Unfair taxes are still casting a shadow over PV’s future

14/09/15 | São Paulo

Recharge News

Last year was a landmark for Brazilian solar.At the country’s first solar-specific auction, 31 large arrays were contracted, representing 1.05GW, to be operational by October 2017. This will be 70 times the current grid-connected PV capacity, indicating a paradigm shift in government attitudes to the technology.

Solar’s potential is now being taken seriously by top decision makers. After a historic success establishing its wind sector and market, Brazil is looking at PV as a bright new opportunity.

Similarly, 2015 is turning into a very busy year. In the distributed-generation segment, the small-scale market has started to take off. Fuelled by a national net-metering programme and average electricity price increases of more than 40% in the past 12 months, residential, commercial and industrial PV installations are expected to triple in one year, from 350 to more than 1,000 net-metered systems.

In centralised generation, two solar auctions are scheduled for the second quarter of the year. They are expected to contract more than 1GW, exceeding 2014 results in what may be another historic year for the sector.

Despite these advances and its impressive prospects, solar has some way to go before it can make an important contribution to the largest electricity market in Latin America. In 2014, PV represented less than 0.01% of Brazil’s electricity supply, far behind hydropower (65.2%), biomass (7.4%) and wind (2%) — three sources that have historically enjoyed strong government support.

Thanks to its vast hydro resources, Brazil has remained in a comfortable position as a leading “green electricity” nation, even without significant investments in wind or solar. Nevertheless, the heavy reliance on hydropower has exposed it to troubling risks. As droughts spread throughout the continent over the past two years, water reservoirs are being prioritised for human consumption rather than electricity generation.

To avoid blackouts, the country is activating expensive, polluting fossil-fuel back-up power plants, significantly increasing electricity prices, which reduces the productivity and competitiveness of power-intensive industries.

Realising that this logic is unsustainable, even in the short term, Brazil is changing its strategy to incorporate more solar and wind. The government is planning a much-needed diversification of its electricity matrix, focusing on its vast renewables potential.

Considering the country’s excellent solar resource and land availability, PV will be a strategic asset to support this diversification. With the combined contributions of distributed generation and large projects, Absolar predicts that PV could meet more than 5% of electricity demand by 2030.

The road must still be adequately paved if Brazil is to establish and develop a thriving PV sector and market. This will require special efforts in strategic areas, one of the most relevant being taxation, where Brazil needs to create a level playing field for solar.

Compared with hydro, biomass and wind, PV competes at a structural disadvantage, caused mainly by disproportionately higher taxation rates on equipment and system components, irrespective of whether they are made locally or overseas. Several federal and state taxes are being applied to inverters, mounting structures, cables and connectors. Wind, for example, has already received exemption from the exact same taxes for parts and equipments, in some cases since 2009.

The PV sector has been left behind, and ABSOLAR’s role is to discuss this situation with the government and propose constructive corrective measures. After all, if the country expects PV to increase its competitiveness with other sources, tax equality is a must. By fairly applying the same policies used for wind equipment to PV components, Absolar estimates that it would be possible to reduce average electricity prices by at least 10% for small rooftop PV projects and large arrays alike.

In clearing the way to a broader use of solar, there is no doubt that this and other roadblocks will have to be removed. It is up to our sector, speaking with a strong, united voice, to help the government overcome these barriers, setting the conditions, incentives and policies for the sun to shine brighter than ever in Brazil.

Dr Rodrigo Lopes Sauaia is co-founder and executive director of the Brazilian Photovoltaic Solar Energy Association, ABSOLAR.