Energy Policy 108 (2017) 292298

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Analysis of the economic viability of a photovoltaic generation project MARK

applied to the Brazilian housing program Minha Casa Minha Vida

A.M. Valea, D.G. Felixa, M.Z. Fortesa, , B.S.M.C. Borbaa, B.H. Diasb, B.S. Santellia
a
PPGEET Fluminense Federal University (UFF), 24210-240 Niteri, RJ, Brazil
b
Federal University of Juiz de Fora (UFJF), 36036-330 Juiz de Fora, MG, Brazil

A R T I C L E I N F O A BS T RAC T

Keywords: In Brazil, distributed grid-connected solar photovoltaic (PV) plays an increasingly role due to advances in PV
Photovoltaic systems technology, combined with decreasing capital costs and subsidies. Therefore, this paper aims conduct an
Economic analysis economic analysis of two projects in Minha Casa Minha Vida (MCMV) governmental program, one in the state
Distributed generation So Paulo and the other in the state of Piau, using distributed photovoltaic power generation. The MCMV is the
Social housing program
Brazilian government's housing program that gives access to home ownership to low-income Brazilians in urban
and rural areas. Such analysis was undertaken by the evaluation of the net present value (NPV) and internal rate
of return (IRR), considering a Minimum Attractive Rate of Return (MARR) and by varying the annual growth of
energy taris over 25 years of operation, which represents the expected lifespan of solar panels. These two cities
were chosen because their federal states have dierent actions with respect to tax matters. Such dierence, in
particular, will be examined and explored in this article. Results show that even though Piau presents a higher
average solar radiation than So Paulo, the impact of ICMS exemption guarantees an advantage of investing in
So Paulo.

1. Introduction
On the one hand, extensive integration of distributed generation
(DG) from renewable sources in the distribution systems causes
negative impacts on the operation and power quality of power system,
since these networks were not originally designed to support bidirec-
tional power ow (Rampinelli, 2010; Anaya and Pollitt, 2015; Obi and
Bass, 2016). Several researches have been developed to analyze DG
penetration based on dierent characteristics, such as: control techni-
ques when there are non-linear loads (Ouchen et al., 2016), fault
detection algorithm for grid-connected plants (Dhimish and Holmes,
2016) and energy performance evaluation for PV grid-connected
systems (Davi et al., 2016).
On the other hand, the energy losses, environmental costs, distance
from large hydroelectric power plants, and the need to stimulate clean
energy production increase the investment in alternative generation
sources close to consumers (Rampinelli, 2010; Hoke and Komor, 2012;
Colmenar-Santos et al., 2016). In Brazil, electricity generation is
predominantly based on hydropower, which contributed with
373.4 TWh, i.e. 63.2% of the total generation in the country in 2015
(EPE, 2016). However, unstable climate conditions, such as the recent
drought period that reduced signicantly the hydro generation and also
environmental constraints, such as severe limits in reservoirs size
reduced new installed capacity of hydropower plants, decreasing the
hydropower contribution to the electricity matrix (from 75.2% in
2012). The gap was lled, in part, by thermal power plants (coal,
diesel oil, natural gas, nuclear and biomass), and wind generation,
representing higher costs and losses.
In Brazil, the National Electric Energy Agency (ANEEL) published
the Normative Resolution 482/2012 in order to establish the general
conditions for distributed generation grid access and net metering
mechanism for the energy generated by the consumer. Among dis-
tributed generation technologies, solar photovoltaic (PV) plays a major
role due to advances in PV technology, combined with decreasing
capital costs and subsidies.
Furthermore, in 2015, the federal government created a program
directed toward a DG stimulus in Brazil, called ProGD. This program
enabled the creation and expansion of lines of credit and project
nance possibilities to legal entity for the installation of distributed
generation systems. Another strong impetus for the development of the
DG market also occurred in 2015, with the revision of ANEEL
Normative Resolution 482 (ANEEL, 2012), the ANEEL Normative

Corresponding author.
E-mail addresses: allanmvale@gmail.com (A.M. Vale), deividsonfelix@gmail.com (D.G. Felix), mzf@vm.u.br (M.Z. Fortes), bborba@id.u.br (B.S.M.C. Borba),
bruno.dias@ufjf.edu.br (B.H. Dias), santelliengenharia@yahoo.com.br (B.S. Santelli).

