IEEE Power & Energy Magazine - May/June 2020 - 46

✔✔ Option 3: Delay the investment to the end of the four-

year control period, increasing future revenues in
comparison with option 1, since the asset will be newer
(less depreciated).
Table 5 demonstrates that although option 2 is, from the
network owner's perspective, more attractive than option 1
(as expected, since this is aligned with the primary objective of incentive-based regulation), option 3 provides higher
long-term profits. This corresponds to an inefficient and
unintended outcome of price-control regulation, since, from
a central-planning perspective, the most efficient result is
option 2, creating a need to increase the efforts to scrutinize
investments (in volume and timing). This also incentivizes
network owners to submit inflated forecasts of their planned
network assets, as reported in other countries, such as the
United Kingdom during the early 2000s under the retail
price inflation minus expected efficiency improvements
approach. Note that options 2 and 3 will become equally
attractive if investors' capital costs and regulated rates of
return are the same.

Concerns About the Low-Voltage
Tariff Structure

25
20

New Tariff Structure
Current Tariff (Volumetric)

15
10
5
0

20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27

Total Installed Capacity (GW)

The tariff structure applied to low-voltage-level consumers (group B) attempts to remunerate the electricity value
chain's CAPEX and OPEX: generation, transmission,
distribution, and other charges. The final tariff paid by
each consumer is divided into two parts: 1) energy and
2) network. The energy tariff contains a large part of the
distribution companies' unmanageable costs: energy purchases, transmission network losses, and charges related
to consumption. The network tariff contains the remaining
unmanageable expenses (distribution network losses, transmission costs, and charges related to peak loads) and the
manageable ones, which are related to distribution companies' CAPEX and OPEX.
Although regulators recently allowed the group B electricity tariff to be multipart, the levy structure remains volumetric with no time dependency. Given the growth in DERs,

mainly solar DG by prosumers, the volumetric tariff will not
guarantee adequate remuneration because lower net energy
sales reduce distribution companies' revenues. The growth
of solar DG could potentially decrease firms' remuneration below the level required to recover CAPEX and OPEX.
Therefore, there will be an increase in tariffs, originating
a cycle of incentives for consumers to become prosumers,
which is known as the death-spiral problem.
Concerns about the impact that low-voltage prosumers' volumetric tariff has on distribution companies are
becoming increasingly important in Brazil because of the
two net-metering mechanisms that have been in place since
2014. The first is called local DG, which is the standard netmetering approach, where prosumers install a rooftop solar
panel on the place of consumption and use the distribution
network to balance their energy consumption and production. In the second, called remote DG, prosumers install
rooftop solar away from their premises (and potentially very
far away), meaning that consumers use the distribution network to meet 100% of their load. Sharing DG among different consumers is also allowed under this approach. Hence, a
wide variety of different business models has been created
to take advantage of the situation, encompassing apartment
dwellers who benefit from net metering by installing rooftop solar on beach houses to groups that lease land to share
the benefits associated with the remote DG mechanism.
In local and remote DG arrangements, the monomial
volumetric tariff is applied to the net monthly consumption
of the prosumer or group of consumers. Generated energy
that exceeds the monthly consumption is compensated with
energy credits to be used for reducing the cost of consumption within the next five years. If the net consumption (generation minus demand plus past energy credits) is zero or
negative for a month, the prosumer pays a minimum tariff
for distribution network availability. However, the tariff for
network availability represents, on average, 29% of the electricity bill, while transmission and distribution networks'
CAPEX and OPEX account for 46%.
The regulator has been discussing new tariff structures
for the distribution segment as well as changes to the netmetering mechanism for prosumers. Extending the binomial
tariff to low-voltage-level consumers is one of the alternatives under consideration. According to the Energy Research
Company (EPE), doing so could significantly impact the
evolution of DG. Following the ten-year energy plan, applying the binomial tariff to all consumers could reduce the DG
installed capacity from 21 to 12 GW by 2027, as illustrated
in Figure 7. Although such a result could appear negative
from an energy-policy perspective (since less DG would be
connected), it would better balance the cost and benefits of
system expansion.

Year

Tariff-Structure Alternatives
figure 7. The binomial tariff's impact on the penetration of
DG for low-voltage consumers. (Data source: EPE, 2018.)
46

ieee power & energy magazine

During 2018 and 2019, ANEEL held two public hearings to
discuss new tariff structures for low-voltage consumers and
may/june 2020

IEEE Power & Energy Magazine - May/June 2020

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - May/June 2020