Energy in International Focus - Energy Regulation: reflection on the experiences of Brazil and the USA.

FGV Energia, with the support of the US Embassy, ​​realized a new edition of Energy in Focus on December 7th, 2016. The debate on Energy Regulation brought together experts from Brazil and the United States to reflect on the evolution of energy regulation in both countries in the face of challenges of decarbonization of the world economy and development of renewable energies. Colette Honorable, Commissioner of the Federal Energy Regulatory Commission (FERC), the federal regulatory agency that has responsibility for regulating the interstate transmission of electricity, natural gas and oil in the United States, participated in the event. The Brazilian bias was presented by the Chief of Cabinet of the National Agency of Petroleum, Natural Gas and Biofuels (ANP), Silvio Jablonski and the Director of the National Agency of Electric Energy (ANEEL), Tiago de Barros Correia. The consultant Nelson Narciso, from FGV Energia, moderated the discussion.

The panel was initiated with a presentation by Sílvio Jablonski, who explained that the ANP is the agency that executes the national policy elaborated by the Ministry of Mines and Energy (MME) and the National Council of Energy Policy (CNPE) for the oil sector, natural gas and biofuels, with a focus on ensuring the supply of fuel and protecting consumers' interests. It is part of this regular execution, contract and supervise the activities related to: upstream; refining, processing and production of derivatives (midstream); and supply and distribution (downstream) of fuels. It is expected that future production of domestic oil will increase due to increased exploration, especially in the pre-salt (Brazil will increase from 15º to 10º in proven oil reserves).

Despite this increase, the domestic supply of domestic energy will continue to be predominantly renewable, mainly due to the Brazilian ratification of the Paris Agreement. Biofuels, for example, will play an important role in meeting the targets for reducing future greenhouse gas (GHG) emissions - by 2015 the use of biofuels was responsible for avoiding the emission of 70 million tonnes of CO2 equivalent, which corresponds, in that year, to 6% of Brazilian emissions. Also contributing to the reduction of national GHG emissions will be the increase in the percentage of biodiesel blends in diesel, which may reach up to 15% after 2019, in addition to the increased use of bio-kerosene in aviation and organic biomethane in other applications.

In addition, oil and natural gas can help fight climate change. In the case of oil, the Pre-Salt Law determines that resources of the Social Fund, which was created with the purpose of constituting a source of resources for social and regional development, will be used, among other functions, for mitigation and adaptation to climate change . Regarding natural gas, its applicability as a source of firm and flexible energy in symbiosis with the renewables will help in the expansion of these sources in the electric matrix. In short, fossil resources can also help Brazil to decarbonise its economy.

Then, the director of ANEEL, Tiago de Barros Correia, also began his presentation explaining the functions of the agency in the regulation of the national electricity sector. The director clarified that the electric sector has already undergone two previous regulatory reforms, the last occurring after the rationing of electricity in 2001.

The current model, however, is saturated, necessitating updating due to the challenges that the electric sector is facing: less capacity on the part of the distributors to accommodate the expansion of generation; increase in the complexity and construction deadlines for the new hydroelectric, thermoelectric and transmission lines projects; and less availability of credit.

In addition, with the introduction and development of new technologies linked to energy transition (distributed generation, smart grids, electric mobility and energy storage by means of chemical batteries), the regulator is preparing to once again review the rules that regulate the sector . An update to the model is required because these new technologies have distinct attributes when compared to the technologies in the current model. In the case of distributed generation and chemical batteries, for example, their investment costs are much lower than those from centralized sources; its marginal cost of operation is zero; are technologies that have modularity, that is, the system can be expanded when necessary; their location constraints are low; bring positive externalities to the system (lower transmission costs, avoided emissions, among others); and are deployed in a short time. Regarding electric mobility, its introduction in the country will be a reality in the near future. The demand for electricity to recharge electric vehicles will grow, requiring new business models to deal with this technological change. Finally, smart grids will help ensure that all these technological advances occur in a safe and efficient way for users.

In this way, because of their rapid capacity to evolve over time, these new technologies need adaptive regulation so that they can develop fully. ANEEL therefore intends to initiate the reform of the regulation through the so-called Strategic R & D Project # 20: Enhancement of the Business Environment of the Brazilian Electricity Sector.

At the last presentation of the event, Colette Honorable, FERC commissioner, began her speech expressing the desire to expand partnerships and share experiences with energy regulators in Brazil. The commissioner said that the success that the US has had in introducing renewables and diversifying its energy matrix, and the way in which regulation has been modified when necessary to address the development of these sources, are experiences that they hope to share with the Brazil. Although regulation in both countries is different, she believes that Brazil and the US have a lot to learn from each other. Next, the commissioner explained what are the functions of the FERC - regulatory agency of the energy sector that is approximately a mix between ANP and ANEEL.

Just as in Brazil, due to market forces, public policies and the insertion of new technologies, the US electricity generation portfolio is undergoing a dramatic change. For example, in 2016, natural gas generation and renewable generation projects in terms of installed capacity are almost identical - 7371 MW of installed capacity for new gas projects went into operation by 2016, compared to 6383 MW of wind, solar , hydroelectric and biomass. This move towards greater participation of renewables in the matrix comes from society's desire to use cleaner sources of energy. To meet this demand, the FERC has been expanding the dialogue with society in order to guarantee the correct direction to follow.

Another technology being considered as the next big game changer is the storage of energy in chemical batteries. The FERC is therefore implementing measures to promote the development of this technology. With regard to natural gas, shale gas is in the US having the role of enabling the development of renewable energies. With this goal in mind, the FERC has implemented regulation to harmonize the gas and electricity industries. This important effort has helped the two industries to better coordinate their planning and information sharing, which are essential to ensure the adequacy of supply.

Finally, the Commissioner announced the signing of a Memorandum of Understanding between ANEEL and FERC in the areas of smart grids, energy storage and regulatory reform. In this way, both agencies will expand partnerships, share experiences and promote the development of renewable energies in order to encourage decarbonisation of the economies of both countries.

In summary, the debate held in this edition of "Energy in Focus" was an opportunity not only to discuss the peculiarities of the regulatory environments of the Brazilian and US energy sector, but also to expand cooperation among countries on a highly relevant issue for the global energy environment: the development of a low-carbon energy matrix.

Programming: 

Sergio Jablonski - ANP - Presentation

Tiago Correia - ANEEL - Presentation

Colette Honorable - FERC - Presentation