing facilities may be required by the ONS and authorised by ANEEL, subject to an additional parcel of the RAP. 

A concessionaire has no exclusive right within a specified geographical territory, but there is no competition among concessionaires, as the RAP is not based on the amount of power transmitted by the concessionaires’ transmission facilities, but on the availability of such facilities.

The principal laws governing the provision of transmission services, as well as transmission charges and terms of service, are:

• the Concessions Law; 
• Law No 9,074/1995; 
• Law No 9,427/1996; 
• Law No 9,648/1998; 
• Law No 10,848/2004; 
• Law No 14,120/2021; and 
• the Concession Renewal Law. 

All of these have been previously discussed throughout this guide.

As mentioned in 5.1 Law Governing the Construction and Operation of Electricity Distribution Facilities, power transmission concessions are under a revenue cap regulation. These concessions may be divided into three categories, as follows:

• concessions granted prior to 1998 – their RAP is adjusted annually based on the IPCA index (the inflation index observed by the Central Bank of Brazil), they were renewed for an additional 30 years in 2013 and they have a tariff review every five years; 
• concessions granted from 1999 to November 2006 – their RAP is adjusted annually based on the IPCA index or IGP-M index (the general market price index) and is reduced by 50% in the 16th year of their commercial operation, they have a 30-year term and no tariff review; and 
• concessions granted after November 2006 – their RAP is adjusted annually based on the IPCA index, they have a 30-year term and three limited tariff reviews within five, ten and 15 years of the granting of the concessions, which only takes into account changes in the cost of capital. 

ANEEL adopts the weighted average cost of capital (WACC) methodology to review the transmission tariffs. In 2024, the WACC of transmission companies is 7.56% (after taxes), as defined by ANEEL. 

The RAP is adjusted annually and revised periodically, as applicable, according to the concession agreement.

In general terms, in the periodic tariff review, ANEEL covers the recalculation of the cost of capital, efficiency gains in the operation and maintenance of the facilities, and the partial or total deduction of revenues arising from other activities (so-called “other revenues”). The tariff review process follows a procedure of public hearing, where the company, consumers and any other party may submit contributions to ANEEL prior to definition of the new tariffs. 

The RAP is supported by revenues arising from payments of the transmission tariff (“TUST”) by users of the transmission grid in accordance with Transmission System Use Agreements (Contratos de Uso do Sistema de Transmissão or CUST) entered into by and between the ONS and such users. Concessionaires collect their allowed share of the TUST from each user of the national transmission grid, despite the location of their assets. The TUST is calculated on a monthly basis by the ONS according to a nodal methodology and applicable regulations that differentiate consumers from generators, and also observing the rights of certain generators that participated in auctions with stabilised TUSTs.

Law No 9,074/1995, Decree No 2,655/1998 and ANEEL Resolution No 281/1999, as amended, provide open-access rights to all power transmission facilities on a non-discriminatory basis for any power generator, distributor, or consumer, subject to payment of the applicable transmission charges. Nonetheless, access can be subject to technical restrictions and to the performance of studies and works by the accessing party, as determined by the ONS in each case.

The transmission charges are divided into: 

• connection charges that cover the costs incurred by the local transmission concessionaire in the construction and operation of the connection point of the user; and 
• usage charges to be paid to all transmission concessionaires and the ONS (TUST) according to the capacity contracted by the user. 

The ONS is responsible for the procedure of access to transmission facilities and it issues the access opinion required for the execution of the Transmission Usage and Connection Agreements (CUST and Contrato de Conexão ao Sistema de Transmissão or CCT).

Pursuant to Law No 9,074/1995 and the Concession Renewal Law, the construction and operation rights of power distribution facilities may be granted through concessions or permissions. The concessions and permissions have a 30-year term. 

Environmental licences at state level are also required for the construction and operation of power distribution facilities, as well as certain construction and operation permits at local level. 

Power distribution facilities are composed of distribution lines, substations, and other equipment with voltages lower than 230 kV. Certain equipment over 230 kV is maintained by power distribution companies and called “Other Transmission Facilities” (Demais Instalações de Transmissão or DITs). There are 105 distribution companies in Brazil, composed of 53 concessionaires and 52 permissionaires. 