http://dx.doi.org/10.1016/j.enpol.2017.06.001
Received 19 September 2016; Received in revised form 7 May 2017; Accepted 1 June 2017
0301-4215/ 2017 Elsevier Ltd. All rights reserved.
A.M. Vale et al.
687 (ANEEL, 2015). This resolution established conditions and
incentives for DG in the next few years, resulting in a signicant
increase in the micro and minigeneration distributed in Brazil, mainly
through photovoltaic technology. According to ANEEL (2017), the
installed capacity of distributed PV systems increased from 3.9 MW, in
2014, to 58.7 MW, in 2016.
It is also worth mentioning a recent policy regarding nonconven-
tional renewable energy sources for low-income households. It is the
program called Minha Casa Minha Vida (MCMV), a federal program
to fund housing to poor and middle class people (Melo et al., 2016).
Within this program, about 1000 units of solar PV systems were
installed (EPE, 2015).
These recent developments regarding regulations and nancial
incentives are important initiatives to promote PV in Brazil. Thus,
conducting technical and economic feasibility studies of projects that
promote the installation of photovoltaic generators close to loads in low
voltage distribution networks is of utmost importance.
It is relevant to note that several energy eciency studies focus only
on reducing housing consumption. Among these, one can mention the
assessments of opportunities and barriers to energy eciency in social
housing (Bodach and Hamhaber, 2010), power quality analysis of
domestics lamps used in homes (Pereira et al., 2015) and cost of energy
eciency in buildings (Chegut et al., 2016). The installation of mini /
micro DG's is an alternative to contribute with the context of ecient
energy use.
Dierent methods have been used to evaluate investments in
energy related problems. Muoz et al. (2009) presents a risk-return
model based on the Internal Rate of Return (IRR) to evaluate renew-
able energy investments. In this work four dierent kinds of energy
generations are evaluated: thermo electrical, mini hydro, PV and wind,
considering the Spanish power system. This paper presents a model to
optimize a portfolio considering the risk-return through an ecient
frontier method delineating the importance of each generation source
in dierent scenarios. The IRR is also used in Rodrigues et al. (2017)
together with the Net Present Value (NPV) and the Discounted Payback
Period (DPBP) to evaluate the investments on residential PV system
under new regulation in China, considering dierent regions. This
study shows that new regulation has increased the renewable energy
appliances in residences and delineates the regions with the best
return. Koo (2017) uses the IRR and NPV to evaluate the incentives
and the Clean Development Mechanism impacts in Koreas renewable
energy development considering solar, hydropower, wind and landll
gas projects. A study presented by McHenry (2012) uses NPV to
compare dierent installed capacity grid-connected PV systems in rural
home in Western Australia. This paper shows that even considering
governmental subsidies the energy cost of this system is worse than just
using energy from the grid. On the other hand, Kaschub et al. (2016)
also used the NPV as the base to evaluate the investment on residential
PV, as well as storage system showing the feasibility of this composed
system in the medium term.
A review of the energy return on energy invested (ERoEI) and
energy payback time (EPBT) of solar PV systems is presented by
Bhandari et al. (2015). A common practice is to evaluate at least two
investment analysis techniques in the same study. As an example, such
approach has been undertaken to evaluate PV systems in Tao and
Finenko (2016) and Zhang et al. (2015).
Therefore, this paper aims conduct an economic analysis of two
projects in Minha Casa Minha Vida (MCMV) governmental program,
one in the state So Paulo and the other in the state of Piau, using
distributed photovoltaic power generation. Such analysis was under-
taken by the evaluation of the net present value (NPV) and internal rate
of return (IRR), considering a Minimum Attractive Rate of Return
(MARR) and by varying the annual growth of energy taris over 25
years of operation, which represents the expected lifespan of solar
panels. Whereas in So Paulo, the Jardim Nosso 5 residential, located
in the city of Barra Bonita and has 510 housing units of a one-store
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Energy Policy 108 (2017) 292298
house, was chosen, in the state of Piau, the Novo Jenipapeiro
residential, located in the municipality of Piripiri and containing 150
houses, was elected. These two cities were chosen because their federal
states have dierent actions with respect to tax matters. Such dier-
ence, in particular, will be examined and explored in this article.
The remainder of this article is structured as follows. Section 2
describes the Brazilian governmental housing program Minha Casa
Minha Vida and the regulation related to micro PV generation in Brazil.
Section 3 presents the main methodology used including cash ow, IRR
and NPV analysis. Section 4 depicts the main results of the PV policy
impact on the MCMV comparing two regions of the country. Finally,
the conclusions and Policy implications derived from the proposed
studies are presented.
2. Minha Casa Minha Vida (MCMV)
The MCMV is the Brazilian government's housing program that
gives access to home ownership to low-income Brazilians in urban and
