July 20, 2023

CCC With Less Diesel and More Batteries: What Will the Effects Be for Consumers?

Paulo Steele and Helder Sousa*

The Fuel Consumption Account (CCC) could change name in the coming years. That's because interconnecting Roraima to the National Interconnected System (SIN), and installing solar-generation projects in isolated systems (SISOL), among other factors, should significantly change the charge's composition. On one hand, coverage for diesel-generation spending should shrink sharply. On the other, consumers across the country will have to bear rising operation-and-maintenance costs for the solar-plus-battery systems to be installed under the More Light for the Amazon program. The result? The tariff effect of this portion of the Energy Development Account (CDE) will stay practically unchanged at least through the middle of this decade.

Figure 1 - Evolution of the CCC's Budget and Isolated Systems' Load

Source: TR Soluções.

1. History and Current State of the CCC's Budget

The CCC is the most significant item among power-sector subsidy public policies covered by the CDE, accounting for 36% of the budget the National Electric Energy Agency (ANEEL) approved for 2023.

The CDE's weight in application-tariff composition, in 2023, ranges from 6% to 12%, depending on supply voltage levels and the consumer's location within the SIN's submarkets. So the CCC represents, on average, between 2% and 4% of electricity bills.

Table 1 - Evolution of the CCC's Budget (in BRL millions)

Source: TR Soluções, with ANEEL data.

The mechanism for allocating the burdens and benefits arising from fossil-fuel consumption was created by Law No. 5,899/1973, and treatment for isolated systems was only regulated nearly 20 years later, through DNAE Ordinance No. 350/1991. Its main goal: to allocate, among all SIN distribution concessionaires, the costs arising from thermal generation to serve isolated systems.

Since then, the CCC has undergone several changes, and it's currently governed by Law No. 12,111/2009. In Article 3, that law establishes that the account must fund "an amount equal to the difference between the total cost of generating electricity, to serve the public electricity distribution service in Isolated Systems, and the value of the corresponding amount of electricity at the average cost of capacity and energy traded in the SIN's Regulated Contracting Environment (ACR), per regulation."

In practice, after deducting the amount SISOL consumers pay, which corresponds to the average value paid by SIN consumers (average ACR), the CCC covers all expenses associated with generating electricity in locations not yet interconnected to the SIN, totaling BRL 12 billion this year.

Table 2 - Evolution of Isolated Systems' Load (in GWh)

Source: TR Soluções, with data from various planning cycles for serving Isolated Systems from the Energy Research Company (EPE).

Currently, the account reimburses distribution companies for the following expenses in isolated systems (including taxes):

• fuel cost and ancillary expenses (fuels, freight, and ancillary natural-gas expenses – CT COMB);
• own-generation cost (Fixed Revenue costs and Operation and Maintenance (O&M) for own plants, generator-set leasing, and O&M for SIGFI³ and MIGDI⁴); and
• cost of contracting capacity and energy.

As described in Table 1, between 2018 and 2023 these expenses rose about 125%. Over the same period, data in Table 2 indicate the load, in GWh, fell about 14%. The chart in Figure 1 illustrates this information.

This trend in values can mainly be explained by legal changes implemented in recent years. In this regard, it's worth noting that, in regulating Law No. 12,111/2009, Decree No. 7,246/2010 expanded reimbursements by establishing that the full cost of energy over-contracting for the beneficiary distribution companies would be borne by the CCC for a period of three years following their respective interconnection to the SIN. So, through December 31, 2018, Amazonas Energia's short-term market (MCP) result would be allocated to the CCC. Later, Decree No. 10,050/2019 changed that period to five years.

Law No. 14,146/2021, in turn, expanded the criteria for passing energy over-contracting costs on to the charge. It established that, between January 2021 and December 2026, the financial effect of these costs, under certain conditions⁵, would also be borne by the CCC. Besides Amazonas Energia, the measure affected the accounts of Roraima Energia and Companhia de Eletricidade do Amapá (CEA), as shown in the MCP figures in Table 1.

