OREANDA-NEWS. The Brazilian government postponed for a second time a major auction for new power generation projects, pushing back the date from 31 March to 29 April.

The ministry decided to postpone the generation auction until after the first transmission line auction of the year, which is currently scheduled for 13 April.

Following significant delays in the construction of new transmission projects, the government is seeking to guarantee that winning generation projects will have the transmission infrastructure necessary to deliver the power to the grid.

According to electricity regulator Aneel, roughly 62pc of all transmission line projects are behind schedule.

In the transmission auction, the government will offer 24 projects covering a total of roughly 6,500km (4,039mi), and requiring total investment of roughly R23.2bn ($6.02bn).

These projects need to be concluded before the long-term power purchase agreements for their respective generation projects start in January 2021.

A total of 1,055 generation projects with combined installed capacity of 47.6GW applied to participate in the generation auction, the largest number since the government auction program began in 2005.

Of that total, 36 gas-fired projects with total installed capacity of 18.7GW have applied to participate. The bulk of these projects would use regasified LNG.

A recent decline in electricity demand because of Brazil?s economic recession is expected to limit participation in the auction.

In January 2016, electricity demand decreased by 5.9pc to 38,214GWh, compared to January 2015. Industrial demand alone was down by 9.3pc and residential demand dropped by 5.4pc in January compared to the same period of 2015, according to the government-controlled energy research company (Epe).

After contracting by an estimated 3.9pc in 2015, economists see GDP shrinking by another 4pc this year.

According to the Brazilian power distributors association Abradee, distribution companies currently face excess contracted supply of roughly 7pc of total demand, or an average of 3,000MW.

Abradee estimates the oversupply will persist through 2024, because distributors purchased power based on a scenario of 4-5pc economic growth.

The government's electricity monitoring committee (CMSE) concluded in its 2 March meeting that Brazil has 12,889MW of excess capacity, which includes emergency thermoelectric plants that were idled on 1 March.

The increase in generation potential is a result of the recovery of hydroelectric reservoirs.

In February, water levels increased in all four of the country's subsystems. Reservoirs in the northeast subsystem, which reached record lows at the end of 2015, increased by 14.2 percentage points in February to 31.8pc of their total capacity. Reservoirs in the southeast/center-west subsystem reached 50.9pc, up 6.5 percentage points during the month.

The CMSE expects a total of 7.22GW of new capacity to come on line this year. During the first two months of the year, an additional 1,463MW of new capacity has already been added to the system.

Epe will not announce the ceiling price for the upcoming power auction until roughly one month before the auction takes place.

The last auction for projects with a five-year development period took place on 20 April 2015, when the government awarded contracts to 14 projects with a total of 1,973MW of installed capacity at an average price of R259.19/MW, a discount of 0.92pc on the ceiling price.