rural areas. It is a strategy to provide decent housing, while generating
jobs and income through increased investment in the construction
sector (MCMV, 2016). The program arose in 2009, establishing a new
strategy to promote the purchase of housing through subsidy
(Ministrio das Cidades, 2013) and to generate employment opportu-
nities for the construction industry and urban infrastructure.
A historical account of Brazilian government programs focused on
the nancing of housing units, presented in Klink and Denaldi (2014),
can be divided in four major stages, namely: industrialization and
experimentation (19301964), late-roll out under the technocratic
developmental state (19651985), rolling-back and creative destruc-
tion (19852000) and reformist urban developmental nance (after
2000). Moreover, the integration of policy and economy for housing
programs in Brazil and especially the MCMV program is discussed in
Valena and Bonates (2010).
The MCMV was divided into three phases. The rst phase con-
templated a million houses for families with incomes up to ten
minimum wages. The initial funding for the program amounted to $
10.8 billion and was divided by regions of the country, according to the
estimated housing decit: 37% for the Southeast, 34% in the Northeast,
12% for the South, 10% for the North, and 7% in the Midwest
(Ministrio das Cidades, 2013). In the second phase of MCMV, the
values of the income levels were adjusted and improved in accordance
with the specications of the housing units. The income gures were
segmented as follows: track 1 - families with income up to $ 507.90 per
month; track 2 - families with income up to $ 984.10 per month; and
track 3 - families with income between $ 984.10 and $ 2571.43 per
month; as well as families in rural areas (Ministrio das Cidades,
2013).
The third phase of the program aims to build another 2 million
homes by 2018, with an investment of $ 66.86 billion. Again, the values
of the income brackets were adjusted to allow more families to access
the program. Track 1 is limited from $ 507.90 to $ 571.40 per month.
Track 2 goes from $ 1039.68 to $ 1142.86 per month. Track 3 admits
families with income of up to $ 2063.49 per month, an amount that
was previously $ 1587.30 per month. The maximum values of the
properties have been updated due to increased construction costs and
incremented improvements in this phase of the program. Track 1 goes
from $ 24,126.98 up to $ 30,476.00 and on tracks 2 and 3, the limit
value goes from $ 60,317.50 to $ 71,428.57. This new phase of also
created another income track, called 1.5, to families with income up to
$ 746.00 per month. In the track 1.5, the property will cost up to $
42,857.00 (Portal Brasil, 2016).
In track 1, 90% of the property value will be subsidized, and
according to their income, beneciaries will pay monthly installments
of $ 85.70, interest free for 10 years. In track 1.5, the subsidy is up to $
14,286.00, and the nancing of the remaining balance will be made
with 5% interest per year. Track allowance 2 will be up to $ 8730.00,
A.M. Vale et al.
according to the income and location, with interest ranging from 6% to
7% per year. In track 3, funding will have an annual interest of 8.16%
(Portal Brasil, 2016).
Throughout the three phases of MCMV, the buildings became larger
and incorporated more items of sustainability, such as aerators taps,
ush valves with dual drive, presence sensors for lighting common
areas, water pumps with certied eciency, and alternative systems to
solar heating. The housing units are either single-store houses or
apartments. A basic description of the housing unit structure is
presented in Paulsen and Sposto (2013) and summarized as: masonry
(the walls (both external and internal) are made of red ceramic blocks
with a thickness of 14 cm and a layer of plaster (cement, lime and sand)
of 2.5 cm on each side. The nal upper row of ceramic blocks has a
channel lled with reinforced concrete. All masonry surfaces have had
a nal treatment with a sealer and then painted), roof (The roof is made
of a wooden structure with a surface of ceramic tiles. The ceiling is a
freehanging structure of PVC-sheets), oor (The oor is made of a
concrete layer with a 5 cm thickness, and all oors are covered with
ceramic oor plates) and, doors and windows (The external doors and
windows are metal framed and with a steel grating. The internal doors
are made of wood) (Ministrio das Cidades, 2016).
The increased MCMV is a reection of the increase in the popula-
tion, which leads to an increasing demand for housing; consequently,
the energy matrix needs to accommodate this growth. The Brazilian
government has been seeking alternatives to boost the integration of
renewable sources in its energy matrix, especially solar energy. The
photovoltaic generation segment is important for Brazil, and new ways
to encourage the industry should be pursued.
In November 2015, the National Electric Energy Agency (ANEEL)
made some changes in the rules for distributed generation using
renewable sources. The grid-tied DG with installed capacity of less
than or equal to 75 kW is now considered to be a distributed micro
generation unit when connected to the low voltage network. A DG with
an installed power greater than 75 kW and less than or equal to 3 MW
is dened as a mini generation when connected to the low or medium
voltage network. With the new Normative Resolution No. 687, there is
