50 ieee power & energy magazine march/april 20191540-7977/19©2019IEEE50 ieee power & energy magazine march/april 20191540-7977/19©2019IEEE
Electrical Expansion in
South America
By Rafael Ferreira, Pablo H. Corredor, Hugh Rudnick, Ximena Cifuentes, and Luiz BarrosoMap: ©istockphoto.coM/pytyczech
energy: ©istockphoto.coM/chrisgorgio
march/april 2019 ieee power & energy magazine 51march/april 2019 ieee power & energy magazine 51
QQuestions on whether the power system of the future will be centralized or distributed occupy institutions and agents of the south American electricity industry as well as their peers in other regions of the world. A fun-damental discussion concerns whether generation expansion will be dominated by large-scale power plants developed by traditional agents acting in the wholesale market or by small-scale projects developed as a result of decisions from myriad energy consumers and implemented behind their electricity meters.
this article sheds light on how generation expan-sion may evolve in two south American countries, Bra-zil and Colombia, in the coming years. we believe that, in the next decade, the generation system will expand
because of a combination of large-scale projects devel-oped by wholesale agents (centralized expansion) and small-scale behind-the-meter generation (distributed expansion). the integration of centralized and distrib-uted generation (DG) projects, distribution and trans-mission networks, and wholesale and retail markets is likely to be an important component of generation expansion in Brazil and Colombia in the near future.
Brazil and Colombia share characteristics that make them interesting case studies for the discussion on centralized or DG expansion. For instance, their electric systems are currently dominated by hydro-power, their long-term energy demand growth rates are relatively high, and large percentages of their populations currently have few opportunities to commit to significant equity disbursements. por-tions of this article will clarify how these and other features point toward an integrated power system
expansion in the near future, combining centralized and decentralized generation solutions.
the paths taken by Brazil and Colombia thus far illustrate how diverse choices regarding regulation and policymaking affect the development of DG. the power systems of both countries are faced with the prospect of rapidly growing amounts of DG resources, and Brazil and Colombia are mov-ing in similar directions on several issues that will be explored in this article.
we chose to focus exclusively on the discus-sion of centralized and DG. we do not address other important elements of distributed power systems because DG has been the main distrib-uted energy resource effectively developed in Brazil and Colombia thus far. the terms DG and behind-the-meter DG are used interchangeably in this article.
Brazil
Recent Power System Expansion in Brazilthe case of Brazil’s power system is better understood if recent data on the verified expan-sion of centralized and distributed generation is considered to support the discussions presented in this article.
Figure 1, beginning in 2012, shows the evolu-tion of the bulk power system’s installed capac-ity and recent results of auctions that awarded long-term contracts to generators. Figure 1 shows two trends: 1) hydropower still accounts for a large amount of the installed capacity in the country and 2) capacity additions in recent auctions have largely focused on (gas-fired) thermal, wind, and solar power, with a notable decrease in prices of the latter two technologies since 2017. the reasons for the plunging selling prices since 2017 include the international trend of lower costs of capital (including equity) and an improvement in macroeconomic conditions in the country.
Figure 2 shows the evolution of installed DG capacity and shares of capacity per con-sumer class. the numbers in Figure 2 encom-pass the two classes of behind-the-meter DG established by normative resolution #786/2017: 1) distributed microgeneration, with installed capac-ity under 75 kw, and 2) distributed minigeneration,
Centralized or Distributed Generation for Brazil and Colombia
Digital Object Identifier 10.1109/MPE.2018.2884113
Date of publication: 20 March 2019
52 ieee power & energy magazine march/april 2019
with installed capacity under 5 Mw. the graph clearly shows an exponential growth pattern of DG, notably since 2015, and a concentration of installed capacity using solar technology in the commercial and residential classes. the figure also depicts the number of behind-the-meter DG connection requests since 2012. interest-ingly, the verified number of consumers that has adopted DG are fewer than the initial forecasts and updated fore-casts issued by the Brazilian regulator in 2012 and 2015, respectively. Measured installed capacity, however, has been higher than forecast, suggesting that average proj-ect sizes have exceeded the initial estimates (but are still well below the upper limit of 5 Mw for distrib-uted minigeneration).
while access to electricity in Brazil has been above 99.5% for the total population since 2012, the sheer scale of the coun-try’s size means that opportunities exist for DG in isolated regions of the country. the focus of this section is on behind-the-meter DG in regions of the country where connection to the grid is readily available.
