Programme of Incentives for Alternative Electricity Sources - Programa de Incentivo a Fontes Alternativas de Energia Elétrica - PROINFA

The Brazilian Parliament passed Law 10438 in April 2002. Law 10438 was responsible for the creation of the Programme of Incentives for Alternative Electricity Sources (Programa de Incentivo a Fontes Alternativas de Energia Elétrica-PROINFA) among other programmes.

• The PROINFA programme is to be implemented in two stages:STAGE 1: 3,300 MW of renewable energy (from wind, biomass and small hydroelectric sources) will be brought on stream before the end of 2007 through a system of subsidies and incentives, which draw on an Energy Development Account funded by end-use consumers through an increase on energy bills (low-income sectors are exempt from this increase). Under the PROINFA rules, the programme will be operated by Electrobrás, which will buy energy at pre-set preferential prices ("economic values" for each of the three sources) and will market "renewable" electricity. Definitive "economic values" will be published at the end of October 2003 and will have a reference value floor of 70% of the national average supply tariff. Contracts between Electrobrás and the "renewable" generator are valid for a period of 20 years, are applicable to plants that began production before 2007 and must be signed within 24 months of the publication of Law 10438. The Banco Nacional de Desenvolvimento Econômico e Social (BNDES, the Brazilian National Development Bank) will make special financing programmes available for renewables projects that are eligible for PROINFA. BNDES can finance up to 70% of capital costs (excluding site acquisition and imported goods and services) at the basic national interest rates (TJLP) plus 2% of basic spread and up to 1.5% of risk spread. Interests are not charged during construction and amortization is of 10 years. Payments are due 6 months after commercial operation. Eletrobrás guarantees in the long-term electricity purchasing contracts a minimum income of 70% of the contracted energy during the financing period, as well as a full coverage to exposure risks to the short-term market PROINFA is expected to generate 150 thousand jobs and to leverage private investments of around USD 2.6 bln. Law 10762 mandates a minimum nationalization of 60% in total construction costs, as well as a regionalization criteria, where each State has maximum limits of 20% of total capacity for wind and biomass and 15% for small hydros. Such limits are preliminary: if part of the 1100 MW for each source is not contracted, this available potential will be distributed according to the older environmental permits (all projects are required to have a previous installation licence).

 

• STAGE II: Once the 3,300 MW objective has been met, PROINFA will target increasing the share of electricity produced by three renewable sources to 10% of annual consumption within 20 years. In Stage II, PROINFA renewable generators will be required, before December 30th of each year, to issue a number of Renewable Energy Certificates proportional to the amount of clean energy produced by the plant.

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