a possibility of sharing generation in a group of consumers within the
same area of concession-permission through a consortium or coopera-
tive. If it holds micro or mini DG in a dierent location than the
consumption, the energy can be used as compensation in any of the
units. The energy credit in the net metering system is valid for 60
months (ANEEL, 2015).
To deepen the actions taken in stimulating distributed generation
and to propose new measures, the Working Group ProGD was created
in 2015. It is composed of representatives of the Ministry of Mines and
Energy (MME), the National Electric Energy Agency - ANEEL; the
Energy Research Company (EPE); the Center for Energy Research
(Cepel); and the Electric Energy Trading Chamber (CCEE). Among
these actions, we highlight the objective of ProGD (ANEEL, 2015):
The creation and expansion of credit lines and forms of project
nancing for the installation of systems of generation distributed;
The promotion of investments attraction, national and international,
and encouraging the transfer and nationalization of competitive
technologies for renewable energy; and
The promotion of training and development of human resources to
work in all the productive chain links of renewable energy.
The ProGD was important for the process of creating policies and
fostering the expansion of distributed generation adopted in 2015, such
as the exemption of ICMS and PIS/COFINS (Brazilian Taxes). The
consumer will be taxed with Goods and Services Taxes (GST) only on
the balance of energy that it receives from the distributor and not be
able to compensate, in addition to not pay VAT, will also be exempt
from PIS/PASEP and COFINS energy injected by the consumer on the
grid and not compensated (MME, 2015).
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Energy Policy 108 (2017) 292298
3. Methodology
The main goal of this study is to determine whether the installation
of photovoltaic systems is economically feasible in MCMV residences in
two Brazilian states, So Paulo and Piau. So Paulo was chosen
because it has the largest number of homes built by the housing
program and it relies on tax incentives for distributed generation
(MCMV, 2016). On the other hand, Piau is one of the Brazilian states
that do not have tax incentives for distributed generation, but it has
greater potential for photovoltaic solar generation (Martins et al.,
2012). A comparison between these regions will show how much the
tax incentives inuence the nancial return of the PV system.
This research does not consider the characteristics desired by
residents in social housings, but the typical housing model proposed
by the MCMV. There is a specic research addressing the most valuable
items for the future resident of a social housing in Brazil (Kowaltowski
and Granja, 2011). Other important point to be highlighted is that this
research has not considered sustainability and quality of life issues
when choosing the local to analyze the project as exploited in
Kowaltowski et al. (2006), but only economic aspects considering tax
incentives.
Eq. (1) is used to estimate the energy needed to supply the
residence's own consumption and the SunData program for solar
irradiation in the two regions. For simplicity, it is assumed that the
installed PV modules would be facing north with a great slope, which
corresponds to the latitude of the location chosen, so as to obtain the
largest possible radiation. Solar irradiation is dierent from one place
to another, yet we have chosen to standardize the system with an
installed capacity of 2.1 kWp; thus, it will be able to meet the
requirements of the two projects.
EA = EsAp pTD3012 (1)
where EA represents the annual energy produced by the system [kWh/
year]; ES the daily energy received by the sun [kWh/day.m2]; AP the
panel area [m2]; P represents the panel conversion eciency [%] and
TD the performance rate system [%].
3.1. Features of the PV system
For this study, we chose to use a polycrystalline photovoltaic module
250 Wp. This has a type "A" rating on National Energy Conservation
Labeling (ENCE), according to the Brazilian Labeling Program (Programa
Brasileiro de Etiquetagem PBE). These energy performance standards
have been adopted in Brazil after the publication of the Law 10.295/2001
which regulates the eciency of equipment in Brazil and the ENCE label
was implemented in 1993. Some concepts and the evaluation of the energy
impacts of the Energy Eciency Law in Brazil can be achieved in Nogueira
et al. (2015). In Brazil the labeling program includes refrigerators, lighting
devices, electric motors, gas stoves, gas ovens, water heaters gas, washing
machines, roof fans, buildings and others. A specic research considering
energy eciency in buildings comparing to United States and Portugal in
Lopes et al. (2016) and an evaluating of the savings from induction motors
labeling program in Brazil since 1995 is described in Bortoni et al. (2013).
The main characteristics of the polycrystalline photovoltaic module
are shown in Table 1.
For So Paulo case, the produced daily energy obtained is
0.994 kWh while in Piau is 1.06 kWh. This represents 29.81 kWh
and 31.80 kWh of produced monthly energy (considering 1 panel). In
both cases representing 8 panels and a total of 14.49 m2.
3.2. Housing characteristics
The typology of the one-store MCMV house considered in this
article is the minimum, having the following characteristics:
A.M. Vale et al. Energy Policy 108 (2017) 292298