Understanding the Current Trends: Technical and Economic Factors, Regulations, and Financingwe seek to understand the aforementioned data using three key considerations: technical and economic factors, regula-tory environment, and financing.
technical and economic factors are key to understand-ing strategic aspects of the recent evolution of central-
ized and DG development in Brazil. the generation matrix is already highly renewable because of the historical domi-nance of hydropower. But the share of hydropower in future system expansion is expected to decrease due to social-envi-ronmental constraints for new projects. in this context, solar and wind power plants are expected to play an important role in the expansion of both centralized and distr ibuted electricity supply.
Brazil has several areas rich in solar and wind resources in unpopulated regions of the country. Bulk wind and solar generation projects account for much of the capacity additions contracted via energy auctions, as shown in Figure 1. wind and solar generation are currently competitive generation expan-sion alternatives, even after taking transmission and distri-bution costs into account.
Current end-user tariffs have resulted in the DG economic break-even point [solar photo-voltaic (pV) total installation costs range between 5,000 and 8,000 Brazilian real (BrL)/kwp] being reached in several of Brazil’s distribution franchise areas, even after some rate-related distortions were elimi-nated. Furthermore, electricity bills in Brazil have displayed stronger year-to-year volatility
figure 1. (a) The installed capacity and (b) the recent auction results for the bulk Brazil-ian power system. (Data courtesy of the Ministry of Mines and Energy, EPE, and ANEEL.)
2012 2013 2014 2015 2016 2017June2018
Solar 0.002 0.005 0.015 0.021 0.024 0.94 1.31
Wind 1.9 2.2 4.9 7.6 10.1 12.3 12.9
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Hydro 84.3 86 89.2 91.7 96.9 100.3 102.2
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since 2013, when a group of hydrogenerators was allowed to fully or partially pass production risks on to customers. this has been an additional driver for commercial and industrial consum-ers to make CApex-intensive investments in DG as a means of reducing volatility in their electricity acquisition costs.
the growing levels of distributed renewable generation are also explained by factors other than bill savings, which are considerable for residential consumers. A recent survey conducted by the Brazilian regulator showed that environ-mental concerns were the second-most popular choice driver mentioned by consumers that had already deployed DG.
Besides developing renewables, Brazil anticipates an expansion of centralized gas-fired thermal generation. Although presalt natural gas may come at comparatively low prices, it exhibits some production inflexibility due to the dynamics of oil exploration. however, flexible gas-fired ther-mal generation provides needed operational flexibility that competitively meets system requirements. the need for flex-ibility increases with the expansion of centralized and dis-tributed renewables with significant short-term variability and constraints to the expansion of hydropower plants with accumulation reservoirs, which have historically been the main providers of flexibility.
regulatory factors have also played an important role in ex-plaining the evolution of DG shown in Figure 2. Brazil currently uses a net-metering scheme in which electric customers with behind-the-meter generation receive en-ergy credits for the surplus energy they inject into the grid in a given billing period (peak, intermedi-ate, and off-peak periods can ap-ply, depending on the tariff option chosen by the consumer). Custom-ers can use these credits to offset energy consumed in any hour of the same tariffing period, up to 60 months into the future. As of oc-tober 2018, by using energy cred-its consumers connected to the low-voltage grid are exempt from paying the full final tariff, which is billed in BrL/kwh. this strongly contributes to the current com-petitiveness of behind-the-meter DG but leads to distortions dis-cussed later in this section.
there are four types of DG net-metering schemes in Brazil:
✔ a conventional DG, where a single consumer unit in-stalls DG behind its meter
✔ a multiple-unit DG, where multiple consumer units in a single location (e.g., an apartment building) share the generation and the credits
✔ remote self-consumption, where multiple consumer units owned by a single proprietor share the genera-tion and the credits, even if they are located in differ-ent places
✔ a shared-generation scheme, where multiple consumer units owned by different proprietors form a legally constituted consortium for purposes of sharing the generation and its credits.
ever since the introduction of the three latter options in 2015, roughly 18% of the new DG capacity additions have been under the remote self-consumption and shared-generation model. Distribution companies are increasingly concerned with distortions arising from the application of net-metering schemes using remote generation.
these regulatory mechanisms have contributed to the competitiveness of DG in recent years and, as discussed in the next section, their elimination may slow down the recently experienced exponential growth of DG.
