Brazil Said to Deny Extensions on First Solar Farms Amid Slump

  • Projects that won contracts in 2014 have October 2017 deadline
  • Weak economy hindering financing for solar developers

Brazil has rejected requests from developers seeking more time to complete the country’s first large-scale solar farms, according to two people involved in the matter.

The country’s energy regulator Aneel sent a statement Monday to a group of solar developers that have committed to completing solar farms by 2017, denying their request for extensions of as long as two years, according to the people, who asked not to be identified because the matter isn’t public. Aneel didn’t reply to requests for comment Thursday.

Brazil’s weak currency, tighter credit markets and political instability are making it difficult for developers to arrange financing and line up supply deals, according to the people. The companies are now adjusting their schedules to meet the deadline. Aneel submitted the technical recommendation to the Energy Ministry, which will make the final decision and usually accepts Aneel’s recommendations.

Eight developers including Renova Energia SA, Rio Alto Energia, Fotowatio and Canadian Solar Inc. won contracts to sell power from a total of 1,048 megawatts of solar farms in an October 2014 energy auction. The solar farms are expected to go into service by October 2017. A group of seven of these companies submitted the extension request in February.

“Aneel’s decision makes sense,” said Barbara Rubim, director of energy at Greenpeace Brazil. “If it accepted, it would generate a cascade effect. Other companies, from other auctions, could ask for the same thing.”

Falling Currency

Developers agreed to sell electricity in the 2014 auction at an average price of 215.12 reais a megawatt-hour, worth about $87 then. After the currency slumped, that’s now worth about $62, making it more expensive to import solar panels.

Financing has also been an obstacle. Brazil’s development bank BNDES hasn’t approved any backing for solar developers to date, in part because the lender requires that developers use components produced within the country to qualify for cheap loans. Local banks that are exposed to loans from the energy industry are also becoming more cautious.

Solar Goals

Brazil had about 59 megawatts of solar capacity in operation last year, less than 1 percent of the total supply. The country has set a goal of having 3.5 gigawatts of solar systems in operation by 2023.

“Projects from the first auction face a challenging situation as the economic conditions in Brazil changed very fast,” Rodrigo Sauaia, executive director of the Brazilian Photovoltaic Solar Energy Association, said in a telephone interview from Sao Paulo. The trade group didn’t have access to Aneel’s document. 

The issue may be isolated to participants in the 2014 auction, he said, because prices in subsequent events were higher. “On other auctions cap prices were raised, and the risks for developers were lower.”

Developers may miss the deadline anyway, Greenpeace’s Rubim said.

“The problem with the decision is that there is a good chance that companies will delay projects, paying fines, or they simply won’t build the projects,” Rubim said. “It can discourage companies to enter in this market throughout auctions.”

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