Table 1 of the investment in this article. The higher the annual adjustment of
Module features [Adapted from INMETRO (2016)]. the rate, the more the investment becomes economically interesting.
For simulation, we have adopted an increasing rate of percentage,
Technology Polycrystalline
analyzing the highest and lowest tari adjustment of the regional
Nominal Max. Power 250 Wp distributors (ANEEL, 2016) between the years 2003 and 2012. As a
Annual power decline 0.8% result, we obtained a rate within the range of 315% with a pitch of 2%
Area 1.61 m2
and annual increments xed over 25 years, with a single rate for each
Life cycle 25 years
Module Eciency 15.5% row of the result matrix.
Initial taris used for group B (low voltage) without taxes in Piau
and in the metropolitan region of So Paulo are, respectively, $ 0.14
and $ 0.127 per kWh (ANEEL, 2016). The VAT charged by the Piau is
20% and by the State of So Paulo is 25% (ABRADEE, 2016).

3.3.2. Methodology of Net Present Value

The Net Present Value (NPV) is an important parameter for the
economic viability analysis of projects; it aims to calculate the present
value of a series of future payments, minus a stipulated capital cost
rate. The Eq. (2) is the calculation of the NPV:
n FCj
NPV = ( initialcost) + j=1
(1 + MARR) j (2)
where CFj is the project's cash ow and MARR is the discount rate that
Fig. 1. Roof feature [Adapted from Paulsen and Sposto 2013].
varies primarily with the business risk, opportunity cost, and liquidity.

