Brazil Update: ANEEL Finalizes the Regulatory Framework for Smart Grid Deployment

Approximately four months after passing regulation seeking to encourage the incorporation of distributed generation systems into Brazil’s distribution planning process, on August 7, 2012, the Brazilian Federal Energy Regulatory Agency (ANEEL) issued new rules (Resolução Normativa (REN) No. 502/2012) governing the rollout of “smart” metering, which aim at making better use of digital information technology, interactive communications, and power flow optimization techniques (the “Smart Grid Regulation”).

The new regulation is the last – and most anticipated – of a series of smart meter-related directives introduced by ANEEL, and primarily sets out equipment standards and certain operational and business process requirements (and related tariff structure) for allowing advanced information technologies to make the Brazilian energy grid “smarter.” Other pieces of the regulatory framework focused on, for instance, setting out standards for power line communications (PLC) and providing for mandatory application of geoprocessing operations.

Benefits of Smart Grid

Broadly, the expected benefits of implementing a nationwide smart grid strategy include a reduced need to build new transmission lines (and associated infrastructure), a more seamless integration of renewable energy sources like wind and solar into the centralized grid, a better supporting system for dispatch of energy from distributed generators, and a more sophisticated billing/compensation mechanism.  

Particularly with respect to Brazil, adopting a transmission and distribution network that relies on robust two-way communications, advanced sensors and other monitoring technologies may help prevent electricity theft and unbilled consumption. Additionally, in the wake of the World Cup in 2014 and the Olympics in 2016, Brazil is under increased pressure to ensure that its electric service is reliable, efficient and flexible to support these two major upcoming events. 

The Smart Grid Regulation 

The Smart Grid Regulation is expected to enable new opportunities, support innovations (including in relation to energy storage) and, generally, revolutionize the energy consumer experience/choice in Brazil. With a Federal mandate to install smart meters on any newly-connected systems, coupled with the prospective replacement of some 75 million conventional meters, foreign manufacturers of smart meters are racing to gain a foothold in a market that is estimated to be worth up to 91 billion reais (or US$ 45 billion). 

The new ANEEL rule establishes a tariff structure premised on the so-called “white tariff” which, in turn, is based on time-of-use parameters. The basic notion of the “white tariff” meter is that, because smart meters can provide detailed, automated, real-time electricity information, consumers are able to tailor their electric use to meet their price and supply goals. From a regulator’s perspective, smart meter deployment (i) enhances the possibility of cutting costs of line losses due to better use of transmission facilities and increased efficiency; and (ii) reduces peak demand by encouraging consumption at times when the tariff is lower. 

The Smart Grid Regulation directed the country’s utility companies to, upon request, make smart meters available to consumers within 18 months from the publication date of the new rule (i.e., from August 14, 2012). For adopters of the “white tariff” structure described above, the regulation provides that the meter will have to, at a minimum, (i) display the price of the energy effectively consumed per billing period (and allowing the customer to pre-program the duration of these periods throughout the day); and (ii) clearly identify the respective billing periods. ANEEL prescribes that this more basic “white tariff” meter must be installed by the utilities at no cost to the customers who request them. Smart meters possessing additional features and providing more detailed electricity information and consumption patterns will be charged to consumers who choose to have the more sophisticated equipment installed in their properties. 

Although the new regulation does not provide specific financial incentives to utility investment in smart grid deployment, the benefits of implementation of an intelligent network for utilities (irrespective of whether state-owned, investor-owned or a hybrid) are evident. In addition to improved monitoring, reduction of operational costs and electricity losses, the utilities will have the ability to collect and analyze highly detailed usage data identifiable to individual customers (rather than to a group of customers in a certain region), which would, as a result, allow the utility companies to better manage the distribution network, prevent revenue losses from illegal connections and proactively offer “value-added” services to their captive customers.

Legal and Regulatory Hurdles 

Investment on the necessary scale will require the participation of private investors, customers, equipment suppliers, utilities and federal and state governments. Regulators are naturally concerned for customer bills and aware of the uncertainties surrounding the broad deployment of new, costly, technology. Federal agencies, such as ANEEL, likely will have a relevant role as issues of standardization, regionalization and national interest may arise. These agencies, in conjunction with utilities and equipment manufacturers, will be responsible for coordinating the development of standards and protocols for the use of smart grid technologies in different regions of the country. 

In addition, early adopters will have to overcome a number of legal barriers to implementation of the smart grid, including intellectual property, contracting and privacy concerns. 

As with many new technologies, navigating pre-existing patent rights and negotiating licenses with technology owners can slow development and increase costs. As a corollary, the most difficult contracting issues will likely revolve around technology and allocating the risks — and costs — inherent in a rapidly developing area. Carefully drafted agreements will also need to cover technology obsolescence, compatibility and interoperability, and warranties at all phases of development and installation, among other issues raised by any transaction involving large-scale purchases of hardware, software and services in a regulated industry.

Finally, the Smart Grid Regulation also gave utility companies the responsibility to ensure that any information or data pertaining to their captive customer that is transmitted through the smart meter system is protected. As such, appropriate data security and careful observance of the promises made about customer data are paramount.  

Lead image: High voltage post via Shutterstock

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Rafael Figueiredo is an international attorney at Haynes and Boone, LLP. He is a dual American and Brazilian citizen with more than 15 years combined experience in project finance and development, syndicated lending, regulatory counseling, corporate transactions, private equity and government enforcement actions. Rafael represents clients in the energy/renewable energy, financial services, mining and a variety of other industries (including both U.S.-based companies and international clients based throughout Latin America as well as in Asia and Europe). He is also a frequent author and speaker on financing and regulatory issues related to energy and infrastructure projects.

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