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Renewable energy country attractiveness indices: Country focus - Brazil - EY - Global

Country focus: Brazil

Auctions bring price of wind power below natural gas

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RankingQ3Q2
All renewables index10111
Wind index10114
Solar index16116

Source: EY analysis
1 Joint


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Email Luiz Cláudio S. Campos 
+55 21 2109 1419

Email Lucio Teixeira
+55 11 3055 0128

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Wind power

Q3 saw four power auctions providing opportunities to reshape Brazil’s electricity market. Wind power attracted the most attention when it emerged that, for the first time, its price had fallen below that of electricity generated by natural gas.

The sector secured power purchase agreements for 78 projects totaling 1,929MW at the auctions, around half the total available capacity. They must start operating in 2014.

Less than 10 days later, Brazil’s Ministry of Mines and Energy scheduled another auction for December. It will award 20-year contracts for wind, biomass and natural gas plants, and 30-year contracts for hydroelectric plants. It has attracted registration from 377 projects totaling 24.3GW installed capacity, of which 79% with a total capacity of 7.5GW relate to wind. Another auction will be held on 22 March 2012.

The 2011 auctions have proved that wind and natural gas plants can compete directly, and that wind power can be cheaper.

According to Agência Nacional de Energia Elétrica, the Brazilian regulatory agency for the electric energy market, Brazilian wind power capacity is on track to grow by 600% by 2014 to more than 7GW, compared with around 1GW at the end of 2010.

Challenges

The auctions have created competition across the energy sector, and a strong project portfolio with particular emphasis on wind. Abeeolica (the Brazilian Association of Wind Power) has warned though that lower return margins could make projects vulnerable to possible complications during construction.

Brazil’s future electricity planning needs to reflect the auctions’ positive outcome to ensure long-term investor confidence, and stakeholders will be watching closely to see if the Government introduces the long-term policy framework needed to sustain investment.


Biomass

Only 11 biomass projects totaling 554MW capacity were awarded contracts in the August auctions, and the December auction has so far only seen interest from two projects totaling 160MW. The large drop in wind energy prices over the past few years means biomass faces fierce competition from wind as well as from large hydropower and natural gas.


Small hydro

Small hydro developers did not secure PPAs for any of the plants involved in the August auction, suggesting they could not compete with the low prices dominating the event. The sector hopes some of the 19 small hydro projects totaling 303MW will be successful in the next auction.

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