Foreign & Commonweal th Office Tradable Renewable Energy Certificates for Developing Countries Brazil Seminary Report Monday 17 th May 2004 Rio de Janeiro, Brazil Prepared for: REEEP Secretariat Foreign & Commonwealth Office, London Prepared by: Claudia do Valle and Emilio La Rovere CentroClima Center for Integrated Studies on Climate Change and the Environment/COPPE/UFRJ Tel: +55 21 2562-8805 Fax: +55 21 2560-8995 Email: cvalle@lima.coppe.ufrj.br emilio@ppe.ufrj.br Web: www.centroclima.org.br Edited by: Dr John Green IT Power Tel: +44 117 980 9441 Fax: +44 1256 392701 Email: john.green@itpower.co.uk Web: www.itpower.co.uk
Report on the Brazilian TRECs seminar Page i Table of Contents 1. Introduction 1 1.1 Background 1 1.2 Objectives 1 1.3 Scope of this report 1 2. Organisation of the workshop 2 2.1 Workshop plan and agenda 2 2.2 Invitations 2 2.3 Participation 2 3. Presentations and discussions 2 4. Conclusions 2 5. Next steps 3 6. Annexes 4 6.1 Annex A Final Workshop Agenda 4 6.2 Annex B Contact List 5 6.3 Annex C Notes from discussions 7
Report on the Brazilian TRECs seminar Page 1 1. Introduction This report documents a seminar which took place in Rio de Janeiro, Brazil on 17 th May 2004 as part of a REEEP funded project entitled Assessing the potential for Tradable Renewable Energy Certificates 1 to support renewable energy in developing countries. The project is currently being implemented in Brazil, China and South Africa by a consortium that comprises of IT Power (UK), Centro Clima (Brazil), AGAMA Energy (South Africa), IT Power China (China) and the Chinese Renewable Energy Industries Association (CREIA). 1.1 Background Most electricity generation in Brazil comes from large-scale hydropower sources. Other renewable energy sources have only a small share in the energy supply mix. Recently, with the launching of PROINFA (Program to Encourage Alternative Sources of Energy), a new drive has been given to RES (Renewable Energy Sources). This program aims to add 3300MW to the interconnected system by 2006. This will be equally divided among windpower, biomass energy and small hydropower (SHP). After this period the government intends to issue tenders to add new RES capacity to the power pool. Since in Brazil the price of energy to the final consumer is of particular significance, only competitive renewable sources of energy will be able to take part in these tenders. In addition, establishing targets for universal access opens the way for the use of alternative sources. As the expansion of the distribution grid to isolated and rural areas is expensive, the use of alternative sources will become feasible in some cases. Thus, although the Tradable Renewable Energy Certificates (TRECs) are a relatively unknown regulatory and trading mechanism for renewable energy in Brazil, their use is being considered as part if a mechanism to support renewable energy sources in the country. 1.2 Objectives The primary objective of the seminar was to inform interested stakeholders in Brazil of the nature of TRECs and the likely opportunities to utilise TRECs for certification and trade in renewable energy within Brazil. A secondary objective was to provide a forum for discussion on TRECs, renewable energy policy and related issues. 1.3 Scope of this report This report documents the workshop itself including the agenda, presentations and the discussion. 1 Tradable Renewable Energy Certificates, or TRECs, are used as a mechanism for certifying the nonelectrical qualities of energy derived from qualifying renewable energy resources in a manner which enables the trading of these qualities.
