This is an extract from a recent report “The Energy Transition in Brazil” published by IRENA.

Brazil’s primary energy objective is to ensure a sufficient energy supply to support its economic growth. Historically, the country has also been an energy importer, however. Therefore, to achieve the goal of supply security, the country has developed a series of public policies that focus on fostering competitive domestic solutions. These public policies have played a crucial role in diversifying energy sources, strengthening energy security and taking advantage of national resources. They have also resulted in a reliable, affordable and low-emissions energy mix for Brazilian society. 

Renewable Energy in Brazil

Up to the start of the 21st century, Brazil had focused on expanding generation and building hydroelectric plants, considering this strategy vital for the country’s development. Large projects, such as the 12,600 MW Itaipu hydroelectric plant – a joint Brazilian and Paraguayan initiative agreed in 1973 – exemplify this approach. However, artificially low tariff policies aimed at controlling inflation during the 1980s and 1990s and high international interest rates made financing hydroelectric projects increasingly difficult, especially during the 1980s. In addition, there were growing concerns about the socio-environmental impacts of large dam projects. Combined, these factors reduced the pace of installed capacity expansion. Following a global trend, the Brazilian electricity sector underwent successive reforms from the late 1990s onwards, focusing on increasing private sector participation. This restructuring led to a number of developments, including: the creation of regulatory agencies; deregulation policies emphasising free access to transmission networks; and the sector opening to new agents, promoting unbundling and privatising distributors. 

Despite these changes, however, the expected investment in expansion did not materialise. This led to the depletion of the system’s large hydropower reservoirs and eventually resulted in electricity rationing in 2001. Among the issues that this electricity crisis highlighted were: the need to diversify the energy mix; the need to reinforce transmission lines between regions of the country; and the need to improve government co‑ordination in the long-term planning of the sector and the environmental licensing of power plants. As a result, in 2004 Brazil adopted a new model for the electricity sector. This was based on the auction of long-term power purchasing agreements, long-term energy planning and improved governmental co‑ordination and governance. The main goals of the new model were to restore resource adequacy to investment, ensure energy security and attract private capital to the power sector. It aimed to do this by establishing a stable regulatory framework based on energy supply security, affordable tariffs and energy planning to meet demand growth. 

Power auctions

Since it was introduced, the power auction programme has played a crucial role in mobilising private investment. Between 2005 and 2024 the Brazilian government conducted more than 40 rounds of greenfield power project auctions, predominantly for renewable energy. One central aspect of fostering competition in these auctions was the appropriate design of the PPA. The MME/EPE and the Banco Nacional de Desenvolvimento Econômico e Social (National Bank for Economic and Social Development – BNDES) worked together to ensure a fixed-price sale of energy over the long term. This was indexed annually to consumer inflation, providing a stable revenue stream for energy projects. Power auctions and contracts have since evolved to include different risk allocations and delivery obligations for various energy sources. One notable example was the PPA for wind power projects during their initial stages of development in Brazil. The MME/EPE collaborated with the BNDES to formulate a mechanism to accommodate generation uncertainty, enhancing the financial viability of the projects and thereby boosting investors’ confidence.

In addition to technology-specific auctions, the government has also granted fiscal and cost incentives to less-mature renewables. These incentives have included tax exemptions on equipment and components, a reduction in the tariff for the use of transmission and distribution systems, and a band system that guarantees revenue within a generation limit of the energy contracted. Conditions for long-term finance from BNDES have also been adapted to the industrial supply chain associated with wind energy. This reform led to a diversified energy supply mix, reducing reliance on large hydropower plants and integrating significant contributions from wind, biomass and solar energy. Historically, the regulated market has driven renewable energy expansion in Brazil through public energy auctions that offer long-term, publicly traded PPAs. Yet recently, the free market has emerged as a fundamental alternative for wind and solar power projects. This became especially so after 2019, when BNDES implemented essential changes in its financial policies for projects in the free market.

