Regulatory aspects: Control and trust for the investor

*By Igor Maia Gonçalves, Lucas Ernesto Gomes Cavalcante and Rômulo Alexandre Soares, APSV Advogados

In the context of the development of infrastructure activities, an important legal aspect that must be considered in the legal modeling of an investment is the regulatory framework that governs the target market.

In Brazil, several sectors of the economy are regulated by the Government through control and standardization bodies, with an emphasis on regulatory agencies, which play this role together with other sectoral agents, organized in a complementary and hierarchical organization chart.

Within the Ceará market, electricity generation has been an important growth vector in recent decades, especially with regard to renewable matrices, where the state has always remained at the forefront of exploration in the country. Likewise, it is expected that the same role will be seen in the recent green hydrogen market, as well as in the implementation of offshore power plants.

Electricity Sector
Over the last three decades, a process of restructuring and privatization of the Brazilian electricity sector has taken place, transferring the activities of generation, distribution and transmission to the private sector, with a significant participation by foreign companies. In this model, the State remained in the role of watchdog and regulator of the sector, taking into account the public interest of this market.

A sectorial model was then conceived based on the segregation of the electric power service activities into four segments: generation or production, transmission, distribution and commercialization. The principle that came to govern the regulatory framework was that of free competition among sector agents, starting with the sector's de-verticalization. This change allowed the expansion of energy security in the national system and the management of market risks, as a strategy of the Federal Government to guarantee the supply of energy needed for the social and economic development of the country.

After the energy supply crisis experienced in Brazil in 2001, the Federal Government identified the need to give new guidelines to the sector. Among several measures, institutions linked to the Ministry of Mines and Energy were created with specific attributions to plan, monitor, evaluate the security of supply and conduct the commercialization of electricity within the National Interconnected System.

Thus, several institutions linked to the Ministry of Mines and Energy were created, which have specific management roles in the sector, such as the Energy Research Company (EPE) and the Electric Energy Commercialization Chamber (CCEE). Furthermore, as an important change in the guidelines of the new model, it is worth mentioning the greater autonomy granted to the National Electric System Operator, which is responsible for exercising control activities of the National Interconnected System (SIN), under the supervision and regulation of the National Energy Agency. Electric (Aneel).

Additionally, encouraging the diversification of energy sources proved to be an indispensable measure to ensure the Government's objectives in this area. As a result, thermal, wind and solar sources have gained prominence over the last few years, currently representing, together, almost 40% of the national generation.

The Brazilian energy market was divided into two contracting environments, directly linked to the consumption potential of the end users: captive consumers and free consumers.

Captive consumers are those who do not have the right to choose their supplier, acquiring electricity from the distribution company that is the concessionaire for their region and occurring within the so-called Regulated Contracting Environment (ACR).

Free consumers, on the other hand, are those authorized to choose their electricity suppliers, among those that offer them the best prices and conditions and, therefore, operate in the Free Contracting Environment (ACL).

In terms of the generation market in Ceará, the state currently has 5.3 gW of installed capacity, totaling 158 implanted enterprises, more than half of which are composed of production plants from wind and solar sources.

Green Hydrogen
In Brazil, several levels of government have been implementing initiatives to promote the hydrogen market. At the federal level, the National Energy Plan 2050 was launched in December 2020, which brings hydrogen as one of the axes for energy transformation in the country, besides the guidelines of the National Hydrogen Program, which aims at the economic development of this source through its use as an energy vector.

Thus, in view of the use of new technologies for the development of this still incipient market, with significant investments expected, it is necessary to create a legally propitious environment to accommodate the entire ecosystem that is intended to be implemented.

At the regional level, several Federative States are preparing to receive projects of this nature, especially Ceará, which has sought to maintain its leading role in the development of alternative sources of clean energy. To this end, in February 2021, Ceará launched a project to create a Green Hydrogen Hub, to be implemented in the Industrial and Port Complex of Pecem, having signed, until November 2022, 24 memorandums of cooperation with companies interested in the green hydrogen production and export market.

From the perspective of local legislation, the body responsible for implementing the Environmental Policy of the State of Ceará published, in February of this year, the criteria and parameters applicable to environmental licensing for green hydrogen production projects in the State, placing itself at the forefront of legislation to regulate this issue.

In this scenario, the legal certainty for the development of this market has been one of the main points of attention of the Government. As happened in 2002 with the creation of the Incentive Program for Alternative Sources of Electric Energy (Proinfa), the creation and adequacy of the Brazilian regulatory framework has been gaining the appropriate legal modeling for the operation of this market.

Other Notable Regulatory Agencies
In the scope of strategic markets for investment attraction in the State of Ceará, other regulatory agencies also have a direct relationship with the local industrial and corporate ecosystem, highlighted by the ones mentioned below.

National Water and Sanitation Agency (ANA)
A self-governing agency under a special regime, with administrative and financial autonomy, linked to the Ministry of Regional Development, responsible, at the federal level, for implementing and coordinating the shared and integrated management of water resources and regulating access to water, promoting its sustainable use for the benefit of current and future generations, implementing the national policy of dam safety and the national policy of basic sanitation.

National Electric Energy Agency (Aneel)
A self-governing agency constituted under a special regime, linked to the Ministry of Mines and Energy, which is responsible for regulating the generation (production), transmission, distribution and commercialization of electric energy; Supervising, directly or through agreements with state agencies, concessions, permits and electric energy services, implementing the policies and guidelines of the federal government with regard to the exploitation of electric energy and the use of hydraulic potentials, establishing tariffs, settling differences, in the administrative sphere, among agents and between these agents and consumers, and promoting the activities of granting concessions, permission and authorization for electric energy projects and services, by delegation of the Federal Government.

National Land Transport Agency (ANTT)
A self-governing agency under a special regime, which has its headquarters and jurisdiction in the Federal District, and is present throughout the national territory through Regional Units and Inspection Posts, responsible for regulating, supervising and inspecting the activities of service providores and operating the infrastructure of transport infrastructure, exercised by third parties, with the aim of guaranteeing the movement of people and goods, harmonizing the interests of users with those of concessionaires, permit holders, authorized and leasing companies, and of delegated entities, preserving the public interest, arbitrating conflicts of interest and preventing situations that constitute imperfect competition or infringement against the economic order.

National Telecommunications Agency (Anatel)
An entity that is part of the indirect Federal Public Administration, subject to a special autonomous regime and linked to the Ministry of Communications, responsible for adopting the necessary measures to meet the public interest and for the development of Brazilian telecommunications.

National Waterways Transport Agency (Antaq)
An entity that integrates the indirect Federal Administration, of a special autonomous regime, linked to the Ministry of Infrastructure, responsible for regulating, supervising and inspecting the activities of providing waterway transport services and the exploration of port and waterway infrastructure. ANTAQ is responsible for river, lake and crossing navigation; maritime support, port support, cabotage and long-distance navigation; the organized ports and the port facilities located therein; private use terminals; cargo trans-shipment stations; small public port facilities; and port tourism facilities.

National Petroleum, Natural Gas and Biofuel Agency (ANP)
A special agency that acts as the regulatory body for the oil, natural gas, derivatives and biofuels industry, under the Ministry of Mines and Energy, with the aim of promoting the regulation, contracting, and inspection of the economic activities that are part of the oil, natural gas, and biofuels industry.