Brazil aims to have nearly a quarter of its energy mix sourced from non-hydro renewables by 2030. Small scale renewable energy systems will be a key component of this effort as they provide cost-saving opportunities for energy consumers while allowing developers and funders to gain experience at lower risk than with large projects.
However, small scale renewable energy is still heavily constrained in Brazil due to high upfront costs and limited funding opportunities. Many financing facilities cater to large scale renewable projects, but very few target small systems, and virtually none match the specific cash flow characteristics for small systems.
The Distributed Generation for Cooperatives Fund aims to scale up distributed renewable energy by partnering with cooperatives.
The Distributed Generation for Cooperatives Fund aims to scale up distributed renewable energy (up to 5 MW) by partnering with cooperatives. There are nearly 7000 cooperatives in Brazil that together have 372,000 employees and 13,000,000 members. Cooperatives in agriculture, and other industries like transport, are good candidates for distributed generation because of favorable regulation through Brazil’s “shared generation” regulatory framework (ANEEL/RN 482) and because of relatively high and steady energy usage.
The instrument will combine a “Pay-per-use contract” with a “Two-part performance structure” – two elements that are absent in distributred energy financing in Brazil.
The “Pay-per-use contract” will enable projects through a discounting arrangement whose payments match the energy savings provided by the distributed generation systems (after discounts to clients). This will allow cooperatives to reap the benefits of distributed generation systems at no upfront costs and with no additional monthly expenses. In fact, it will provide 10-20% monthly savings on the cooperative’s energy bills from the start.
The “Two-part performance structure” will link generation performance to payments without overstepping Brazilian regulatory restrictions. Energy generation contracts with cooperatives are split between a fixed portion (based on the expected output of the system) and a variable portion (based on the performance of the system above that output). This shifts the generation risk from the cooperative to the fund..
The pilot instrument will mobilize USD 62 million in investments, reducing carbon emissions by 470 thousand ton CO2e and providing cost savings of nearly USD 26 million to cooperatives along its lifetime.
A pilot instrument is being developed in the state of Rio Grande do Sul in the south of Brazil, mobilizing USD 62 million and providing 23 MW of wind generation for 9 cooperatives. Project development will be handled by Renobrax (the proponent of the idea), guarantees will be provided by a local finance partner and promising fund managers, and implementation partners have already been identified. To implement the pilot, proponents seek USD 9 million of concessional capital, as well as start-up and due diligence funding. The pilot, which is expected to be operational by mid-2018, will provide 10-20% savings for cooperatives compared with existing energy bills, and a 12% real return for commercial investors while reducing 470 thousand tons of CO2e.
Overall, the instrument can change the dynamics of financing and investment of distributed systems at a comparatively low cost for donors and has significant scale-up potential.