That law also relaxed, under certain conditions⁶, the regulatory treatment used to calculate loss expenses: in 2022-to-2025 tariff proceedings, calculating these expenses would be based on the difference between actual load and the regulatory market observed in calendar year 2020, factoring in an annual 25% reduction. This measure applied only to CEA. Additionally, also under certain conditions⁷, it established an additional 100% discount on the average ACR's⁸ value, to be reduced by 1/5 annually until phased out in December 2025. This measure applied to Equatorial Pará and, again, to CEA.

In total, for 2023, these additional expenses arising from the provisions in Law No. 14,146/2021 imposed additional costs on the CCC's budget on the order of BRL 1.5 billion, expected to remain in its budget through 2026.

2. Audit Results

With the publication of Decree No. 7,246/2010, ANEEL established, in 2011, the procedures for planning, forming, processing, and managing the CCC. In order to audit the entire CCC reimbursement period since the publication of Law No. 12,111/2009 through the fund's transfer in management, from Centrais Elétricas Brasileiras (Eletrobras) to the Electric Energy Trading Chamber (CCEE), which happened starting in May 2017, ANEEL opened audit proceedings.

The results of these audit proceedings only became part of the CCC's budget in 2022, and will extend through December 2026, when the 60th repayment installment of the total amount of BRL 2.67 billion⁹ to Eletrobras and BRL 116.27 million¹⁰ to Eletronorte, adjusted by the IPCA, is due to be settled.

3. SIGFI and MIGDI Expenses

In February 2020, Decree No. 10,221/2020 was published, establishing the National Program for Universal Access to and Use of Electricity in the Legal Amazon - More Light for the Amazon (MLA). Its goal is to guarantee electricity supply to people living in remote areas of the Legal Amazon.

The MLA calls for service to be provided using renewable electricity-generation sources, mainly photovoltaic systems, replacing the small diesel or gasoline generators currently maintained by consumers themselves in the region.

Funding comes from the CDE and from other sources to be regulated by the Ministry of Mines and Energy (MME), together with other government bodies.

ANEEL was made responsible for regulating the program's installation targets, and identified the need for 219,221 system connections between 2023 and 2030, with 75% of those installations expected by 2026. The agency is also responsible for regulating oversight of these targets, setting rules for increasing available capacity, and establishing costs for these systems' operation and maintenance.

The MME, in turn, is responsible for providing the annual completion schedules for SIGFI and MIGDI installations under the MLA program, in order to supply the CCEE, when setting the CCC's annual budget, with the information needed to calculate O&M costs for these systems.

Of the CDE's 2023 budget, expenses for universalizing electricity service across the country (the Light for All Program – PLpT, and MLA) represented 4.6% of the total, or BRL 1.64 billion. Of that total, 46% goes to the MLA program. Through April this year, 248,500 systems had been installed, per CCEE data, with the vast majority (225,300) at 45 kWh per month.

The MLA's Operations Manual defines that the program's systems must be of the SIGFI and MIGDI type. ANEEL Normative Resolution No. 1,000/2021, meanwhile, establishes that the monthly energy volume SIGFI and MIGDI systems provide in isolated systems must be 45 kWh to 180 kWh per consumer unit, and that all service must be provided by systems with a minimum autonomy of 36 hours for solar-source systems and 48 hours for other sources, regardless of installed capacity. That is, they must have energy storage for a minimum of two days, requiring the use of batteries.

It also establishes that the distribution company must provide, free of charge, load-increase requests for MIGDI or SIGFI systems that can be met using systems with monthly availability equal to or less than 80 kWh/CU, provided at least one year has passed since the initial connection date or since the last load increase.

Table 3 - SIGFI System Deployment Costs

Source: Technical Note No. 0030/2020-SRD/SRG/ANEEL.

Based on information provided by the MME in ANEEL Public Consultation No. 073/2020, we can infer that, in recent years, deployment costs for 45 kWh SIGFI systems have been around BRL 46,000. That figure was estimated using the average of the values shown in the table above, adjusted for inflation over the period.

Based on the targets and maintenance costs ANEEL set, also factoring in the deployment costs shown in Table 3, and assuming most systems deployed under the MLA program will be 45 kWh, we can infer that the MLA program's investment in photovoltaic systems could be on the order of BRL 10 billion for the CDE.