Report on the Brazilian TRECs seminar Page 2 2. Organisation of the workshop 2.1 Workshop plan and agenda The workshop was planned together with partner organisations in the UK, China and Brazil and was based on a common basic agenda which was adapted to suit the Brazilian context. A copy of the final agenda is included in Annex A. 2.2 Invitations Invitations were sent to over sixty interested parties and stakeholders in Brazil, including government policy makers, the electricity sector and other organisations interested in the development of renewable energy sources. 2.3 Participation The workshop was attended by approximately fifty delegates. A contact list is presented in Annex B. Stakeholders included representatives from different perspectives including: policy makers, the electricity sector, NGOs and the finance sector. 3. Presentations and discussions The workshop followed the planned agenda and was based on an interactive process which was informed and stimulated by presentations by several key speakers. The participants were invited to engage with questions and points of information throughout the day. At the outset, CD-ROMS and info-packs on TRECs and the TRECKIN project were distributed to all participants, and the guidance pack was also available via the TRECKIN website to participants prior to the event. Copies of the presentations are available on the TRECKIN website 2 and CentroClima website. A summary transcription of the discussion is presented in Annex C. 4. Conclusions Whilst interest was shown in the TREC system, there is likely to be very little interest in voluntary market for green electricity in the country, in part due to the cheap cost of hydropower in the country, and the government is presently more in favour of other mechanisms to support the use of renewable energy. With the New Model for the Electricity Sector, adopted in March 2004, the main concern is to lower energy tariff costs and to expand the system, mostly with hydropower. Renewable energies will be welcomed, but the cost factor is crucial. The discussion of the role of renewable energy sources after the first stage of the PROINFA program (in 2006) is still not clear, and there is therefore a possibility that a TREC system could be used if it was clear that this would lead to the development of those resources that are most competitive. As far as the private stakeholders are concerned, there was clear interest in the TREC system, but primarily in regard to the international market. That is, interest was shown in 2 www.treckin.org
Report on the Brazilian TRECs seminar Page 3 the sale of certificates to countries that need to achieve renewable energy generation targets. According to these stakeholders, this will help promote renewable energy in Brazil and, consequently, lead to a reduction in energy costs. These issues were discussed during the seminar (see Annex C). 5. Next steps The next step is to organise a renewable energy study tour to the UK and to select government policy makers and industry leaders to participate. The aim of the study tour will be to investigate which policies are effective in encouraging investment in renewable energy schemes and for the delegates to become more familiar with TREC systems (eg the UK Renewables Obligation).
Report on the Brazilian TRECs seminar Page 4 6. Annexes 6.1 Annex A Final Workshop Agenda BRASIL: Information day on tradable renewable energy certificates Date: 17/05/04 Location: Hotel Excelsior, Copacabana AGENDA Chair: Centro Clima Prof. Emilio Lèbre La Rovere 09:00 Welcome from the host Current trends and Prospects in the Brazilian Context Emilio La Rovere Coordinator Centro Clima Maurício Tolmasquim -Executive Secretary Ministry of Mines and Energy Marijane Lisboa Ministry of Environment 09:30 An overview of the renewable energy use in Brazil Dra. Laura Porto Coordinator Renewable Energy Ministry of Mines and Energy 10:00 The key components of a tradable renewable energy certificate system 10:30 Questions 10:45 Coffee Break 11:00 Trading green certificates between NUON in Holland and a Small Hydro Power enterprise in Guatemala 11:15 A brief overview of possible interactions between TRECS and CDM 11:45 Questions 12:15 LUNCH 13:30 How do existing systems work? A series of case studies 14:00 How a certificate system can deliver Brazil s energy policy goals 14:30 Questions 14:45 Coffee Break 15:00 Round Table (MME, BNDES, ELETROBRAS, CHESF, APMPE) Opportunities and outlook 16:10 Discussion The way forward Dr. John Green - ITPower Nuno Cunha e Silva - Ecosecurities Brazil COPPE Dr. Emilio La Rovere and Claudia do Valle Dr. John Green - ITPower COPPE Dr. Emilio La Rovere and Claudia do Valle Marcelo Poppe - COPPE Advisor Round table Coordinator 16:45 Wrapping up Dr. Emilio La Rovere and Dr. John Green 17:00 END
