Brazil’s general attorney’s office sees legal support for curtailment of distributed generation

Brazil’s general attorney’s office (AGU) believes there is a legal basis for the physical cut of distributed micro and mini generation (MMGD) in operational security scenarios.

The conclusion is contained in an opinion prepared in the context of a public consultation conducted by the electric power sector’s watchdog Aneel (CP 45/2019), which, in its final phase, deals with the definition of criteria for the curtailment of generation carried out by the National Electric System Operator (ONS).

Although curtailment of centralized generation is common practice, some players in the segment argue that MMGD should be subject to the same regime. The argument is that energy not consumed instantaneously, when injected into the grid, changes the energy balance and replaces centralized generation in situations of oversupply.

Given the increase in curtailment cases in the country, Aneel approved last year an emergency plan that authorizes the cutting of generation connected to the distribution grid, but the issue still lacks specific regulation.

In its opinion, the AGU notes that the fact that MMGD is treated today as a “demand reduction” stems from limitations in visibility, measurement, and control, and not from permanent legal immunity. Thus, once the technological barrier of controllability is overcome, there would be no legal obstacle for distributed injection to start competing for space on the grid with other sources.

The agency also notes that only in the case of isolated operation (off-grid), without injection into the grid, could the unit be treated, from the system’s point of view, exclusively as load, without use of the grid to evacuate generation. It also points out that the regulatory framework for MMGD (Law 14.300/2022) ensures compensation for the energy actually injected, and not a guarantee of unrestricted evacuation in a context of oversupply or to the detriment of the operation of the National Interconnected System (SIN).

“The generation cut – whether emergency or ordinary – is thus characterized as a regular administrative limitation, inherent to the integration of any generator into the grid”, concluded the AGU.

Emergency physical cuts are already governed by current legislation and regulation and may result from issues related to the operational security of the electrical system, such as power grid disturbances, contingency situations, or risk to stability, which require the disconnection of users and/or consumer units, with or without MMGD.

Ordinary physical cuts, in turn, result from structural conditions in the market, especially from the balance between generation and load in the electrical system. To address these cases, the AGU indicates the need to initiate a specific public consultation.

Accounting cut

The AGU also analyzed the possibility of subjecting MMGD to the so-called accounting cut, that is, to the ex post disallowance or redistribution of credits from the Electric Energy Compensation System (SCEE). This system allows consumers to generate their own energy (solar, wind, etc.) and inject the surplus into the utility’s grid, converting it into credits to reduce the amount of the electricity bill 

For the agency, this measure would be in disagreement with Law 14.300/2022, which guarantees the MMGD holder the credit corresponding to the energy actually injected and does not provide for disallowance, redistribution, or apportionment of these credits in favor of third parties.

“In this context, the autonomous ‘accounting cut’ lacks legal support: it operates as an ex post reduction of legally due credit, with a direct impact on assets, which would require a legal provision compatible with the intensity of the intervention”, justified the AGU.

What the distributed generation sector says

Regarding emergency physical cuts, Raquel Rocha, director of regulatory and tax affairs at the Brazilian Association of Distributed Generation (ABGD), advocates regulatory improvements aimed at strengthening the mechanism’s governance, transparency, and predictability.

As for ordinary disconnections, she believes they are inapplicable to consumer units associated with MMGD, since the segment has its own legal framework, established by Law 14.300/2022, under which the consumer makes investments primarily aimed at meeting their own energy consumption.

Rocha stated that the same reasoning regarding the impossibility of ordinary physical disconnection applies to accounting disconnections, also called “commercial apportionment”, in which agents seek to include consumer units to pay for a bill arising from the very market risk provided for in Law 10.848/2004, which governs energy trading in centralized generation.

“At that point the AGU was assertive in determining that any disallowance was unfounded,” he told BNamericas.

(The original version of this content was written in Portuguese)