2 bedrooms, a living room, kitchen, bathroom, laundry area, and

circulation; and
less than 36 m2 if the service area is external, or 38 m2 if the service
area is internal.
Both developments have the characteristics as reported and roofs as
illustrated in Fig. 1. Only about half of the total area available will be
used for the roof installation of photovoltaic panels.
3.3. Economic aspects
In this study, the investment cost of the photovoltaic system is
considered to be 4.584 $/Wp with internalized prices, considering that
the installed power is up to 6 kW. The costs incurred for the residential
sector are specied in Table 2.
3.3.1. Methodology of cash ow
In cash ow analysis, the "initial cost" is the value of the investment
and CFn is the project's cash ow in period n; in this study, the time is
counted in years. There are three distinct ways to calculate CFn:
CFn in So Paulo: (Tarin(US$) Generationn(kWh)) (1+ICMS
(%))
CFn in Piau: (Tarin(US$) Generationn(kWh))
CFn in Piau with ICMS tax exemption: (Tarin (US$) Generationn
(kWh)) (1+ICMS (%))
The sampling period for the study is 25 years, due to the lifespan of
the solar panels, assured by the manufacturer. The manufacturer
assured that, over this period, the system will suer a natural
degradation, which should cause a reduction in the generation capacity
of the panels. The manufacturer also certies that the system will not
have a drop in nominal generation higher than 0.8% per year. In this
study, we assume an annual decrease of generation of 0.8%.
The variation of the energy tari inuences the economic analysis
Each company usually has its own economic parameter to analyze the
project. For this article, we considered an investment being made by an
individual; in this case, it is usually considered the MARR equivalent of
the savings interest rate. To calculate the MARR, we calculated the
average cumulative interest in savings per year in Brazil over an 11-
year period (20052015). Table 3 shows the cumulative return of
savings in the period 20052015.
When the calculated NPV is positive, the investment is economic-
ally viable. After comparing the two projects, we found the one with a
higher NPV to be most interesting.
3.3.3. Methodology of Internal Rate of Return
The Internal Rate of Return (IRR) is another important parameter
for economically evaluating an investment. IRR is a mathematical and
nancial formula used to calculate the discount rate that would exist if
a certain cash ow equaled zero its net present value. In other words, it
would be the rate of return of the investment in question.
Once the IRR is calculated, it should be compared with the MARR.
If the IRR is greater than MARR, the investment is economically viable.
If the IRR is lower than MARR, the investment is not economically
interesting. When IRR and MARR are equal, the investor is economic-
ally indierent between the project and the opportunity cost. Similar to
the NPV, the project with the highest IRR is also nancially more
interesting.
3.4. Simulation
To perform the calculations described above, we have used Matlab.
The program calculates the matrices (tables) for IRR and NPV and
generates all graphics. The algorithm performs exactly what was
described, considering variables (MARR and electricity tari), con-
stants (period and initial cost), and mathematical formulas. The results
are the internal rate of return values and the net present value for each
scenario, in a 25-year period.
4. Results

Table 2 The results obtained by the simulations in Matlab software are

Cost of photovoltaic systems - reference in Brazil ($/Wp) [Adapted from EPE, 2012]. shown in Figs. 24.

Capacity PV Array Inverters Installation and Assembly Total 4.1. So Paulo vs Piau without an ICMS tax exemption
Residential ( 6 kW) 2.92 0.75 0.92 4.59
Fig. 2 shows that, for all rises in energy fares and discount rates

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A.M. Vale et al. Energy Policy 108 (2017) 292298

Table 3
Average interest on accumulated savings per year (%)[Adapted from Portal Brasil (2016)].

Average interest on accumulated savings per year (%)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average

9.19 8.41 7.8 7.74 7.09 6.81 7.5 6.58 6.32 7.02 7.94 7.49

considered, the NPV for investment in So Paulo is more interesting

Fig. 2. NPV in So Paulo vs NPV in Piau (without ICMS tax exemption).
than in Piau. Even though Piau presents a higher average solar
radiation than So Paulo, the impact of ICMS exemption guarantees an
advantage of investing in this state. Thus, the impact of tax exemption
is of great importance.
Tables 4 and 5 show that dierences in NPV for the state of So
Paulo and Piau are small, but always favorable to the state of So
Paulo. It should also be noted that in the range of 35% in annual
increase of energy rate, the NPV was always negative (thus an unviable
investment) for Piau and almost always negative for So Paulo, which
shows the importance of considering the variation of the rate for the
feasibility analysis of a photovoltaic solar project.
The IRR for both states are mostly above the MARR used: 7.4907%,
according to the average return of savings in Brazil (Portal Brasil,
2016). However, it is important to state that this base value can be
easily overcome, because of the low risk involved. One should note that
the IRR for the state of So Paulo is always superior to the state of
Piaus IRR, which is in line with the NPV results shown in Tables 4 and
5, and reinforcing the importance of tax incentives by ICMS exemption.

4.2. So Paulo vs Piau with ICMS exemption

Fig. 3 shows the graph of a hypothetical situation in which the state

of Piau has also joined the tax benet for photovoltaic generation by
ICMS exemption. In this case, the NPV for the Piau state would always
be higher than that of the state of So Paulo. This was expected, since
the average annual photovoltaic generation in Piau is higher than that
Fig. 3. NPV in So Paulo vs NPV in Piau (with ICMS exemption).
in So Paulo, due to their levels of solar irradiation. Again, this result
conrms the importance of tax incentives by governments to facilitate
these types of projects.
Table 6 presents the results of NPV for the situation in which there
is an ICMS exemption for the photovoltaic generation in Piau. As
expected, these are the most economically attractive results of this
study.

