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Energy efficiency risk analysis and policy in Brazil

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Abstract

One of the main barriers to the development of energy efficiency (EE) projects in Brazil is the decision-makers’ lack of knowledge about the risks of the projects. The Brazilian Government’s Procedures of Energy Efficiency Program (PROPEE) is currently one of the main sources of funding for energy efficiency (EE) projects. The method for evaluating the technical and economic feasibility of projects presented in PROPEE applies the traditional discounted cash flow (DCF) methodology to calculate the net present value (NPV). The energy price used in this model is a fixed value calculated through the postponement of investments (cost of avoided demand) and/or reduction of operating expenses (avoided energy cost). The avoided costs for a given voltage level are incurred throughout the power system, upstream of the consumption unit (view of the electrical system’s operator). The PROPEE’s methodology, applied on a large scale in Brazil, does not consider some technical uncertainties present in EE projects, nor the market uncertainty regarding the fluctuation of the energy price paid by the consumer units. This paper evaluates the investment risk of EE projects (consumer’s perspective) adopted by the Brazilian market, taking as example a large electricity consumer. A methodology is proposed, which, considering the technical and economic uncertainties, performs a more comprehensive and realistic analysis of the complex business scenario involving the EE projects. This case study considered the data collected by a team of independent engineers, for the first time in January 2009 and updated in January 2015, to assess the energy efficiency potential of a commercial consumer unit installed in the city of Rio de Janeiro and connected to the grid of local distribution level voltage 13.8 kV. This study demonstrates a model that made the risk management projects viable in energy efficiency demand-side management (DSM). However, it could also be applied in other markets as well. Understanding how the uncertainties affect decision-making in EE projects is essential for developing a more comprehensive outlook on constructive and regulatory perspective, contributing to the promotion of energy efficiency projects.

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Notes

  1. Independent operator responsible for the transmission of electric energy and for the dispatch of the generation of the National Interconnected System (SIN), guaranteeing the energy optimization.

  2. The marginal cost of operation is the addition to the minimum cost of operation of the system to meet a unit increase in consumption, with the marginal cost of operation measured in monetary units per MWh.

  3. ANEEL, Agência Nacional de Energia Elétrica—Brazilian regulatory agency for electricity.

  4. BRL, Brazilian Real

  5. Risk adjusted rate is the total rate of return of a risk asset μ = α + δ (capital gain plus dividends).

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Authors and Affiliations

  1. Pontifical Catholic University of Rio de Janeiro—PUC-Rio, Rio de Janeiro, Brazil

    Jose Eduardo Nunes da Rocha & Marco Aurelio Cavalcanti Pacheco

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  1. Jose Eduardo Nunes da Rocha
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  2. Marco Aurelio Cavalcanti Pacheco
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Correspondence to Jose Eduardo Nunes da Rocha.

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da Rocha, J.E.N., Pacheco, M.A.C. Energy efficiency risk analysis and policy in Brazil. Energy Efficiency 12, 2227–2239 (2019). https://doi.org/10.1007/s12053-019-09815-w

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