The permissionaires are mainly power distribution co-operatives in rural areas. Of the concessionaires, 48 out of 53 are controlled by private capital and the remaining five are controlled by states and municipalities. In 2016, CELG D was privatised and sold to Enel, and in 2018, Eletrobras’s six distribution concessionaires in the north and north-east regions were also privatised and sold to Energisa, Equatorial, Oliveira Energia and Atem. In 2020, CEB and CEEE-D were privatised and sold to Neoenergia and Equatorial, respectively. In 2021, CEA and CELG D (currently EDP Goiás) were privatised and sold to Equatorial and EDP, respectively. In 2023, COPEL was privatised by public offer of its shares.

The existing concessionaires and permissionaires have monopoly rights over the totality of the geographical territory of Brazil, and they have the right and the obligation to construct and operate distribution facilities within their concession or permission areas.

Concession and permission agreements provide several obligations for concessionaires and permissionaires regarding the regularity, continuity, safety, efficiency and quality of the public services provided, as well as the universalisation or accessibility rights of consumers, and the affordability of tariffs. 

Power distribution concessionaires and permissionaires are subject to regulations established by ANEEL. The quality and continuity of the services are regulated by the Procedures for Distribution of Electricity in the National Electrical System (Procedimentos de Distribuição de Energia Elétrica no Sistema Elétrico Nacional or “PRODIST”) approved by ANEEL Normative Resolution No 956/2021. Interruptions in the power supply are assessed by two indicators called the “DEC” (Duração Equivalente de Interrupção por Unidade Consumidora) and “FEC” (Frequência Equivalente de Interrupção por Unidade Consumidora), which measure the duration and frequency of the interruptions, respectively.

ANEEL Normative Resolution No 1,000/2021 establishes the directives related to the general conditions of the supply of power to consumers by distribution companies. 

Similarly, in relation to power generation and transmission facilities, if the proponent fails to reach an amicable agreement with landowners over compensation for the construction and operation of power distribution facilities on their land, the proponent may request the issue of a DUP by ANEEL, in accordance with ANEEL Normative Resolution No 919/2021, which entitles the proponent to easement or expropriation rights over the land. Based on the DUP, the proponent may judicially obtain injunctions against landowners to access the land, and the court will define the fair compensation due to landowners, usually based on market value.

The power distribution concessionaires and permissionaires have the exclusive right to construct and operate distribution facilities within a specified geographical territory. The concession or permission agreement indicates the areas subject to the concessionaire’s or permissionaire’s monopoly rights.

The principal laws governing the provision of distribution services, as well as distribution charges and terms of service, are the same as those governing transmission services. See 4.6 Transmission Charges and Terms of Service.

Distribution Tariffs

ANEEL adopts the WACC methodology to review the distribution tariffs. The definition of remuneration base considers only the value of the assets which are effectively rendering services to the customers, compared to the referential models established by ANEEL, specific to each company, which reflect the economic and geographic conditions of their respective concession or permission areas and the efficiency levels in services. In 2024, the current WACC of distribution companies is 7.72% (after taxes), as defined by ANEEL. 

Power distribution tariffs are subject to adjustments and reviews as provided in the concession or permission agreements. 

Annual adjustment

In the annual tariff adjustments, non-manageable costs are fully passed on to the consumers and manageable costs are adjusted in line with inflation, based on the IGP-M or IPCA index, reduced by a factor – the so-called “X Factor” – determined by ANEEL so that distribution companies can share the gains of productivity with their consumers. 

Periodic tariff review

Every four or five years, there is a periodic tariff review to ensure the necessary revenues to cover efficient operational costs and adequate compensation of investment. There is also an extraordinary tariff review, on a case-by-case basis, to compensate for unpredicted costs, including taxes and charges which significantly change the cost structure of the distribution company. 

In the process of review of the tariffs, ANEEL takes into account the costs and the company’s markets, comparing them and other similar companies abroad; the company’s efficiency; and the need for fairer tariffs and appropriate returns to shareholders. The tariff review process follows a procedure of public hearing, where the company, consumers and any other party may submit contributions to ANEEL prior to definition of the new tariffs.