Net metering and tax incentives for distributed generation in Brazil: Economic impact analysis for swine biogas

Abstract

To investigate the efficiency of policy schemes to attract renewable energy investments, it is essential to analyze the impacts on returns and risks with consideration of the circumstances that affect the projects. The present study aimed to evaluate the impacts of net metering, tax incentives, and subsidized loans on the return and risk of the distributed generation (DG) of electricity from swine farm biogas in three different locations in Brazil. In the academic literature, studies exist that focus on the economic feasibility of different biogas substrates and their economic and operational aspects, but these studies do not include an integrated approach with a stochastic analysis of the modeling of the uncertainties along with an investigation of the impacts of the regulatory context. The main study contribution is to present a holistic approach that allows for the comparison of risks and returns under the following uncertainties and conditions: the uncertainty present in each stage of the swine cycle that directly impacts biogas production; the uncertainty in modeling of energy tariffs, which have different behaviors in each location analyzed, the assessment of the impact of the different tax incentive levels offered in each location, and the identification of the effect of the subsidized loan offer on the return and risk results of these investments. To compare these, the project was dimensioned, and the specific uncertainties and tax incentive conditions for each analyzed scenario were modeled in the posterior. Through Monte Carlo simulation, the stochastic net present values of the scenarios for each location was estimated, and statistical tests compared the returns and risk between the scenarios. The results showed that a greater probability of high energy tariffs along with greater tax incentives result in high returns and low risk for investments in swine biogas DG. However, when tax incentives are low, risks increase, and the relevance of subsidized loans becomes more significant, indicating that there is a complementarity between incentives and subsidies to the net metering scheme.