With collaboration by Ericka Araújo
The charge for ICMS on fuel, electricity bills, telecommunications services and public transport has been a recurring topic in the Brazilian Legislature.
This Monday (13), another chapter was closed with the approval, in Federal Senate, of PLP 18/2022, proposal that sets 17% ICMS ceiling on fuels, electricity and telecommunications and public transport services – considered essential and indispensable goods.
The text was approved handily in the Senate, with 65 votes in favor and 12 against. Now, the same thing comes back to Câmara dos Deputados and, if approved without significant changes, it will be sanctioned by President Jair Bolsonaro.
Voting in the Senate
The government senators argued that the change will reduce fuel prices for the end consumer and help control inflation, benefiting the economy as a whole. “The PLP is a very important step towards reducing inflation, in addition to controlling electricity bill prices. In other words, it is a victory for Brazilians, for consumers. We will now have to get used to lower rates,” emphasized the rapporteur. Fernando Bezerra (MDB/PE).
Critics of the PLP have stated that there will be no significant reduction in prices at the pump, but areas such as health and education may be affected. “The project does not address the main cause of the increase in fuel prices, which is Petrobras’ current pricing policy, linked to the international price of a barrel of oil and the value of the dollar,” said the senator. Zenaide Maia (Pros/RN).
“Petrobras shareholders are sacred, the people who die of hunger, the children and young people who are left without school. This is what is being proposed with this project”, he highlighted.
Loss of revenue in the states
According to the article, for states that have a revenue loss in 2022 above 5% of what they collected in 2021, the Federal Government will have to pay for the surplus. This surplus value will be deducted from the debts of the affected state with the Union. The compensation will be valid until December 31st of this year.
For states without debts to the Union, compensation will be made in 2023 with resources from CFEM (Financial Compensation for the Exploration of Mineral Resources). Such states will still have priority in contracting loans in 2022. In addition, compensation will be allowed through adjustments with loans already made with other creditors, with the Union's approval. This compensation will be valid until December 31, 2022. Below are the ICMS rates applied by states for residential consumers:
ICMS and electricity bill
For Adalberto Maluf, Marketing and Sustainability Director at BYD Brazil and president of ABVE (Brazilian Electric Vehicle Association), all tax reductions are beneficial to society in some way, but he made significant considerations. “However, in this specific case, we are giving up almost R$100 billion in revenue for states and municipalities, earmarked money that would be invested in education and health,” he points out.
“So, for the medium term it brings more challenges, as states will have fewer resources to make investments, as well as a temporary reduction in the price of fuel and energy, as we are experiencing a very large global inflationary moment with the war between Russia and Ukraine, which has been bringing pressure on fossil fuels”, he comments.
In his view, the price as a whole should continue to grow. “The cost of energy, in this case, tends to grow less than that of fossil fuels”, he reports.
Profitability of solar DG projects
When asked about the impact on the solar energy market, Maluf believes that the PLP will not have a major impact on the profitability of photovoltaic DG (distributed generation) projects, “because at the same time we have a trajectory of falling prices for components in the second half of the year, as China opens large new factories that should stabilize prices”.
Tarcisio Dario, Horus’s COO, also assumes that the DG market will not be affected in the medium and long term by this measure, which in his view is populist and a direct government subsidy. “It may inhibit investments in renewables in the short term.”
According to Márcio Takata, director of Greener, the proposal is positive for consumers, as it can contribute to reducing energy tariffs in the country. “Consequently, as there is a reduction in tariffs, this reflects an increase in the return on investment time, affecting both high and low simultaneity photovoltaic projects.”
Ricardo Marques, CEO of MSOLS Energia Solar, believes that ICMS impacts payback, but sees that 99% of people who work commercially with solar energy do not consider, for example, the cost of O&M (Operation and Maintenance) which can have a greater impact on payback than the ICMS issue itself.
“There are many other things that impact that are not being taken into consideration by the majority of the market. For example, degradation, energy inflation, whether it is with the load or not with the load”, he explained.
Impact of ICMS depends on the state
Electricity sector specialist Bernardo Maragon, partner at Exact Energy, highlights that the impact of this ICMS reduction will depend on the state. “For example, in Rio de Janeiro, which has a high rate of 32%, if it drops to 17%, almost 50% of the tax is lost. In Mato Grosso, which has a rate of 17%, there will be no change”, he analyzes.
In this sense, he emphasized the need for feasibility studies, which must be carried out individually for each case. “Imagine that the entrepreneur is offering the customer a 20% reduction in energy costs, for example.”
“With the reduction in ICMS, the calculation base is reduced, making the plant's revenue lower, which represents lower profitability for the project. Therefore, the entrepreneur will have to recalculate the return depending on the discount he will deliver to the end customer”, he explains.
Solar energy remains attractive
According to Mário Viana, commercial manager at Sou Energy, photovoltaic technology will continue to be very interesting, regardless of the ICMS involved in the operation or charged by a distributor on top of the TE and TUSD. “The cost of electricity in Brazil is very high. What happens is that in some cases you have a minimal reduction in the quality of the payback of this operation, but this does not make investing in solar energy unfeasible,” he emphasizes.
“I see many who are not investors, who do not invest in shares, in funds and suddenly they are talking about payback. The contribution can only be considered good or bad when compared to something”, he emphasizes.
“When I compare the internal rate of return for investing in solar, even with the ICMS cost, with any other low-risk investment, such as fixed income, the adoption of the photovoltaic source is much more interesting and advantageous, as it provides legal security, savings and guarantees more possibilities for increasing production, for example”, he concludes.
Side benefits: reduced inflation
Felipe Santos, LATAM product manager at Canadian Solar, believes that PLP 18/2022 could be good news for solar energy financing, as interest rates are unlikely to rise as much and may start to fall in the medium term. He also points out that it could affect the solar sector, for example, from the perspective of freight costs. “It could suddenly hold back kit prices for distributors and inflation for them.”
“So, component prices can become cheaper in reais, due to transportation, due to inflation -through via collective bargaining agreement. In other words, as purchasing power provides an insurance policy, it ends up holding back this inflation a little and then people have breathing room to start thinking about solar energy again”, he comments.
'PL is not beneficial from a sustainable point of view'
For economist Izaias de Carvalho, professor at PUC-Campinas, this bill to reduce ICMS on fuels seems to be a much more emergency decision to deal with the current problem of inflation, than a project that is more structured with a long-term vision that aims to make a structural change in the country's energy matrix.
“I don’t see this measure as being favorable from the point of view of sustainable energy, from the point of view of the energy transition. What we should be doing right now is different”, he assesses.
“We should be providing subsidies for clean energy, such as solar, wind, biofuel, but what we are seeing at the moment is subsidies for energy, fossil fuels”, says Carvalho.
In his view, in this context of inflation, unemployment and recession, reducing the tax on fuel could alleviate the situation a little. “However, I don’t think it will have that great of an effect from the point of view of stimulating, for example, creating more incentives for solar.”
“I think that energy, gasoline costing more, can be an important effect in stimulating the use of photovoltaic sources. By providing a subsidy and making gasoline cheaper, it is as if you were, in quotation marks, encouraging people to continue using this fuel while the whole world is already making the transition, and we are still here subsidizing a dirty fuel,” concludes the economist.