Power transmission 

In its efforts to ensure power transmission expansion, Brazil’s historical preference for large hydropower projects also led to the expansion of the power transmission system. This is because the locations of the hydropower plants were typically distant from the country’s main load centres. Centralised transmission planning then ensured interconnection and enabled energy transfer between regional electricity systems, known as sub-systems. This approach also allows for the diversity among hydrological and wind regimes in different parts of the country to be exploited. Increasing socio-environmental and land-use concerns have, however, posed significant obstacles to expanding the transmission network to the degree necessary to accommodate not only hydropower plants but – more recently – wind and solar power projects. These renewable sources are also often located far from existing transmission infrastructure. 

Yet, while the timelines for constructing wind and solar plants are becoming shorter due to their smaller scale, socio-environmental and land-use concerns continue to impact the timely development of transmission networks. As a result, in order to avoid misalignments between generation and transmission, critical studies on expanding regional interconnections have been undertaken. These have considered the evolution of the socioenvironmental aspects of the transmission project corridors deemed necessary to facilitate the integration of significant amounts of renewable energy from distant regions. Furthermore, transmission planning studies have played a critical role in proposing solutions to transmission bottlenecks that have prevented the integration of renewable energy sources into the main grid.

Government Co‑ordination

Institutional governance of the power sector in Brazil is relatively complex and relies on several bodies. The Conselho Nacional de Política Energética (National Energy Policy Council – CNPE), a cabinet-level advisory board to the country’s president, sets Brazil’s primary energy directives. Co-ordinated by the MME, the CNPE proposes the national energy policy and the country’s reliability criterion for the power sector. It also indicates which power plant projects are deemed strategic and in the public interest.

The other leading authorities in the power sector are:

• The MME, which formulates and implements energy policies approved by the CNPE and oversees the energy sector – although it delegates some authority to other regulatory agencies. 

• The Agência Nacional de Energia Eléctrica (National Electricity Agency – ANEEL) regulates the electricity sector, managing service standards, tariff regulation, power auctions, and grants for research and energy-efficiency projects. 

• The Operador Nacional do Sistema Eléctrico (National Grid Operator – ONS) handles power plant dispatch and short-term transmission planning under ANEEL’s oversight. 

• The Câmara de Comercialização de Energia Elétrica (Electric Energy Commercialisation Chamber – CCEE) manages power trading, conducts energy procurement auctions, and oversees market settlements in the Brazilian power system. 

• The Empresa de Pesquisa Energética (Energy Research Office [EPE]) supports the MME with technical studies for energy planning, hydropower licensing and project qualification for power auctions. 

• The Comitê de Monitoramento do Setor Elétrico (Power Sector Monitoring Committee – CMSE) is co-ordinated by the MME and monitors short-term power supply. It can also override ONS dispatch decisions for energy security. 

Resource adequacy in the long term is addressed through regular long-term studies conducted by the EPE. It does this under an integrated energy planning approach in support of MME policies and CNPE directives.

Incentives for Renewable Energy Resources

Specific programmes: One of Brazil’s first measures to encourage new renewable energy sources, the Programa de Incentivo às Fontes Alternativas de Energia Eléctrica (Programme for Alternative Sources of Energy – PROINFA) was a feed-in tariff scheme implemented in 2002 to promote wind, biomass and small hydroelectric plants. Although the PROINFA’s contracted power volumes were lower than expected, the programme did play a crucial role in the expansion of variable renewable energy (VRE) in Brazil. This was for two main reasons. First, the programme marked the country’s first large-scale introduction of wind technology. Second, it led to large-scale project finance for these technologies for the first time in Brazil. The BNDES was instrumental in this, structuring PPAs and providing finance guarantees for PROINFA. By helping projects’ de-risk and attract finance, PROINFA was fundamental in paving the way for the implementation of the power auction mechanism since established and allowed for the development of a local supply chain