Report on the Brazilian TRECs seminar Page 5 6.2 Annex B Contact List Stakeholders that attended the Workshop. 1 Agenor O. F. Mundim FBDS 2 Alessandra Magrini COPPE/UFRJ 3 Alexandre d'avignon COPPE 4 Andre Leal Ecoinvest Assessoria 5 André Raposo Consulado do Rio de Janeiro 6 André Simões COPPE/UFRJ 7 Anibal Rodrigues Ribeiro Silva Eletrobras 8 Armando Gomes da Silva Petrobras 9 Carlos Avellar ABRADEE 10 Célia Salama ELETROBRAS 11 Claudia do Valle COPPE 12 David Freire da Costa CENBIO/USP 13 Emilio La Rovere COPPE 14 Fábio Rosa de Carvalho Petrobras 15 Fernando Campagnoli ANEEL 16 Glória Suzana Gomes de Oliveira CEPEL 17 Gustavo Mattos APMPE 18 Hamilton Figueiredo COPEL 19 Hamilton Moss de Souza CEPEL 20 Hedmilton Mourão Cardoso Eletrobras 21 22 Ivan Costa Jaldir Freire Lima 23 Jeferson Borghetti Soares COPPE/UFRJ 24 Johannes Kissel COPPE/UFRJ 25 John Green IT Power 26 Jorge Lima CEPEL CEBI - CONSULTORIA EMPRESARIAL BRASIL ITALIA BNDES- Banco Nacional de Desenvolvimento Economico e Social 27 José Henrique Gabetta Universidade Federal de Itajubá 28 Laura Porto Ministério Minas e Energia 29 Luciana Rocha Leal da Paz COPPE/UFRJ 30 Luiz Almeida e Silva Secretaria de Energia, Indústria Naval e do Petróleo RJ
Report on the Brazilian TRECs seminar Page 6 31 Luiz Carlos de Lemos Arigony da Silva Eletrobras 32 Luiz Fernando Leone Vianna 33 Marcelo Poppe CGEE 34 Marcelo Rodrigues Pereira COPPE/UFRJ 35 Márcio Berkowitz de Oliveira 36 Mario Poppe CGEE 37 Mauricio Arouca COPPE/UFRJ APINE - Assoc Bras. dos prod. Independentes de Energia Elétrica Secretaria de Energia, da Indústria Naval e do Petróleo 38 Mauricio Tolmasquim Ministério Minas e Energia 39 Mozart Scmitt de Queiroz PETROBRÁS 40 Neilton Fidelis da Silva COPPE/UFRJ 41 Oswaldo Soliano Universidade salvador 42 Pablo Fernandez de Melo e Souza Ecosecurities 43 Ricardo Cunha BNDES 44 Ricardo Gorini CENERGIA 45 Richard Barlow Embaixada Britânica 46 Rogério Rodrigues PUC/RJ 47 Ruberval Baldini ABEER- Associação Brasileira de Empresas de Energia renovável e Eficiencia Energética 48 Ruy de Goes Ministério Meio Ambiente 49 Sandro Barros Ferreira PUC/RJ 50 Sergio Feitoza Costa Cognitor Consultoria, Pesquisa Tecnológica e Treinamento Ltda 51 Tereza Mousinho Reis Universidade de Salvador
Report on the Brazilian TRECs seminar Page 7 6.3 Annex C Notes from discussions The following notes are presented for reference and to reflect the flavour of the discussions. Participant Emilio La Rovere Maurício Tolmasquim Laura Porto John Green John Green Nuno Cunha e Silva Ecosecurities Brazil Emilio la Rovere Discussion Question Comment Emilio commented that the seminar represents an opportunity to exchange experiences and find out what is going on in the world today with respect to TRECs. Brazil has an enormous potential for using RES and the aim of this seminar is to examine the possibility of adopting this or another suitable instrument in Brazil. He presented the government s priorities for renewable energy: PROINFA, biodiesel and alcohol production. He reinforced the importance of government in the planning of the electricity sector to avoid gaps in supply and demand. The New Model for the Electricity Sector, adopted in March 2004, creates a power pool in which energy will be contracted. In this regard, the expectation is that after the first stage of PROINFA renewable energy sources will be contracted through auctions for the pool, as is the case for conventional energy sources. It is still not clear how RES will participate in this context, but an important factor is the price of energy, which has to be competitive to operate in the pool. She presented the PROINFA, its costs and current status. He commented on the UK s experience with renewable energy auctions under the Non-Fossil Fuel Obligation (NFFO). In the UK, some renewable energy producers offered a low price in order to win the bid, but then could not afford to build the schemes. A large share of the renewable energy capacity that should have begun operation, did not do so, causing a gap between the anticipated and actual development of new capacity. He made a presentation on the key components of a tradable renewable energy certificate system. He made a presentation on the commercial transaction between an energy company in Guatemala and NUON of the Netherlands. The certificates were sold for US$3.50/MWh. He presented the possible interactions between TRECs and CDM. The value of the green certificates negotiated today in mandatory markets (eg in the UK) is quite a lot higher than the amount foreseen for the certified emissions reductions (CERs). Emílio La Rovere: PROINFA ensures protection to the entrepreneur, as it