4.3. Piau with ICMS exemption vs Piau without ICMS exemption

In Section 4.2, we have evaluated the hypothetical situation in

which there were also ICMS exemptions for photovoltaic generation in
Piau, and we have presented their NPV. In Fig. 4, this hypothetical
situation is shown through Piau chart, and the real situation is
Fig. 4. NPV in Piau (with ICMS exemption) vs NPV in Piau (without ICMS exemption).
presented. By comparing the gure, one can notice how important it

Table 4
NPV results in So Paulo (in US$).

NPV So Paulo

Discount rate over the years

5.00% 6.50% 8.00% 9.50% 11.00% 12.50% 14.00% 15.50% 17.00% 18.50% 20.00%

Yearly rise of tari 3.0% 650.19 1972.66 3021.92 3863.71 4546.42 5105.96 5569.23 5956.54 6283.37 6561.60 6800.45
5.0% 1482.93 284.55 1672.01 2773.15 3656.56 4372.78 4959.45 5444.79 5850.16 6191.84 6482.36
7.0% 4325.09 1943.68 92.82 1361.20 2515.67 3441.94 4192.78 4807.51 5315.73 5739.83 6096.93
9.0% 8135.81 4905.42 2417.71 481.85 1040.28 2249.46 3219.83 4006.34 4650.07 5181.95 5625.46
11.0% 13271.31 8865.13 5500.35 2904.81 882.41 709.28 1974.51 2990.17 3813.41 4487.05 5043.39
13.0% 20219.96 14184.11 9609.86 6109.49 3404.74 1294.37 368.26 1690.83 2752.94 3613.95 4318.41
15.0% 29650.15 21355.31 15112.23 10369.42 6732.47 3917.26 1717.59 17.31 1398.44 2508.14 3407.93

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A.M. Vale et al. Energy Policy 108 (2017) 292298

Table 5
NPV results in Piau (without ICMS tax exemption) (in $).

NPV PIAU (without ICMS exemption)

Discount rate over the years

5.00% 6.50% 8.00% 9.50% 11.00% 12.50% 14.00% 15.50% 17.00% 18.50% 20.00%

Yearly rise of tari 3.0% 1850.60 2996.22 3905.16 4634.38 5225.79 5710.50 6111.82 6447.34 6730.46 6971.49 7178.40
5.0% 2.74 1533.86 2735.77 3689.66 4454.93 5075.37 5583.59 6004.03 6355.19 6651.17 6902.84
7.0% 2459.35 396.40 1206.95 2466.53 3466.61 4269.02 4919.44 5451.97 5892.22 6259.61 6568.95
9.0% 5760.46 2962.07 807.04 869.94 2188.52 3236.00 4076.60 4757.93 5315.58 5776.33 6160.53
11.0% 10209.21 6392.26 3477.44 1229.00 522.95 1901.78 2997.82 3877.65 4590.81 5174.36 5656.30
13.0% 16228.63 10999.94 7037.39 4005.12 1662.08 166.08 1606.37 2752.07 3672.15 4418.02 5028.27
15.0% 24397.73 17212.15 11803.95 7695.38 4544.80 2106.06 200.54 1302.35 2498.79 3460.09 4239.55

is to mobilize governments (in this case, the state) so that the energy Table 7
potential is fully tapped. IRR results.

IRR SO IRR PIAU IRR PIAU

4.4. Comparison of IRR for dierent study cases PAULO
(without ICMS (with ICMS
A comparison between the IRR of the three dierent cases exemption) exemption)
considered in the previous sections can be seen in Table 7. It can be
Yearly rise 3.0% 4.38% 3.16% 5.18%
seen that So Paulo IRR overcomes the Piau IRR, when the ICMS tax of tari 5.0% 6.23% 5.00% 7.05%
is included. This changes the way round if the tax exemption is 7.0% 8.09% 6.84% 8.91%
considered for the Piau state. Thus, the tax policy is of utmost 9.0% 9.94% 8.68% 10.77%
importance in order to increase the solar generation in power systems. 11.0% 11.79% 10.51% 12.63%
13.0% 13.64% 12.35% 14.49%
It can be seen that higher IRR were obtained when the yearly rise in 15.0% 15.48% 14.18% 16.34%
tari is at least 9%.

