Brazil Seeks Higher Power-Auction Rate to Spur Use of Coal, Gas

Brazil is seeking to boost prices at electricity auctions and spur demand for power from coal- and natural gas-fired plants, after developers agreed to sell wind energy at low prices that made fossil fuel less competitive.

The government is changing the rules this year in auctions for contracts to sell electricity so wind farms won’t compete head-to-head with other sources of power, according to a press official for the national energy agency Empresa de Pesquisa Energetica who declined to be named citing the organization’s policy.

Developers of wind farms have won 55 percent of contracts in auctions since 2011, according to data compiled by Bloomberg. Prices for wind energy fell 41 percent to 88 reais ($44.75) a megawatt hour in a 2012 auction from 2009. That’s dragging down rates for many other sources of power and making some proposals unviable, said Elbia Melo, president of Associacao Brasileira de Energia Eolica.

“Today, wind energy is the most competitive so if they mix together all the technologies they won’t be able to contract the amount of thermoelectric they want because thermoelectric plants are much more expensive,” Melo said in a telephone interview today. “It’s very important for Brazil to diversify its energy matrix.”

Three Auctions

The government will hold three auctions this year, the energy agency official said. The A-3 event, for power projects coming online in 2016, will have separate categories so thermoelectric plants that run on gas, coal or biomass will compete against each other, while wind developers will bid against each other and against companies planning small hydroelectric projects.

The A-5 auction, for plants that will be completed in 2018, will also include thermoelectric plants and may have wind and small hydro. Large hydro projects will compete against each other in the A-5 event. A third auction will be reserved solely for developers competing for contracts to sell power from wind farms.

The Ministry of Mines and Energy will issue the new rules before the first auction, the official said. The dates haven’t been set. In Brazil’s power auctions, developers bid down the price at which they’re willing to sell power, and the lowest offer wins.

Price Ceiling

The decision to reserve electricity contracts for developers of more expensive power plants may require the government to raise the maximum price they’re allowed to sell energy to as much as 150 reais a megawatt-hour, Melo said. The ceiling price for new projects was 112 reais in last year’s auction.

The government will also change the way wind developers calculate their projects’ future energy supply, Melo said. The new methodology will require companies to install more machines to guarantee production doesn’t fall below certain levels. That may require companies to sell power at rates as much as 20 percent higher.

“There’s still some insecurity among officials in the energy sector over the reliability of wind energy,” Melo said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE