Brazil Auction Rules May Boost Price of Cheap Wind Power

Prices for wind energy in Brazil, currently the lowest in the world, may rise at least 15 percent due to government policies designed to make the nation’s power grid more reliable.

Developers must install as much as 15 percent more generating capacity at new wind farms to compensate for the variable output from turbines, under rules announced by the Ministry of Mines and Energy last month, Elbia Melo, president of Sao Paulo-based Associacao Brasileira de Energia Eolica said yesterday. They also face new restrictions on where they can build.

Brazil gets 81 percent of its power from hydroelectricity and the government is seeking to stabilize a power grid that’s overly dependent on renewable sources. The new policies are aimed at ensuring that wind farms deliver a certain amount of electricity, Melo said. They will also require developers to spend more on equipment and may prompt them to build in locations with less-than-ideal wind conditions that reduce output.

“We understand that the government measures are legitimate and sensible but our worry is that taking all those measures at the same time could harm the industry,” Melo said in an e-mail.

She estimated the additional equipment needed at each project would prompt developers to raise their prices for electricity by about 15 percent.

Transmission Lines

The second policy requires developers to build their own power lines to connect wind farms to the grid or install turbines near existing cables, sites that may not have the most wind, Melo said. That may lower output, and she couldn’t estimate how much that may raise costs.

Under previous policies, the government auctioned the right to build power cables that link wind farms to the grid.

The two measures will apply to wind projects that participate in an Aug. 23 government-organized auction to sell power and may apply to another event this year, Melo said.

The rules will drive up the cost of power from wind farms that require more than 150 kilometers (94 miles) of power lines, Pedro Pileggi, director of investor relations and new business at Sao Paulo-based renewable-energy company Renova Energia SA (RNEW11), said in a telephone interview.

“It doesn’t kill the project but it reduces its competitiveness,” he said.

There are about 600 megawatts of wind turbines installed in Brazil’s northeast, where the breezes are best, that aren’t connected to the grid because the power distributor responsible for building the transmission lines is behind schedule, Melo said.

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Will Wade at wwade4@bloomberg.net

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