38.7%
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figure 2. (a) The installed DG capacity and (b) the share of consumer groups per the installed DG capacity. (Data courtesy of ANEEL.)
54 ieee power & energy magazine march/april 2019
tax regulation has also affected the evolution of DG. Before 2015, the federal tax regulation applied the tax on Circulation of Goods and services (iCMs) to energy that was offset when a consumer used its energy credits within the net-metering scheme. the rate of this state-level tax can reach up to 30% in some Bra-zilian states; as a result, the net benefit for the consumer with the net-metering scheme was adversely affected, which partially accounts for the low growth levels of DG until 2015.
in 2015, the national Council of tax policy passed a res-olution proclaiming that states may choose not to apply the iCMs to the energy compensated from net-metering credits. As of october 2018, not all states have made this choice, but some of the Brazilian states that currently have the largest installed DG capacity, e.g., Minas Gerais and rio Grande do sul, were among the first ones to lift the iCMs from the net-metering energy credits (Figure 3).
Financing is another key factor behind the trends shown in Figures 1 and 2. part of the competitiveness of centralized generation solutions results from access to at-tractive financing arrangements (e.g., low costs and long amortization times). Contracts awarded to new generation projects via auctions have long terms, typically ranging from 20 to 30 years, depending on the technology. Addi-tionally, the contracts awarded to wind and solar projects place a small share of the market risks on the entrepreneur. For instance, currently awarded contracts are settled an-
nually within a tolerance band around the delivery target, which eliminates exposure to spot price variation. histor-ically, this has facilitated access to inexpensive financing for bulk, centralized projects. Furthermore, concessional debt from the Brazilian development bank (BnDes) has accounted for a large share of the capital mix for bulk centralized projects. since the end of 2017, BnDes has moved toward debt costs closer to the prevailing figures in the market, but this transition was not completed as of october 2018.
on the other hand, financing for DG in Brazil is only now starting to consolidate. As for any currently expanding tech-nology, commercial banks have been hesitant to finance DG projects thus far; the ones that did so required high inter-est rates and short debt-repayment periods. Brazilian pub-lic financial institutions have only recently begun to offer financing options targeted at DG. For example, the Bank of the northeast launched such a line in 2016, with debt costs of 6–10% per year and debt repayment periods of 12 years, but it initially focused on companies. in 2018, BnDes launched a financing line for individuals who deploy distributed solar generation. these factors have led to an emphasis being placed on bulk, centralized generation. A 2018 survey by the Brazilian regulator indicated that 76% of the consumers that had deployed DG thus far did so using equity only, and only 14% of the projects were financed by banks.
figure 3. The installed DG capacity per the Brazilian state in June 2018. (Data courtesy of ANEEL.)
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Technical and economic factors are key to understanding strategic aspects of the recent evolution of centralized and DG development in Brazil.
march/april 2019 ieee power & energy magazine 55
Looking to the Future: Regulations, Financing, and Business Modelsthe previous discussion already suggests relevant factors that explain why both centralized and distributed solutions are expected to play a role in the expansion of the Brazilian generation system in the near future.
in 2017, AneeL (the regulator) and epe (the planning agency) projected that installed DG capacity in Brazil would reach 3.2 and 3.9 Gw in 2024 and 2026, respectively. in July 2018, AneeL suggested that, given the high pace of DG deployment seen toward the end of 2017 and the beginning of 2018, these numbers may be underestimated. regardless, the growth of DG in the near future should be significantly below the yearly capacity additions necessary to meet the long-term growth of electric demand. epe estimates the long-term growth of demand at 3.7% per year (requiring approximately 4 Gw of new capacity additions per year), which is consistent with a long-term gross domestic product growth rate of approximately 3% per year. this corroborates the belief that a mix of central-ized and DG expansion will be seen in the near future.
Given that individual consumers decide how and when to expand behind-the-meter generation capacity, some changes in regulations, financing, and business models are necessary to ensure that DG development will reach optimal levels in the future with the right balance between centralized and distributed resources.
on the regulatory side, the first action is modernizing the existing tariff for injecting surplus DG production into the distribution grid, and Brazil is doing just that. the Brazilian regulator recently launched public Consultation #010/2018, the scope of which includes a discussion concerning the por-tions of the end-user tariff that should be offset when energy credits resulting from net-metering schemes are used. pro-posed alternatives include preventing the offset of tariff sections related to the costs of making the transmission and distribution grids available for use. Although some imple-mentation details remain unclear as of october 2018, this is an important step forward because it ensures that consumers faced with the decision of whether to deploy DG will receive accurate economic signals regarding the use of the electric grid. Discussions on separating retail tariffs of low-voltage consumers with DG in capacity and energy components are also on the official agenda of topics to be addressed by the regulator in the coming years. in 2017, these tariff reforms were discussed in public Consultation #33/2017, launched by the Ministry of Mines and energy (MMe).
these will be important initial steps toward establishing proper economic signals for the deployment of DG, and Bra-zil seems committed to making these adjustments while the share of DG in the system is still relatively low. these first steps can prepare the system for further complexities likely to arise in the future; they include mechanisms that aggregate the surplus from several small-scale distributed generators and offer them in the wholesale market and locational and temporal economic signals with a higher granularity embed-ded in end-user tariffs applied to consumers with distributed generators. the latter regulatory improvement is also among the topics discussed in public Consultation #33/2017.
the Brazilian regulator seems to be aware of the need for constant improvements in the rules applied to a technology as dynamic as DG. the very first version of the regulatory framework for behind-the-meter DG in Brazil, normative resolution #482/2012, mandated a revision after 2017; how-ever, the dynamism of the technical economic environment for DG led to earlier revisions, including a major one in 2015. the next revision of the regulation, which is underway, was initiated with public Consultation #010/2018 and should lead to a new regulatory instrument being issued in 2019.
tax regulation is also a key topic for the outlook of DG. the federal tax authority issued a regulation allow-ing state-level authorities to choose not to apply the iCMs over the energy that is offset by net-metering credits. some Brazilian energy providers contend that it should go fur-ther and fully prohibit the application of the iCMs over the compensated energy. this might be an economically meaningful move, if it is tied to the current discussion of public Consultation #010/2018, about which sections of the end-user tariff should be offset by energy credits result-ing from the net-metering scheme. Current discussions also apply to the taxation rules applied for particular business models, such as behind-the-meter energy as a service and the leasing of DG equipment.
Developments of new business models may also be seen in Brazil in the coming years. Most of the behind-the-meter development currently taking place in the country is made under a classical business model in which the con-sumer owns the generation equipment and pays a third party to install it.
the boom in DG development after the iCMs regulation change at the end of 2016 resulted in entrepreneurs exploring the model of behind-the-meter energy as a service. this could be an interesting model in Brazil, considering the limited
A recent survey conducted by the Brazilian regulator showed that environmental concerns were the second-most popular choice driver mentioned by consumers that had already deployed DG.
56 ieee power & energy magazine march/april 2019
willingness for capital expenditures from a large portion of the population as well as the current lack of financing. the leasing model is currently in the early stages, mainly due to clear tax advantages of the energy-as-a-service model.
Finally, advances in financing are key to developing the right mix of centralized and DG for expanding the system. Debt costs for DG, such as those as deployed by individuals, are not expected to reach levels as low as those for bulk gen-eration; such low costs would be prevented by the different size of the project developers as well as their creditworthi-ness. however, the current focus of financing institutions (including public development banks offering concessional loans) on centralized generation certainly represents a bar-rier toward the development of DG.
enabling creditors to offer financing lines for DG, includ-ing DG developed by individuals, may require training on the economics of these projects, and creating mechanisms to aggregate a portfolio of individual small projects that demonstrate characteristics (e.g., financial volume and diversification of project developers) consistent with bank requirements. the market may be able to deliver this service of aggregating projects. For instance, providers of installa-tion services or companies exploring the energy-as-a-service model may have the tools to do that. Financing institutions, however, must be able to reach out to these service provid-ers and have a sufficient understanding of their businesses to develop debt products to meet their needs.
