Policy & Regulation

07 Jan 2022

Brazil Extends Controversial Coal Power Subsidy

07 Jan 2022  by   

Brazilian president Jair Bolsonaro signed a law granting a 15-year extension of a subsidy for coal power generation in Santa Catarina state, flying in the face of global efforts to reduce carbon emissions.

The law benefits the 857MW Jorge Lacerda coal generating complex by extending the subsidy — originally scheduled to expire in 2027 — to 2040.

Under the terms of the law, the government will continue to purchase power supply from the complex at above market prices.

The controversial measure — the latest aimed at breathing life into Brazil's dying coal industry — coincides with the start of an election year. Bolsonaro, a right-wing populist, is running for re-election in October.

The decision was criticized by business leaders, who called the extension of the subsidies a "move in the wrong direction".

"This law will make our power generation less renewable, and its approval means that Brazil will waste an opportunity to make our power matrix cleaner," Victor Iocca, electricity sector manager of Brazil's association of energy-intensive industries (Abrace), told Argus.

According to Abrace estimates, the cost of purchasing power from the Jorge Lacerda complex will reach R2.24bn ($404mn) a year, which is currently R840mn above the market cost of purchasing renewable power.

Iocca added that the new law only benefits one state – Santa Catarina – and federal public policies should favor national over local interests.

"Brazilian industry needs competitive energy and to transition to clean energy," Iocca said, adding that this law moves in the opposite direction.

Last year, the energy ministry launched a program to expand coal generation, with the goal of replacing aging plants with newer, less polluting technology to revive the country's coal mining industry, which is located mostly in southern Brazil.

Last year, France's climate-minded Engie sold the Jorge Lacerda complex to Brazilian investment company Fram Capital for R325mn.

Engie is hoping to close the sale of its remaining coal plant, 345MW Pampa Sul in Rio Grande do Sul state, early this year.

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