Socioeconomic and environmental consequences of a new law for regulating distributed generation in Brazil: A holistic assessment

Abstract

Since 2012, prosumer compensation in Brazil has been based on net metering. However, a new law (Ordinary Law 14300/2022) was recently approved by the Brazilian Congress to decrease financial compensations for electricity injected into the grid. Studies on distributed generation system economic feasibility impacts in light of this new regulation are quite common. However, there is a research gap with respect to holistic assessments. This paper holistically analyzes the long-term consequences of this new law for regulating on-grid renewable distributed generation in Brazil. The methodology was mainly based on three models/techniques, i.e., the optimized tariff model (socioeconomic regulated electricity market model), the Bass diffusion model (time-series forecasting for integrated distributed generation), and life cycle assessment (an environmental impact analysis technique). These methodologies allow us to evaluate regulatory impacts on several aspects like the distributed generation business itself, market surpluses and welfare, regulated tariffs, social inequality, and the environment. These methodologies were applied to 35 Brazilian concession areas with available data. The results show that the new law successfully mitigates tariff increases and reduces social inequality, which are its main goals. By contrast, there are significant negative implications to the distributed generation business, market welfare, and the environment, since socioeconomic welfare losses at 2.12 billion (BRL/year) or 0.42 billion (USD/year), and emissions at 0.35 (Mt CO2eq/year) are estimated. Our assessment also shows that it would be slightly premature to implement this new law in most concession areas.