Brazil to allow renewables, including small hydro, to issue tax-exempted debentures

Projects in Brazil with environmental and social relevance, including those involving renewable power generation, will be able to issue tax-exempted debentures, after President Jair Bolsonaro signed a decree to this effect.

Until now, only renewable plants considered to be priority projects could issue the so-called incentive debentures. According to BNamericas, all small hydro, solar, wind and waste-to-power projects now are allowed to do so. The lower house of congress also recently started discussing a bill to reduce taxes on the profits of renewable power projects that use these financing mechanisms.

“This is a great incentive for the funding of those projects, but the country can also stimulate projects through other tax exemptions, such as PIS, CONFINS, ICMS and import taxes. Facilitating environmental licensing permits for biomass, wind power and solar power projects is another way to spur those investments,” Luciana Nazar, chief executive officer of consultancy Fineggi, told BNamericas.

The energy ministry estimates that Brazil will attract BRL170 billion (US$34 billion) in investments for renewable power projects in 2020 to 2029, adding 3 GW of small hydropower capacity, 25 GW of wind power plants and 8 GW of solar projects.

According to Nazar, the funding stimulus will not only aid the development of power generation projects but also support electricity dependent industries, such as mining and sanitation, for which power can amount to 30% of a project’s costs. Telecom industries, for example, have also shown further interest in renewable power supply in the country recently. “Those measures are important to enhance the attractiveness of investments. Helping power projects become cheaper will affect other sectors’ investments, as they also tend to become less costly,” she added.  

However, Nazar pointed out the importance of maintaining a stable political landscape to see the expected projects materialize. “Helping funding become cheaper and reducing taxes are ways to incentivize investments, but investors also look to the legal framework and the political landscape to analyze the attractiveness of a project. One factor is never isolated, so it is important to have stability,” she explained.

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