Dismemberment of distributed generation plants: concrete case analysis

With collaboration from lawyer Renato Edelstein

A REN 482 (Normative Resolution No. 482/2012) da ANEEL (National Electric Energy Agency) created the SCEE (Electric Energy Compensation System), applicable to consumer units with distributed micro or mini generation.

As a result of Public Hearing 026/2015, the agency published, on November 24, 2015, the REN 687/2015, which promoted several changes in the 482 Resolution.

Among some changes promoted by REN 687, we can highlight the raising the power limit for distributed minigeneration from hydro sources to 3 MW and other sources to 5 MW.

The definitions of distributed microgeneration came into force for generating plants with an installed power of up to 75 kW and of distributed minigeneration for plants with a power above 75 kW and less than or equal to 5 MW, connected to the distribution network through installations of consumer units.

Currently, REN 482 provides for the following types of GD (distributed generation):

• Generation in the consumer unit itself: most common form of distributed generation in the Brazilian market today, mainly due to the spread of the installation of solar s on the roofs of homes and small businesses;
• Shared generation: characterized by the gathering of consumers, within the same concession or permission area, through a consortium or cooperative, composed of an individual or legal entity, which has a consumer unit with microgeneration or minigeneration distributed in a location different from the consumer units in which the excess energy will be compensated;
• Remote self-consumption: modality characterized by consumer units owned by the same legal entity, including head office and branch, or an individual who has a consumer unit with microgeneration or minigeneration distributed in a location different from the consumer units, within the same concession or permission area, in which excess energy will be compensated; It is
• Enterprise with multiple consumer units (condominiums): modality characterized by the use of electrical energy independently, in which each fraction with individual use constitutes a consumer unit and the facilities for serving common use areas constitute a distinct consumer unit, under the responsibility of the condominium, the istration or the owner of the enterprise, with microgeneration or distributed minigeneration, and provided that the consumer units are located on the same property or on contiguous properties, with the use of public roads, overhead or underground ages and properties of third parties not part of the enterprise.

Among several regulatory discussions that exist on the topic of DG, there is one topic in particular that has generated a heated debate among the developers of these projects and has been a sensitive point in the structuring of the plants' business models, the so-called “plant dismemberment”. .

Paragraph 3 of article 4 of resolution 482 establishes that “the division of a generating plant into smaller units to fit within the power limits for microgeneration or distributed minigeneration is prohibited, and the distributor must identify these cases and request readjustment of the installation and, if not met, deny adhesion to the Electricity Compensation System” (emphasis added).

That is, the intention of the regulation of ANEEL is to prevent and avoid large energy projects (greater than 5 MW) can be dismembered or divided into smaller projects to fit the resolution and therefore enjoy the indirect benefits and exemptions of distributed generation. The objective of the rule, therefore, would be to prevent agents from circumventing the limit imposed in the resolution of the ANEEL.

After all, the concept of distributed generation was designed to enable the captive consumer (in the ACR, a regulated contracting environment) to offset energy from their with the local distributor through small plants, whether next to the load (local DG) or through the leasing of fractions of plants far from consumption (remote self-consumption or shared generation), which are generally larger projects.

In this sense, the SRD (Distribution Services Regulation Superintendence) da ANEEL positioned itself in Circular Letter No. 0010/2017-SRD/ANEEL regarding the restriction on the fractionation of plants, as well as the responsibility of local distributors themselves in ing the ownership of the units or the contiguity of the areas in which the generation plants are located:

“(…) 12. In these , the standard prohibits the division of a generating plant into smaller plants that results in: a) changing the classification as distributed minigeneration to the classification as distributed microgenerations; or b) change from a non-qualifying condition to a qualifying condition in REN no. 482/2012. We highlight that the identification of these attempts to divide a generating plant must be carried out by the distributor and is not limited to ing the ownership of the units or the contiguity of the areas in which the generating plants are located. 

13. In order to identify and adapt all cases that may eventually fall within the prohibition on the division of plants established in §3 of art. 4 of REN No. 482/2012, we request that distributors carry out a detailed investigation of the distributed microgenerations and minigenerations currently connected in their area of ​​operation.”