Technology-specific power auctions: Brazil has used technology-specific power auctions to promote renewable technologies such as wind and solar power. The first specific auction for new renewable energy projects was held in 2007. However, no wind energy projects were successful at that time. Learning from this experience, a dedicated auction for wind power took place in 2009. This contracted 71 projects with a total 1 805 MW of capacity. Several factors contributed to the success of the 2009 wind-specific auction. These included:

• discounts on the tariff for the use of transmission and distribution systems;

• an attractive ceiling price; 

• tax incentives, such as the Regime Especial de Incentivos para o Desenvolvimento da Infra-Estrutura (Special Incentives Programme for Infrastructure Development – REIDI):

• exemptions, such as on wind energy equipment purchases; 

• favourable financing conditions from BNDES ; and 

• a guaranteed revenue mechanism for a generation within a band of the contracted energy.

Other technology-specific auctions for wind power and solar power were held during the 2010s. Due to increased price-competitiveness, however, specific auctions for only solar and/or wind were no longer conducted after 2018. 

Tariff discounts: Since 2002 in particular, tariff discounts have been widely used to encourage renewable energy adoption. Law 10.438 of 2002 – which established PROINFA – also contained a reduction of at least 50% in the tariff for the use of transmission and distribution infrastructure for small hydro, wind and biomass energy projects, paid for by final consumers through a tariff surcharge. The successful expansion of renewable energy, however, resulted in a rapid increase in tariff surcharges, as final consumers paid these discounts. Consequently, questions about the necessity of subsidies for highly competitive energy sources led to changes in legislation, such as Law 14.120/2021, which established deadlines for these benefits.

Tax benefits: REIDI was established in 2007 and implemented exemptions from some federal taxes on goods and services for energy projects, including wind and solar PV plants. The REIDI initiative aimed to alleviate tax burdens and encourage infrastructure development. Other federal incentives to attract investments in the semiconductor and solar PV industries were offered through specific programmes. One such was the Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de Semicondutores (Semiconductor Industry Technological Development Support Programme – PADIS) for the technological growth of the semiconductor industry. Federal and state-level tax reliefs, alongside regulatory incentives, were also fundamental to the expansion of small distribution generation systems in Brazil, particularly for solar PV.

Overview of Current Energy Transition Efforts

While it already has a relatively high share of renewable energy in its energy mix, Brazil is taking further steps to collaborate with global energy transition efforts. For decades, Brazil has developed and implemented a comprehensive methodology in its long-term strategy – one that effectively combines climate and energy considerations. Through strategic planning, the country has set a precedent in aligning its climate goals with national energy strategies, ensuring its path to sustainability is ambitious and pragmatic. This legacy of combining climate and energy planning has informed the country’s high ambitions ever since its first Nationally Determined Contribution (NDC) in 2016, in which it proposed an absolute reduction in the country’s GHG emissions. This policy is at the core of Brazil’s current energy transition efforts. These continue to focus on energy security within the framework of energy affordability, inequality reduction and the fight against the adverse effects of climate change. In this regard, the country aims to benefit from opportunities related to the global energy transition effort, attracting more investment, promoting sustainable development and achieving significant participation in the global economy through low-carbon intensity products. 

Plans

The Climate Plan: The Plano Nacional sobre Mudança Climática (National Plan on Climate Change) is a key instrument of the PNMC and currently under development. Defined by the Interministerial Committee on Climate Change – Brazil’s highest climate governance body – the Climate Plan’s objective is to guide the transition to a net-zero GHG emissions economy by 2050. It aims to do this by promoting and monitoring co‑ordinated actions related to mitigation and adaptation strategies and their sectoral policies. One central instrument of the Climate Plan is the Climate Fund. This was established to provide financial support for GHG emissions reduction projects and facilitate climate adaptation. Managed by the Ministério do Meio Ambiente e Mudança do Clima (Ministry of the Environment and Climate Change – MMA) and the BNDES, the fund offers direct financing with reduced rates and terms of up to 25 years. Despite capacity challenges in execution and fluctuating investment levels, in 2023 the Climate Fund underwent a significant reform aimed at expanding its financing capabilities. This reform enabled Brazil to issue its first sustainable sovereign bonds, which have raised USD 4 billion over the last two years. 

