Global Players Dominate Brazil $2.6 Billion-Power Line AuctionBy
France’s Engie and India’s Sterlite among the winners
‘Auction showed investors’ confidence, says President Temer
Foreign energy companies dominated a power-line auction in Brazil as the country seeks to expand its infrastructure to support new power plants.
France’s Engie SA, India’s Sterlite Technologies Ltd. and Neoenergia SA, majority-owned by Spain’s Iberdrola SA, were among companies that won the right to build transmission lines. The event drew aggressive bidding, averaging 40 percent below ceiling prices set by regulators. The auction will spur 8.75 billion reais ($2.6 billion) in investment , in line with government expectations.
“The power-line auction showed investors’ confidence,” President Michel Temer said on Twitter. “More than 17,000 new jobs will be created directly and the consumers will save billions of reais over 30 years.”
The tender was divided into 11 slots, with 5,000 kilometers (3,125 miles) of power lines crossing 10 states. Most of the lines will be built in Brazil’s Northeast, where they will be needed to link new wind farms that are under development and eliminate existing bottlenecks. Some slots also included also projects that the Spanish company Abengoa SA was supposed to build and were threatened when it sought bankruptcy protection. Many of them are expected to connect the massive Belo Monte hydroelectric dam in the Amazon to the country’s consumption centers.
“The auction was important for the expansion of renewable power plants and to deliver power from Belo Monte hydroelectric plant,” said Eduardo Azevedo, secretary of energy planning and development at the Ministry of Mines and Energy.
The country is planning to hold two more power auctions next week in a bid to attract investment to an industry that’s expected to resume growth as industrial production recovers from the worst recession in a generation.
Brazil’s events are drawing interest from within Brazil and around the world, a sign that investors and energy companies expect energy demand to grow as the economy rebounds, said Henrique Peretti, a Latin America utilities analyst at JPMorgan Chase & Co. The planned power projects will boost growth even more, further stimulating the recovery.
‘‘If Brazil’s economy wasn’t growing, we wouldn’t have new auctions,” Peretti said in an interview. “The events are important for the government as they will prompt employment, generate investments and revenue. It helps the recovery.”
The first auction for new power plants is scheduled for Dec. 18 and is open only to renewable energy. Developers submitted proposals for 26,600 megawatts of wind capacity and 18,352 megawatts of solar. They’re bidding for long-term contracts to sell electricity from projects that must go into operation by 2021.
The government has set a ceiling price of 329 reais a megawatt-hour for solar and biomass plants, 281 reais for hydro plants, and 276 reais for wind. In Brazil’s energy auctions, organizers set a maximum price and developers bid down the amount for which they’re willing to sell power, with the lowest offers winning contracts.
The event is drawing international attention. CPFL Energias Renovaveis SA, Brazil´s largest renewable energy company, has registered wind, solar and hydro projects for the auction. Its majority owner CPFL Energia SA was bought this year by State Grid Corp. of China. And AES Tiete Energia, the local unit of the U.S.-based power company AES Corp., is seeking to win contracts for its 90-megawatt Agua Vermelha solar project in Sao Paulo state.
“The next power generation auctions in Brazil will certainly attract bids from foreign investors,” said Roge Rosolini, managing partner at CrossRegional Brazil. “The question is whether they’ll get many contracts as they usually request higher premiums for the country, and prices might end up being low amid strong competition.”
Power companies and developers in Brazil are seeking to sell a total of 47.9 gigawatts, reflecting pent-up demand, after after slumping electricity demand prompted the government to cancel two auctions last year. Distribution companies decide how much capacity they need, and the Dec. 18 auction isn’t expected to be as big as past events because weak energy demand has hurt their balance sheets.
“We will end 2017 with power consumption similar to what we saw in 2014, so we’ve lost three years with the recession and it will have an impact in the next auction,” said Luiz Augusto Barroso, head of the government’s Energy Research Agency, EPE. “But the government will hold a similar auction in April of next year, so whoever doesn’t get contracts now has another opportunity.”
The Dec. 20 auction is open to both clean and conventional power plants that will go into operation by 2023. Wind projects will dominate, with proposals for 26,651 megawatts registered to participate, followed by natural gas-fired projects, with 21,560 megawatts of capacity.
The ceiling price is 329 reais a megawatt-hour for biomass and coal plants, 319 reais for gas, 281 reais for hydropower plants and 276 reais for wind.
“The three auctions represent the return of the regularity of Brazil’s investments environment,” Barroso said. “The number of companies interested shows that Brazil continues to be an attractive hub for international investments.”