However, the problem and legal uncertainty arise in our view precisely from the fact that there is no objective criterion to establish the limits of the prohibition on the fractionation of plants.

In practice, what is clear is that each distributor created its own rules to identify whether or not there is a fractionation of the plant, a duty that was not transferred to the distributor in our analysis, which must only monitor whether or not the standard was correctly complied with – the main point of debate is that the standard only has a single provision to deal with the topic and ANEEL It did not concern itself with establishing criteria to facilitate the inspection of distributors or to allow for the correct compliance with the guidelines by entrepreneurs.

Although not expressly provided for, there is no doubt that splitting plants to stay below the regulatory limit of 5 MW and qualify as DG, for example, is prohibited by Resolution 482. As stated, the intention is to prevent large projects from enjoying the benefits of the distributed generation mechanism.

In the same sense, it seems to us that splitting a larger plant into several smaller ones to stay below 75 kW and become a microgenerator would also be prohibited under REN 482, due to the impacts caused to the distribution network. However, once again, the regulation is not absolutely clear on this point.

What about the fractionation, for example, of 5 MW plants into “small projects” of 2,5 MW or 1 MW?

Dividing plants to stay below 2,5 MW does not meet any express prohibition in regulation in our view. This is the power limit below which the connection can be made at medium voltage. As high voltage network reinforcement works tend to be significantly more expensive, limiting the project to such power can help control the developer's costs.

The division into 1 MW plants is also viable in our view, with no express prohibition. This is a strategy/optimization to avoid the incidence of ICMS.

There is therefore no possibility of “circumventing” the limitation imposed by ANEEL, even being a market practice to mitigate tax exposure due to the fact that the Confaz agreement did not update its wording to provide for new types of distributed generation and the limits of REN 482.

It is therefore clear that by analyzing only the regulation of ANEEL existing, there is no express prohibition on the splitting into smaller plants, as long as the objective of the splitting is not the characterization of the asset itself as micro or mini distributed generation.

A ANEEL in a recent case (order no. 2.765/2020 – process no. 48500.004024/2017) applied a penalty of more than R$13 million to a distribution agent due to the alleged irregular classification of a plant as distributed generation. The decision was the result of an inspection procedure.

In the vote of the reporting director Efrain Pereira da Cruz, the importance of supervisory actions was highlighted in view of the “recent growth” of distributed generation projects.

“15. As a preliminary matter, I would like to highlight the importance of this type of inspection action, given the recent sharp growth in the number of micro and mini-generation installations that connect to the distribution systems, as well as the growth in the number of complaints received in ANEEL regarding the actions of distribution concessionaires in relation to the topic.”

A ANEEL, therefore, it was clearly stated that this type of inspection action should be a practice of the agency as a way of avoiding the dismemberment of distributed generation plants.

In this specific case, the ANEEL applied the penalty to the distributor Enel Ceará due to the permission/omission of the splitting of a 10 MW plant into two 5 MW plants, precisely to circumvent the regulatory limit for participation in distributed generation (§3 of article 4 of REN 482/2012).

For ANEEL, even if the plants had separate feeders, it would not be possible to rule out the improper separation of the plants, since the projects were on property in a contiguous area and it was the distributor's responsibility to carry out this inspection:

“32. Despite the arguments presented by the appellant and the representatives of the plants, I consider that there is no way to mischaracterize the division of a 10 MW generating plant into two contiguous 5 MW plants. The use of different feeders is justified by the injection limit in the local distribution system, which does not mean that, therefore, there are two different plants. Even if the amended rule was not in force at the time the access opinion was issued, as it was a single plant from the beginning, the distributor could not have maintained the situation after the rule came into effect.”

The board of ANEEL It also defined how to compensate consumers of the distributor Enel Ceará due to the undue participation of the plants in the energy compensation system.

“37. Along these lines, it is necessary to determine the additional amounts that Enel Ceará's consumers had to bear due to the undue participation of the generating plant in question in the compensation system, so that the distributor can reimburse them, through the reversal of equivalent amounts for the low price. tariff.

(...)