The PLANTE: One of the main instruments of the PNTE, the PLANTE is a comprehensive long-term action plan addressing energy transition scenarios, net-zero emissions goals and socio-economic development. Co-ordinated by the MME and with the support of the EPE and other ministries, the PLANTE has a number of goals, including: 1) to articulate Brazil’s energy transition ambitions clearly; 2)  to consolidate federal energy transition initiatives; 3) to identify any additional efforts needed; 4) to attract investments; and 5) to align with the Climate Plan and subnational initiatives. The PLANTE is to be implemented over four years, with revisions. The plan will adopt sectoral and transversal approaches to advance energy transition across a variety of economic sectors, including industry and transport. The PLANTE will also contain legal, regulatory, investment and social dimensions. The plan will also be supported by a forum consisting of representatives from government, civil society and the productive sector, ensuring diverse participation and accountability.

The ETP: Supporting the implementation of the Climate Plan, the ETP is an investment plan aiming to promote sustainable development based on technological innovation and the rational use of natural resources. In this regard, it will encourage and support the development and incorporation into production processes of innovative technologies, as well as the modernisation of the manufacturing sector. The ETP consists of two main financial mechanisms: the Plataforma Brasil de Investimentos Climáticos e para a Transformação Ecológica (Sustainable Investment Platform for Ecological Transformation, also known as Plataforma Brasil Invest – BIP) and Eco Invest Brasil. Both mechanisms were set up to achieve two main goals: to channel investments in the development and transfer of technology; and to build capacity in sustainable finance, the bio-economy, agricultural and food systems, energy transition, the circular economy, and new green infrastructure for adaptation. 

New Industry Brazil: The widespread availability of inexpensive, clean electricity is a key advantage for Brazilian manufacturing. This potential for “powershoring”, in which industries relocate to take advantage of an expanded Brazilian clean grid, can position the country as a leader in a variety of sectors. These include low-carbon steel, fertilisers, sustainable aviation fuels (SAF) and machinery manufacturing for wind and battery supply chains. In order to realise this green industrial potential, Brazil depends on various ministry-led transition plans, particularly Nova Indústria Brasil (New Industry Brazil). This sets out a number of ways to encourage production and investment in specific firms and sectors. The plan’s primary innovation is that it organises economic sectors around “missions” that emphasise the inter-sectoral synergies necessary for their achievement. To support these missions, Brazil has pledged significant funding, complemented by policies such as subsidised credit, tax breaks and preferential procurement favouring national products. Despite the promising initiatives, however, the New Industry Brazil policy faces challenges in co‑ordination and execution. Achieving its green industrial potential requires enhanced stakeholder collaboration and a focus on long-term strategic goals to build a competitive ecosystem.

Regulatory Initiatives

The Brazilian Emissions Trading System: After almost a decade of congressional debate, in 2024 Brazil approved a pivotal legal framework regulating the carbon market. This was a significant step toward decarbonising the country’s economy. The legislation introduced the Sistema Brasileiro de Comércio de Emissões (Brazilian Emissions Trading System – SBCE) to align the country’s economic development with its climate goals. The SBCE is a cap-and-trade system that sets emissions limits for various sectors. Companies that exceed these limits must purchase allowances or credits. This incentivises them to reduce emissions and advance Brazil’s commitments under international climate agreements. The SBCE divides the carbon credit market into regulated and voluntary sectors. The regulated market encompasses public initiatives and mandates emissions reporting and reduction plans. The voluntary market allows private transactions for carbon offsetting without affecting national emission accounts. The regulated market involves trading emissions quotas and certificates for verified emissions reductions or removals. Companies emitting between 10 000 tCO2eq and 25 000 tCO2eq must submit an emissions monitoring plan, provide annual emissions reports and comply with other specified obligations. Those exceeding 25 000 tCO2eq must also submit a yearly reconciliation report.