5. Conclusion and policy implications
Brazil has potential to become a major solar power generator, both
through distributed generation and large scale solar plants. The high
levels of solar radiation in nearly the entire territory, with relatively
little variation compared to European countries (Ruther et al., 2006).
Social programs, such as Minha Casa Minha Vida, aim to solve or
reduce the housing shortage problem in Brazil. This program has a
capacity to reach many cities of the country having delivered more than
2.5 million units (MCMV, 2016). Furthermore, there is an opportunity
to combine this social program with the possibility of diversifying the
energy matrix by using the solar potential of the country.
In recent years, the authorities of Brazil and the private sector have
turned their attention to solar energy. Normative Resolution 482/2012
(ANEEL, 2012) and Normative Resolution 687/2015 (ANEEL, 2015)
brought advances for distributed generation in the country, stipulating
rules for local and remote compensation.
The costs of photovoltaic systems in the country can still be
considered high, due to the fact that almost all components are
manufactured abroad. The devaluation of the national currency and
high taxes on imported products make solar energy a non-accessible
technology for much of the population. To disseminate the source of
solar energy as an achievable reality for all inhabitants of the country, it
is essential that governments work to attract investors and manufac-
turers to the country and to make the photovoltaic systems accessible
to most of the population.
Moreover, despite the IRR of solar projects are higher than MARR,
one important barrier against those interested in becoming a micro-
generator is the high initial investment, starting from a value of more
than 30 times the minimum wage. This is especially important to low
income Brazilian families.
Also, by the consumer side, the solar generation faces nancial
issues, although technically viable, and also recently regulated by
ANEEL. In Brazil, there are no nancing options for individuals that
could support possible candidates interested in becoming microge-
nerators. The national development bank (BNDES) does not oer any
possibility for individuals (Camilo et al., 2017).
The results of this paper showed that in Barra Bonita in So Paulo,
even with a lower solar irradiation than in Piripiri, in the state of Piau,
an investment in a solar generation system is more nancially
interesting. This is due to the economic benet achieved by the ICMS
exemption on photovoltaic generation. Thus, the rulers and authorities
in Brazil's energy sector not only did not revert toward the path they
have followed, but they are continuing to move forward with other

Table 6
NPV results in Piau (with ICMS exemption) (in US$).

NPV PIAU (with ICMS exemption)

Discount rate over the years

5.00% 6.50% 8.00% 9.50% 11.00% 12.50% 14.00% 15.50% 17.00% 18.50% 20.00%

Yearly rise of tari 3.0% 196.54 1250.68 2398.90 3320.10 4067.21 4679.53 5186.50 5610.34 5968.00 6272.48 6533.86
5.0% 2530.88 596.67 921.66 2126.68 3093.41 3877.19 4519.20 5050.33 5493.93 5867.84 6185.76
7.0% 5641.13 3035.09 1009.65 581.54 1844.91 2858.55 3680.21 4352.93 4909.08 5373.19 5763.98
9.0% 9811.31 6276.21 3553.83 1435.37 230.34 1553.58 2615.48 3476.18 4180.63 4762.69 5248.03
11.0% 15431.24 10609.43 6927.25 4086.88 1873.71 131.88 1252.69 2364.16 3265.06 4002.24 4611.06
13.0% 23035.34 16430.14 11424.40 7593.85 4633.97 2324.53 505.06 942.25 2104.56 3046.79 3817.69
15.0% 33355.06 24277.78 17445.81 12255.61 8275.60 5194.84 2787.67 889.12 622.29 1836.67 2821.33

297
A.M. Vale et al.
benets and incentives, so that one day, Brazil will be seen and
remembered as a country that managed to take good advantage of its
solar energy potential for the benet of its entire population.
As Brazil is still dening the energy policies related to DG an
improvement that should be considered in future works include the
study of regulation improvements to increase the renewable generation
in the system. Also, it is important to consider some methodology to
deal with uncertainties in energy and equipment prices. Even more, the
use of Real Options may improve the decision on PV solar system
investments.
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