Colombia
Recent Power System Expansion in Colombiarecent data on power system expansion can also aid the discussion of the case of Colombia. Figure 4 shows the evo-lution of the bulk power system installed generation capac-ity in Colombia since 2014. the graph shows that 1) the
electricity matrix is highly renewable, with hydropower accounting for roughly 70% of the installed capacity in the country, and 2) the development of renewable resources with a high variability in the short term, i.e., wind and solar, is incipient.
however, there may be a significant development of large-scale, centralized solar and wind power in the country in the coming years. As of october 2018, the wind and solar projects being implemented on the Caribbean coast of Colombia or undergoing the studies required to connect to this area amount to an estimated 10 Gw (i.e., 7 Gw for solar and 3 Gw for wind plants, respectively, according to nonofficial estimates).
the installed capacity of behind-the-meter DG projects in Colombia remains small (there are no official consoli-dated statistics available on this type of generation). sGi&C, the Colombian Mining and energy planning unit (upMe) project database, shows a large number of projects in the planning or construction stages as recently as 2017 and 2018. Commercial and industrial consumers have led the develop-ment of behind-the-meter DG projects thus far, and project development has been concentrated in Colombia’s largest cities (i.e., Bogotá, Medellín, and Cali) using solar pV tech-nology. Although 99% of the Colombian population has access to electricity, projects for isolated load pockets are also being developed. Most of these focus on the solar pV technology and use funding by multilateral institutions and local public entities.
Understanding the Current Trends: Technical and Economic Factors, Regulations, and Financingwe discuss the aforementioned data considering three key issues: technical and economic factors, regulatory frame-work, and financing.
technical and economic factors are key to understand-ing strategic aspects of the recent evolution of centralized
and DG in Colombia. hydropower comprises 70% of the Colom-bian power generation capacity, which makes it highly renewable. Although biomass, wind, and solar generation currently account for only 1% of the total genera-tion capacity in the country, three main technical and economic fac-tors point to an increase of these primary energy resources in the near future, either via centralized or distributed projects.
First, the relatively low spatial dispersion of the river basins in which hydroelectric power plants are located results in a particu-larly high exposure of the Colom-bian system to climatic long-term
events, such as el niño, as shown
2014 2015 2016 2017 July 2018
Solar 0 0 0 9.8 9.8
Wind 18.4 18.4 18.4 18.4 18.4
Biomass 72.3 93.2 95.8 134.7 134.7
Fossil Fuels 4,544 4,824 4,876 4,949 4,928
Hydro 10,920 11,501 11,606 11,726 11,774
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figure 4. The installed DG capacity for the bulk Colombian power system. (Data courtesy of the Colombian Mining and Energy Planning Unit and SIEL.)
march/april 2019 ieee power & energy magazine 57
in Figure 5. the absence of a significant statistical correla-tion between hydrological scarcity events and the production of wind and solar plants is one of the motivations mentioned by Colombian authorities for promoting nonconventional renewables via Law #1715/2014.
second, social-environmental constraints on the de-velopment of new hydropower projects are also relevant in Colombia. these constraints have resulted in project developers shifting toward other technologies as well as longer implementation times for hydropower plants al-
ready under development. it remains unclear if these con-straints will be aggravated by recent problems encountered during the development of the hidroituango power plant, which included evacuating populations downstream from the plant in the first half of 2018 because of technical con-struction problems that began with the blockage of water diversion tunnels.
the third factor relates to the policy goal of increasing the share of biomass, wind, and solar power plants in the system to increase long-term environmental sustainability.
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figure 5. (a) The generation mix and (b) the evolution of spot prices in Colombia, highlighting the 2009–2010 and 2015–2016 El Niño events. (Data courtesy of UPME and XM.)
58 ieee power & energy magazine march/april 2019
Considering the difficulties that exist with expanding hydro-power capacity, these other renewable technologies become an alternative to fossil fuels, which in the Colom-bian system include local coal and gas resources.
the potential benefits of a higher share of renewables in the future mix of Colombian generation resources represent opportunities for both centralized and distributed projects. Large-scale centralized projects are expected to be the pri-mary means of exploiting high-quality renewable resources, which are largely untapped and located in fairly isolated regions of Colombia. the wind potential in the region of La Guajira, in the northeastern part of Colombia, is estimated at 20 Gw. Different project developers are planning or pre-paring wind projects with a total capacity of 3 Gw in this region. La Guajira is also bestowed with high-quality solar resources, as evidenced by average solar irradiation indices of 6 kwh/m2. however, average solar irradiation indices over the entire Colombian territory are lower, i.e., 4.5 kwh/m2, indicating that distributed solar pV plants may constitute an interesting energy supply alternative.
