New decree on offshore power production published in Brazil

On January 25, 2022, a new decree (No. 10,946/2022) was enacted concerning the assignment and the use of the surface of Brazilian waters for offshore energy production. From a legal perspective, this decree is set to be fundamental for advancing offshore energy projects.

In order to give the market time to absorb and understand the new rules, the decree is not effective immediately, taking effect on June 15, 2022. Any assignment processes already in progress on the date the decree takes effect must be adapted to comply with its rules.

Usage and administrative controls

The decree gives Brazil’s Ministry of Mines and Energy (MME) the authority to enter into fixed-term administrative agreements on behalf of the Federal Government with parties interested in conducting research and technological development for public electric power services or electric power production. It also establishes mechanisms for assigning offshore areas for companies’ use.

Depending on the specific location of a given offshore area, either the MME or the Ministry of Economy’s Secretariat for the Coordination and Governance of Federal Property (SPU) will evaluate jurisdiction and assess whether the area has already been earmarked for another enterprise. The MME may also delegate authority to enter into assignment agreements and take necessary formalization measures to the National Electric Energy Agency (Aneel).

Agreement scope

The assignment agreements will cover the designated offshore area itself, as well as any federal land areas necessary for providing the enterprise with logistical support. Moreover, they will also cover the enterprise’s integration within Brazil’s National Interconnected System (SIN), though the MME still needs to regulate these integration procedures.

Assignment criteria

The assignment of offshore areas may be granted via two procedures:

• Planned assignment: the offer of MME-delimited offshore prisms to interested parties after consultation with Aneel and the Energy Research Company (EPE). In this case, contracting takes via a public bid;

• Independent assignment: the assignment of offshore prisms to parties that formally request to explore them. This assignment process requires an interested party to notify its purpose for using the desired area, along with its boundaries and geographic coordinates.

The MME may reject independent assignment applications if there is suspicion of the applicant’s intention to use the area for speculative reasons. Applicants that request particularly extensive areas, or applicants with other areas assigned to them or companies in the same economic group that have yet to be significantly exploited (low level of exploitation) could potentially fall under suspicion in this regard.

If the purpose of the agreement concerns power production, the assigned party will be subject to charges (onerous assignment), though if the purpose relates to research and development activities, assignment is free of charge. The agreement must include pricing and payment criteria, following guidelines that the MME will establish.

Offshore power production

Assignment agreements for offshore power production must provide for studies identifying the area’s energy potential, complying with MME-defined criteria and deadlines. These agreements are also required to include financial guarantees for commissioning and decommissioning facilities.

Contracting and bidding procedures

According to the approved model, the contracting procedure for assignment agreements should not be confused with the procedure for granting authorization for offshore power production. Under the terms of a Law No. 9,074 from 1995, Aneel will only grant authorization after studies have been carried out on the assigned area’s energy potential – in such cases, power plant operations will be conducted under the independent power production (PIE) or power self-production regimes.

At its discretion, the MME may hold specific bids for contracting offshore power when recommended by sectoral planning, the EPE’s planning studies or its Ten-Year Energy Expansion Plan, following focus and efficiency criteria.

Locations

The decree does not apply to potential hydroelectric energy sources located along river courses or drainage basins or activities linked with oil, natural gas, and other fluid hydrocarbon production.

Both Aneel and the Brazilian Agency for Petroleum, Natural Gas and Biofuels (ANP) will evaluate whether granting offshore prisms in areas coinciding with oil and natural gas exploitation or production.

According to the MME, one of the new decree’s objectives is to establish a regulatory framework for exploiting Brazil’s potential offshore power sources. The framework would help to clarify the necessary procedures for assigning and using offshore areas to generate electrical power, thus facilitating growth in Brazil’s wind power network.

The new decree’s consequences

Now that the new decree (which will be subject to future regulation) has been published, it is possible to envision greater openness and regulatory security for developing offshore wind energy in Brazil.

For more information on the impacts of the new decree, contact Mattos Filho’s Infrastructure and Energy practice area.

*The summary of this article is available in French, Japanese and Italian at this link.