Although they won't need fuel to operate, the projects will have relatively high operation-and-maintenance costs, covered by the CCC. That's at least what ANEEL's assumptions on the topic indicate: ANEEL Normative Resolution No. 1,016/2022 points to a reference value, indexed to the IPCA, of BRL 6,646.67 per MWh (relating to 2015), that is, BRL 10,753.80 per MWh in current figures. This O&M value tied to SIGFI and MIGDI systems would represent an annual impact on the order of BRL 1.13 billion for the CCC in 2027.

4. Boa Vista's Connection to the SIN

EPE's Isolated Systems Service Planning technical note, 2023-2027 horizon, 2022 Cycle, provides for interconnecting Roraima's capital, Boa Vista, and other nearby locations (Alto Alegre, Bonfim, Caracaraí, Mucajaí, Normandia, and Rorainópolis) to the SIN by September 2025. These municipalities are currently supplied by thermal generation.

Under current conditions, the state of Roraima accounts for about 19% of the CCC's 2023 budget, that is, about BRL 2.2 billion, of which:

• 55.9% is fuel expense;
• 29.4% is Power and Energy Contract (CCESI) expense;
• 14.6% is Own Generation and Leasing expense; and
• 0.1% is Freight expense.

Connecting Boa Vista and the other locations listed above should enable a reduction of about 96% in fuel expenses as soon as interconnection happens, leaving only consumption tied to the state's remaining isolated systems. The second-largest expense source, Power and Energy Contracts, follows its own reduction pace, governed by previously agreed contract terms.

Table 4 - Isolated Systems Load Projection (in GWh)

Source: TR Soluções, with data from various EPE planning cycles for serving isolated systems.

5. Projection for the CCC's Budget

Despite the expectation of a 55% reduction, by 2026, in SISOL's load relative to 2022 demand, due to interconnections planned for locations still isolated in the country, no similar reduction in the CCC's budgeted expenses is expected over the same period.

Table 5 - Projection of the CCC's Budget (in BRL millions)

Source: TR Soluções.

Over the next four years, what we can expect is a substitution of expenses within the CCC's budget composition. During this period, should current rules stay in place, expenses related to energy surpluses, loss relaxation, average-ACR discounts, audit results, and Boa Vista's fuel-supply costs should exit the budget. Most of these reductions, however, will be offset by rising annual O&M costs tied to the MLA program.

* Paulo Steele and Helder Sousa are, respectively, managing partner and director of regulation at TR Soluções.

Note: The table data in this document is available for download by clicking the icon

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¹ Under the CCC, the cut factor is used to shape the funds released to distribution companies to cover energy-contracting costs. The Regulatory Loss Cut Factor per beneficiary used in calculating monthly reimbursements was defined through Order No. 2,905/2022.

² These relate to installment amounts to be passed on to beneficiaries with approved ventures that reduce consumption, replace thermoelectric energy, use fossil fuels in approved SISOL, or lead to SIN interconnection, via Authorizing Resolution. Details on the criteria for meeting the requirements for subrogating a commercially operating venture are described in REN No. 1,016/2022.

³ Individual Electricity Generation System With an Intermittent Source.

⁴ Isolated Microsystem for Electricity Generation and Distribution.

⁵ For electricity distribution companies providing service in states whose capitals weren't interconnected to the SIN on December 9, 2009.

⁶ For concessionaires holding distribution concessions privatized starting in 2021 that provide service in states whose capitals weren't interconnected to the SIN as of December 9, 2009.

⁷ For concessionaires in the North region not covered by item VIII of §4 of Article 4 of Law No. 5,655, of May 20, 1971, and for concessionaires covered by §1-C of Article 8 of Law No. 12,783, of January 11, 2013.

⁸ Average cost of capacity and energy traded in the National Interconnected System's ACR. In other words, the amount paid by consumers of distribution companies serving Isolated Systems, which reduces the CCC paid by all SIN consumers.

⁹ At August 2021 values, ANEEL Order No. 2981, of September 28, 2021.

¹⁰ At August 2021 values, ANEEL Order No. 2980, of September 28, 2021.