regulatory factors are also expected to play an impor-tant role in determining the expansion of centralized and DG in Colombia. Law #1715/2014 is an important mile-stone for the normative framework of both centralized and distributed renewables in Colombia. it established mechanisms for promoting nonconventional renewables as a means of reaching sustainable economic development, reducing the emission of greenhouse gases, and promot-ing security of electricity supply via diversification of pri-mary energy sources. the guidelines set forth by this law ultimately resulted in the MMe issuing Decree #570/2018, which established a mechanism of awarding long-term contracts to generation projects that can 1) increase the security of electricity supply via technology diversifica-tion, with explicit references to risks tied to climate change and its impacts on hydropower and 2) reduce greenhouse gas emissions in Colombia.
the MMe recently issued resolution #40791/2018, which introduced the institutional framework and auction rules for awarding long-term power purchase agreements for renewable generation. Generators that enter into these contracts agree to 1) deliver the nominal amount of energy sold within a year (yearly settlement for the nominal quantity sold) with the opportunity to transfer deficits of up to 10% of the nominal quantity to the next year and 2) deliver 0.01142% (10% of 1/8,760) of the yearly amount of energy in each hour of the year. the buyers will be the traders operating in the Colombian wholesale market that choose to participate in the auctions.
Law #1715/2014 introduces the possibility of consumers with behind-the-meter generation (termed self-suppliers in Colombia) to sell energy surpluses to the external grid. the law also divided these self-suppliers according to their scale. the upMe later established that consumer units with behind-the-meter generators with an installed capac-ity of up to 1 Mw would be categorized as small-scale
self-suppliers (sCsss), with the others being large-scale self-suppliers.
in 2018, the Colombian electricity and Gas regula-tory Commission (CreG) issued resolution #030/2018, which provided the conditions for selling energy sur-pluses of sCsss to the grid. the resolution established the following:
1) if the sCss uses conventional renewable technologies, surpluses can be sold 1) at the spot price to traders sell-ing energy to regulated consumers or traders who are also local providers of distribution network services and 2) at freely negotiated prices to traders selling en-ergy to generators or deregulated consumers.
2) if the sCss uses nonconventional renewable technol-ogies, the commercial possibilities for the surpluses depend on to whom they are sold. if the surplus is sold to traders selling energy to regulated consumers or traders that are also local providers of distribution network services, surpluses can be 1) deducted from the energy bill if either the production is below the customer’s consumption for a given billing period and 2) sold at spot prices for the portion that exceeds the energy consumption within a given billing period. if the energy is sold to traders providing services to gen-erators or deregulated consumers, surpluses can be sold at freely negotiated prices.
the energy surplus from an ssCs below the consumption reduces the consumer’s electricity bill, but this deduction does not include remuneration for transmission and distri-bution services if the installed capacity of the behind-the-meter generators exceeds 100 kw. this effectively results in sCsss with generators above 100 kw paying for network services, i.e., they are paying for backup service from the grid. Conversely, self-suppliers with installed generation capacity below 100 kw do not pay for the backup of the grid. All self-suppliers, regardless of the scale of their generation plants, pay a regulated amount (termed a regulated trading margin) above the price of the energy sold to traders supply-ing regulated consumers or traders who are also local pro-viders of distribution network services.
resolution #030/2018 also establishes other guidelines for sCsss, including simplified grid-connection pro-cesses and metering provisions. sCsss that inject sur-pluses into the external grid must comply with many technical metering requirements that also apply to regular generators. the sCss bear the costs of adjustments to the metering structure.
the incentives for behind-the-meter generation intro-duced by resolution #030/2018 in Colombia are fewer than those currently available in Brazil, especially for consumer units with renewable generation capacity above 100 kw. still, given the potential for high-quality solar development in Colombia, such a framework may result in an increase of behind-the-meter DG capacity, particularly for renewable generators with an installed capacity under 100 kw.
march/april 2019 ieee power & energy magazine 59
Looking to the Future: Planning, Regulations, and Business ModelsColombia may still see some improvements to power system expansion-planning techniques, regulations, and business models that ensure an optimal mix of centralized and distri-bution resources is achieved.
Bulk power system expansion-planning models in Colom-bia may need to reflect the development of DG. the currently low levels of behind-the-meter generation deployment and the very recent establishment of a regulatory framework for sCsss may explain why upMe has not yet (as of october 2018) included projections of this type of generation in their plans (not even at a very aggregated level). now that the nor-mative framework for behind-the-meter small-scale genera-tion is in place, Colombian authorities may need to incorpo-rate this into their planning process.