The Low-Emission Hydrogen Law: Brazil is considered highly promising as a location for hydrogen production through water electrolysis using renewable sources, such as wind and solar. Other hydrogen production routes through the conversion of biomass also hold potential. To fully capitalise on these emerging opportunities in the hydrogen market, the federal government launched the Programa Nacional de Hidrogênio (National Hydrogen Programme – PNH2) in 2022. More recently, it also enacted Law 14.948/2024, which established the legal framework for low-emissions hydrogen. This framework sets the foundation for a national low-emissions hydrogen policy, outlining its principles, objectives, governance structures and instruments for encouraging industry growth. The Regime Especial de Incentivos para a Produção de Hidrogênio de Baixa Emissão de Carbono (Special Incentive Regime for Low-Emission Hydrogen Production – Rehidro) and the Programa de Desenvolvimento do Hidrogênio de Baixa Emissão de Carbono (Low-Emission Hydrogen Development Program – PHBC) are central instruments in moving the industry forward – in low-carbon steel and fertilisers in particular – through targeted incentives and development initiatives. In addition, the law has established a national fund to support the energy transition through low-emission hydrogen, further underscoring the government’s commitment to this clean energy source. This is due to the technological maturity of electrolysers and the competitive costs of renewables in Brazil. Challenges remain, however, particularly in the economic viability of electrolysis.

The Fuel for The Future Law: The approval of the Lei dos Combustíveis do Futuro (Fuel for the Future Law) No. 14.993, on 8 October 2024 marked a significant step in the promotion of sustainable low-carbon mobility and the capture and geological storage of CO2 in Brazil. The law contains several key initiatives, including the Programa Nacional de Combustível Sustentável de Aviação (National Programme for Sustainable Aviation Fuel – ProBioQAV), the Programa Nacional de Diesel Verde (National Green Diesel Programme – PNDV), and the Programa de Descarbonização do Produtor e Importador de Gás Natural e de Incentivo ao Biometano (National Programme for the Decarbonisation of Producers and Importers of Natural Gas and the Promotion of Biomethane). With its solid foundation in biofuels, Brazil continues to prioritise them through programmes such as the Política Nacional de Bicombustíveis (National Programme for Biofuels – RENOVABIO) and the Programa Nacional de Produção e Uso do Biodiesel (National Programme for the Production and Use of Biodiesel – PNPB). While biofuels remain a focal point, the country also recognises the role of electricity as an alternative in the decarbonisation of specific niches in road transport, such as urban buses, commercial vehicles, light trucks for last-mile delivery and premium light-duty vehicles.

The Offshore Wind Energy Law: Brazil has one of the world’s most significant offshore wind resources, with an estimated technical potential of approximately 1200 GW. During COP28 in 2023, Brazil joined the Global Offshore Wind Alliance, reinforcing the country’s commitment to the development of its offshore wind industry. In December 2024, after three years of deliberation, the Brazilian Congress then approved a law establishing the legal framework for the country’s offshore wind energy strategy. The primary objective of the law is to set guidelines for the auctioning of lease areas for energy potential assessments, facilitating research and identifying future sites for offshore wind development. Notably, the law does not include any provisions for subsidies, energy auctions, or procurement measures to support offshore wind generation. Nonetheless, the Brazilian Wind Trade Association expects that the approved framework will foster the country’s offshore wind development. This, in turn, is expected to encourage the establishment of a robust local supply chain, enabling the production of wind turbine components, cables and other essential materials. This would create opportunities for a variety of domestic industries, including marine, ports and steel, as well as other related technologies.

Access the report here