Brazil Gives Fossil Fuels Advantage Over Wind in Power Auction

Brazil will allow developers of power projects that use natural gas and other fossil fuels to sell their output at higher prices than wind farms next month.

Builders of small hydroelectric dams and thermoelectric plants that run on coal, gas or biomass will have to sell power below 144 reais ($61.72) at a Dec. 13 auction, the Brasilia-based electricity regulator Agencia Nacional de Energia Eletrica said today on its website. In contrast, wind developers must bid below 122 reais.

Developers of wind farms have won 55 percent of contracts in auctions since 2011, according to data compiled by Bloomberg. The higher top rate for some gas projects will make them viable if supplies of the fuel are available, Thais Prandini, executive director of Sao Paulo-based research company Thymos Energia, said today in a telephone interview.

“The government’s obviously concerned there should be more fossil-fuel power plants available to provide back-up power,” Prandini said.

The average price of wind energy fell 26 percent to 110.51 reais a megawatt hour in an August auction from 2009. In Brazil’s power auctions, regulators set a ceiling rate and developers bid down the amount at which they are willing to sell power. The lowest bids win contracts.

While Brazil always sets different ceiling prices for large hydroelectric plants, the maximum rate is normally the same for other energy technologies, Prandini said. The last time this happened was in 2010 when developers of wind energy, at the time a nascent industry in Brazil, were allowed to sell at a higher rate than other power sources.

Too Low

Solar-plant developers were granted the same ceiling price as wind farms in December’s auction and probably won’t sign contracts because the rate is too low to make projects viable, Prandini said.

The ceiling price for four large hydroelectric plants known as Sao Manuel, Itacoara I, Ribeiro Goncalves and Cachoeira vary from 107 to 139 reais, according to the statement.

Developers that win contracts in the so-called A-5 auction will have to start producing power from May 2018, the regulator 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: Reed Landberg at landberg@bloomberg.net

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