For example, auctions that contract firm energy obliga-tions from generation projects, including advanced con-tracting for new capacity additions, are a key element of the reliability options scheme, which is the capacity adequacy mechanism in Colombia. An important step of this mecha-nism is the estimation of the demand for firm energy obliga-tions to be contracted in auctions. this estimation involves subtracting the stock of existing obligations from the pro-jected demand of the power system. Factoring the estimates of behind-the-meter DG development into this process will be key to ensuring its proper functioning.
the current regulatory framework is conducive to send-ing proper economic signals to DG developers. For instance, consumers with behind-the-meter generators whose installed capacity is below 100 kw pay for reliability backup offered by the transmission and distribution grid. however, governmental authorities recognize that the regulatory and commercial framework may need to adapt further when the amount of behind-the-meter DG increases significantly. the next stage of this development would potentially address the exchange of information between distribution grid opera-tors and the national bulk power system operator as well as mechanisms that define the authorized remuneration to the distribution network providers based on the network costs attributable to DG.
the need to adjust regulations to the level of behind-the-meter DG development is recognized by CreG. the Colom-bian regulator included a trigger for reviewing the frame-work applicable to small-scale DG in resolution #30/2018; this will occur in the year following that in which the total amount of energy injected into the grid by sCsss and other categories of distributed generators exceeds 4% of the yearly Colombian electricity demand.
Finally, incipient levels of behind-the-meter DG as recently established by the regulatory framework for sCsss in Colombia have not yet resulted in a thorough develop-ment of business models in the country. nearly all capac-ity additions thus far have been developed under the model in which the developer makes a capital expenditure and
owns the generation asset. however, Colombia was the first south American country to introduce competition in energy trading for retail consumers, which has led to a system of companies with deep connections to small-scale consumers who seek new commercial opportunities. this may enable the emergence of companies exploring behind-the-meter energy-as-a-service or leasing models faster than in other countries in south America.
SummaryBoth Brazil and Colombia already have high penetrations of renewable resources, with hydropower accounting for approximately 70% of their installed generation capac-ity. Despite this, environmental sustainability was part of the motivation for laying the foundations of the normative framework for developing nonhydro renewables in both countries. Brazil and Colombia aim to enable an environ-mentally sustainable generation system expansion because both countries are faced with constraints for developing new hydropower plants. Achieving security of supply via primary resource diversification is another governmental reason for encouraging development of nonhydro renew-ables in the two south American countries, particularly because the dominance of hydropower results in exposure to the hydrological scarcity phenomena. this push toward nonhydro renewables creates opportunities for centralized and behind-the-meter DG in Brazil and Colombia. there are high-quality wind and solar renewable resources in iso-lated and sparsely populated areas of both countries that result in opportunities for the development of large-scale projects, which are competitive generation expansion alter-natives even after accounting for costs of the transmission facilities connecting them to load pockets.
rooftop solar pV systems have been the main technology for existing DG projects in Brazil and Colombia, and they are likely to remain so because of the high-quality solar resources avail-able in many densely populated areas. Despite the high level of urbanization in both countries, there remain significant amounts of sites that can accommodate solar pV projects in major cities, which, to date, comprise a large portion of DG development.
Low levels of electricity consumption per capita suggest high rates of long-term electricity demand growth in both countries; recent projections for Brazil and Colombia are 3.7 and 3.3% per year, respectively. Meeting this increased demand with DG alone is rather unlikely in the near future, even if the rates of growth of DG installations increase significantly above the current forecasts.
the previously mentioned factors point to the coexis-tence of centralized and DG expansion in the next decade; however, reaching an optimal balance between these two expansion types requires changes in both Brazil and Colom-bia. regulations and planning methods stand out as areas where such developments may be seen in the future.
Brazil and Colombia realized that the development of behind-the-meter generation would require dynamism and
60 ieee power & energy magazine march/april 2019
adaptability of the regulatory framework before DG pen-etration reached high levels. regulators explicitly included triggers for the revision of their normative framework in official documents. the second revision of the Brazilian regulation for DG is currently ongoing, with discussions focusing on the need for proper economic signals within the net-metering mechanism.