establishes that they will receive the payment determined by the government, even if he does not deliver all the energy stipulated in the contract. What guarantees does the consumer have that the plant will be built and really commissioned? Laura Porto: The government requires minimum technical qualifications and efficiency in turbines and equipment. Furthermore, assets must be made available to the bank as a guarantee in the case the contract not being fulfilled. As to the second PROINFA stage, auctions might not be the best option. How does the government view this? Answer The government is indicating that there probably will be an auction during the second PROINFA stage. Some kind of guarantee must be in place in order to avoid this gap between contracted and commissioned CentroClima projects, as seen in the UK. 28 June 2004
Report on the Brazilian TRECs seminar Page 8 Question Answer APINE John Green Emilio La Rovere Round Table: Marcelo Poppe - Coordinator Discussion place in order to avoid this gap between contracted and commissioned projects, as seen in the UK. As to the rate of nationalisation asked by PROINFA (60%), this is a problem for biogas, since, as a rule, the technology is imported. This is the problem of economic feasibility for this type of project. It is necessary to bring over this type of technology, since there still isn t an established market. PROINFA already provides an incentive to manufacture equipment in Brazil. Furthermore, it is important for states to offer fiscal incentives for the manufacturers to establish themselves in Brazil. The amount put forward by Ecosecurities (US$ 3.50/MWh) represents an internal rate of return of about 10% of the amount for PROINFA s small scale hydropower schemes. This is a considerable amount. In this case, the TRECs are better than the CERs for renewables. Presentation describing case studies on how existing systems work. Presentation on how a certificate system can deliver Brazil s energy policy goals. Input from the Brazilian Social and Economic Development Bank (BNDES), Association of Small and Medium Energy Producers (APMPE), UNIFACS, Brazilian Association for Renewable Energies and Energy Efficiency Companies (ABEER) and Association of Independent Energy Producers (APINE). Most Brazilian stakeholders thought that in the current situation, green certificates can only be sold in the international market. Thus, it would be interesting to check out the possibility of an international trade of green certificates. Brazil has an enormous potential in renewables and this could be an advantage for countries that need to meet targets with their governments. Other stakeholder positions on this issues are to be found below: BNDES (Brazilian Social and Economic Development Bank) believes that this type of instrument could trigger investments for renewables and ensure diversification of the energy supply mix. APMPE (Association of Small and Medium Energy Producers) suggested that the government should use PROINFA to see how this instrument could be implemented in Brazil. It is important that the concepts be discussed at a greater depth with energy producers and other market agents. For PROINFA, the law states that any benefits arising from the Program (that is CERs and TRECs) belong to the PROINFA account (to pay the renewable source). There needs to be a better explanation of whether the government or the entrepreneur gets to keep the credits. APINE (Association of Independent Energy Producers) stated that there is not a tradition of voluntary markets in Brazil. ABEER (Brazilian Association for Renewable Energies and Energy Efficiency Companies) regrets the fact that TRECs are not applicable for solar energy photovoltaics. Nowadays, isolated systems present a great opportunity to use solar energy to replace diesel. Osvaldo Soliano commented that it is important not to lose sight of the second PROINFA stage. In the New Model for the Electricity Sector, obviously hydropower is important as well as other renewables, but it is necessary to allow a share for the new renewables. There is also opportunity to use TRECs in the isolated systems market.
Report on the Brazilian TRECs seminar Page 9 APINE mentioned that one possibility would be to sell the renewable energy to the pool and complement it with the sale of certificates. Marcelo argued that a mandatory market is not foreseen at the moment. Emilio stated that the mandatory market would not be the solution right now. Distributors are just emerging from a crisis as a result of the energy rationing and cannot bear further financial burdens. And the government is not willing to impose extras cost burdens at the moment, particularly now with the New Model for the Electricity Sector.