Brazil Revives Auction as 67% of New Power Plants Face Delays

  • Brazil might hold three energy generation auctions this year
  • Country’s first big solar farms may not be completed

First, Brazil canceled plans for one of its two planned energy auctions this year because the weak economy is dragging down demand for power. Now that event is back on the schedule and the government may organize a third, because the same economic factors are delaying power projects already under development.

The size of the auctions hasn’t been determined and will be based on how much capacity under development may be threatened, according to Luiz Augusto Barroso, head of Brazil’s Energy Research Agency, known as EPE.

The reversal is aimed at ensuring that Brazil’s generating capacity keeps pace with expected demand growth over the next five years. While the country awarded enough contracts for new power plants in previous auctions, about 67 percent of the projects expected to go into service in that period are now delayed, according to the thermoelectric industry group, known as Abraget.

“The events will increase the system’s power-supply certainty, acting as an insurance to meet power demand,” Barroso said in an e-mail.

Solar Power

Some projects are at risk of never being completed, including most of the 1,048 megawatts of solar capacity that won auctions in 2014. Developers planning what would have been Brazil’s first large-scale solar farms had three years to complete them. Of the eight companies that won contracts to sell the power, a group of seven requested in February an extension, saying the weak economy and slumping currency was making it difficult to complete supply deals and line up financing.

“We are conducting a realistic assessment, analyzing in depth the possible delays and project cancellations,” said Barroso. “This analysis, among other factors, will be an important element to define the power demand of the auctions.”

The nation also faces a shortfall in expected new hydropower capacity after the government last week rejected plans for the 8,040-megawatt Sao Luiz do Tapajos dam. The project in the Amazon has been in the works for years, and the Environment Ministry determined that building it would harm both the environment and indigenous populations. It accounted for 28 percent of new hydropower that Brazil expected to add by 2024, according to EPE’s most recent 10-year energy expansion plan.

Slumping demand

Brazil canceled in June one of the two energy auctions scheduled for the second half of this year as the recession crimped demand for power. Power consumption in Brazil declined 1.7 percent in the first half from a year earlier, with industrial use slumping 5.3 percent, according to EPE.

Parts of that picture are changing. In June, residential consumption increased for the fourth straight month, prompted by low winter temperatures in most of the country and slower declines in consumer spending.

EPE is now planning two reserve auctions this year, in which the government will buy power. There may be a third auction in the second half, in which distributors will agree to buy the power, depending on demand. Developers will compete for long-term contracts to sell power from projects that must go into operation within three years.

“Economic growth and income are important variables for the power demand recovery,” Barroso said. “The recovery is happening, although it is still uncertain.”

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