40. In this sense, the amounts that should have been paid by the consumer units that received the surplus energy from the wind farm in question must be calculated and compared with what was actually paid. The difference, where appropriate, must be reversed by Enel Ceará in favor of lower tariffs for its consumers, who were unduly burdened by the undue reduction in the billed market as a result of the inclusion of the 10 MW wind farm in the compensation system. With this, the negative effects borne by the concessionaire’s consumers resulting from the infraction found by the inspection are nullified.”

There is no doubt that this position of ANEEL is in line with the provisions of paragraph 3 of article 4 of REN 482, which expressly prevents agents from splitting up plants in order to fall below the regulatory limit of 5 MW and qualify as DG. In our assessment, this situation was simple and could have actually been identified by the distributor, which should have rejected the project.

The board of ANEEL also maintained the fine imposed by the SFE of almost R$3 million due to the alleged improper classification of 19 photovoltaic units as distributed microgeneration, disregarding the fact that these units came from the division of a larger generating plant.

A ANEEL understood that, although the installed power combined did not exceed the power limit permitted for use of the energy compensation system (5 MW), “the irregular division detected allowed the units to be classified as microgeneration, generating some regulatory benefits that a minigeneration unit would not have.”

For ANEEL, the problem was not in the inclusion in the compensation system, but in the consumer obtaining some benefits that a mini-generation unit would not have.

As it was classified in group B (low voltage) when it should have been in group A, the ERD (distributor's responsibility charge) was not correctly calculated by Enel Ceará, which had to contribute more resources than required to connect the installation, with the cost ed on to the tariffs of other consumers.

According to ANEEL:

• For the minigeneration connection (1 MW) the requirements would be stricter (plant size, protection, safety and measurement criteria) compared to 55 kW microgeneration connections;
• Financial participation rules are more advantageous for smaller plants – in microgeneration up to 75 kW, the costs of any improvements or reinforcements in the system are not part of the calculation, contrary to what happens with power above 75 kW; It is
• A 1 MW project must remunerate the network (contracted demand at a value not lower than the installed generation power). In 55 kW systems there is no payment for demand – only the cost of availability (generally cheaper). The entrepreneur would be benefiting financially by not paying adequately for the use of the network at the expense of other consumers.

The board of ANEEL acknowledged that there was no billing to be corrected or undue burden on other consumers of the distribution network due to the conditions offered by Enel Ceará to the plant and consumers, who received credits for the excess energy produced by it.

However, given the installed load and the demand to be contracted by the project when considered as a single installation, the ANEEL understood that it was necessary to carry out contractual regularization between the parties.

The issue was taken to court by ENEL (case no. 1060719-47.2020.4.01.3400) and, once the fine required by the company was paid, the company ANEEL, an injunction was granted for “suspend the enforceability of the fine imposed in NOTICE OF INFRINGEMENT No. 0032/2018-SFE (istrative process no. 48500.004024/2017-80), determining that the defendant refrain from taking any collection measures and refusing to issue certificates of regularity due to said credit, as well as including registration in CADIN due to said credit or, if already included, must promote its suspension, in accordance with article 7 of Law No. 10.522/02”.

At the moment, the resolution of the discussion in the judicial sphere (merits of the discussion) is awaited, and there is no way to specify the time for a definition regarding the legality of the decision. ANEEL.

There seems to be no doubt about the insecurity caused by the absence of a clear definition and objective criteria for the limits of the prohibition on the fractionation of plants.

What is striking is that the superintendence itself ANEEL in the last phase of the public consultation with the aim of reviewing the standard, it was indicated that: “the variety of ways in which division attempts are made poses many difficulties in establishing objective rules that seek to avoid this type of strategy. Therefore, it was decided to maintain the current text in the draft standard, with analysis being carried out in each specific case, with the distributor playing the role of identifying cases that go against the precepts of REN 482/2012. However, contributions regarding the inclusion of objective rules to address this point are encouraged”. 

With all due respect, the position expressed by SRD does not resolve the issue. If the energy distributors that must supervise the projects themselves are requesting the establishment of objective criteria to define what would be an improper dismemberment for the purpose of connecting the distributed generation project, it is clear that there is a need to establish objective standards.

The development of DG projects requires a stable and secure business scenario, and this issue should be addressed in our view in the long-awaited review of resolution 482, with the need for clear rules to be defined in an objective manner by the company itself. ANEEL, with the consequent standardization for all distributors in the country.