Colombia introduced the first version of its regula-tory framework for small-scale, behind-the-meter DG after Brazil and embodies the lessons learned from regions with a higher participation of behind-the-meter DG. For instance, Colombia mandates that consumers with behind-the-meter DG whose installed capacity is above 100 kw pay for the reliability backup services offered by the grid.
the need to build interfaces between distribution and transmission system planning and operations as well as between wholesale and retail markets will also likely be addressed in Brazil and Colombia. similarly, the Brazilian energy planning agency recently published a technical note analyzing how the development of DG may impact its pro-cesses, while the Colombian regulator issued a technical document that indicates the need for interfaces between the wholesale and retail markets as a possible future requirement.
Developments in business models and financing may also help achieve an optimal balance between central-ized and distribution expansion in Brazil and Colombia. in both countries, most of the current behind-the-meter DG capacity used direct capital expenditures from con-sumers who own the assets, with equity dominating their capital mix.
in Brazil, the consolidation of the energy-as-a-service and leasing business models may depend on the extent to which public and private financers obtain familiarity with these models and are able to launch offers fitting the needs of entre-preneurs exploring them. Financing opportunities may also lead to direct capital expenditures by consumers in genera-tion equipment. existing financing lines targeted at DG in Brazil have focused on large commercial and industrial con-sumers, although banks are starting to launch lines oriented to small-scale residential consumers as well.
in Colombia, a complex system of companies working closely with retail clients exists because the country was one of the first in south America to introduce competition in trading for retail consumers. this may facilitate the emer-gence of the energy-as-a-service model.
in both countries, centralized, nonconventional renew-able generation projects compete in auctions that award long-term contracts specifically tailored to these technologies. thus far, contracts offered to wind and solar plants in Brazil have annual or multiyear settlement periods. in Colombia, resolution #40891/2018 recently introduced a similar con-tract model for nonconventional renewables. these attractive contractual arrangements facilitate access to low-cost debt and favor centralized generation. it is unclear whether Brazil
or Colombia will review the conditions of these contracts in the near future.
in conclusion, some common underlying technical and economic factors suggest that centralized and DG expan-sion are likely to coexist in Brazil and Colombia over the next decade, with opportunities for businesses oriented to either niche. however, reaching an optimal balance between both expansion possibilities and thoroughly cap-turing synergies between centralized and DG may require power sector institutions and agents in these countries to achieve the aforementioned developments in the areas of regulation, planning, financing, and business models.
For Further Readingenergy research office, “processing contributions to public consultation #33/2017 and recommendations for a legal in-strument,” rio de Janeiro, Brazil, rep. epe-pr-003, 2017. [onl ine]. Ava i lable: ht tp: //www.epe .gov.br/sites-pt/publicacoes-dados-abertos/publicacoes/publicacoesArquivos/publicacao-232/topico-353/nota%20t%C3%A9cnica%20epe-pr-003-2017.pdf
energy research office. (2018). Distributed energy re-sources: impacts on energy planning. rio de Janeiro, Brazil. [online]. Available: http://www.epe.gov.br/sites-pt/sala-de-imprensa/noticias/Documents/nD%20-%20recursos%20energ%C3%A9ticos%20Distribu%C3%ADdos.pdf
energy and Gas regulation Commission, “Analysis of comments to resolution CreG 1212017—small scale self-supply and distributed generation,” Bogotá, Colombia, rep. CreG-026, 2018.
Ministry of Mines and energy, “resolution for the defi-nition and implementation of a mechanism that promotes the long-term contracting of electricity generation projects in complement to mechanisms that already exist in the wholesale electricity market,” Bogotá, Colombia, resolution 40791, 2018.
r. Moreno, r. Ferreira, L. Barroso, h. rudnick, and e. pereira, “Facilitating the integration of renewables in Latin America: the role of hydropower generation and other en-ergy storage technologies,” IEEE Power Energy Mag., vol. 15, no. 5, pp. 68–80, 2017.
BiographiesRafael Ferreira is with the electricity trading Chamber, sao paulo, Brazil.
Pablo H. Corredor is with phC servicios integrados Group, Medellín, Colombia.
Hugh Rudnick is with the pontifical Catholic university of Chile, santiago.
Ximena Cifuentes is with phC servicios integrados Group, Medellin, Colombia.
Luiz Barroso is with the institute of technological re-search, Comillas university, Madrid, spain.
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