Brazil power auction flops on tepid demand
OREANDA-NEWS. A long-awaited Brazilian auction for new long-term power supply drew a paltry turnout, reflecting a weak demand outlook in the recession-hit economy.
The 29 April auction contracted only 528.9MW of new capacity, mostly from small hydro plants, completely excluding large-scale thermal projects tied to imported LNG that have gained much fanfare in recent years.
The power purchase agreements (PPAs) were awarded at an average price of 198.59/MWh ($56.98/MWh), 8.65pc below the ceiling price.
In contrast, an April 2015 tender offer for projects with a five-year time horizon contracted projects with 1,973MW of new capacity for an average ceiling price of R259.19/MWh ($56.98/MWh), representing a 1pc discount on the ceiling price. The winners included the 1,515MW Porto de Sergipe 1 project, which will use imported LNG as fuel.
A total of 29 projects will sign PPAs as a result of last week's the tender, only a fraction of the 802 projects qualified to participate. The government estimates that investments in the new projects will total R1.8bn. The contracts will begin in January 2021.
The current economic recession in Brazil has resulted in significant over-supply in the domestic market. Local power distribution companies currently have contracted roughly 113pc of their total electricity demand, and with demand continuing to decline, the outlook is that there will be excess supply for the next five years.
AES Brasil, the Brazilian subsidiary of US utility AES remained on the sidelines in the recent auction, both as a buyer and a seller. The company, which has both power distribution and generation in Brazil, has contracted roughly 112pc of its current demand.
Most distributors' long-term planning was based on the assumption that electricity demand would increase by an annual rate of roughly 4pc, but the economic slump has weakened the forecast.
In the first quarter of 2016, electricity demand declined by 4.2pc over the same period of 2015, according to state-controlled energy research company Epe. In March, electricity consumption dropped by 1.5pc compared to March 2015. Although residential consumption increased by a modest 1.7pc in March, it was not enough to offset a 6.2pc drop in industrial consumption.
Although the government qualified nine natural gas-fired thermoelectric plants to participate in the auction, only one sold power – the small 5.5MW Oeste de Canoas 1 plant in Maranhao state, which is controlled by Oeste de Canoas Petroleo e Gas.
Unlike the other eight projects, which would use imported LNG, Oeste de Canoas 1 will use domestically produced gas from the firm's fields in the Barreirinhas basin in Maranhao state. The plant sold power for R258/MWh.
Small hydro plants with less than 30MW of installed capacity dominated the auction, with 20 plants with total capacity of 267.4MW selling power for an average price of R186.41/MWh.
Of these plants, 14 are already operating and opted to sell uncontracted power in the auction.
The largest project to sell power in the auction was 62MW Santa Branca hydroelectric plant in Parana state. The plant will be built on the Tibagi river in Parana state and will require roughly R399.5mn in investments. The project sold power for R150/MWh.
Six biomass plants with 177.5MW of installed capacity signed PPAs at an average of R235.95/MWh. Two of the plants will use wood chips and four sugar cane bagasse.
The largest biomass plant is Eldorado Celulose's 50MW woodchip power plant in Mato Grosso do Sul state.
Raizen Energia, a 50:50 joint venture between Brazilian sugar and ethanol group Cosan and Shell, sold power from its 20.1MW biogas project in Sao Paulo state.
The weak result of last week's auction has called into question the need to hold additional tender offers this year, including the so-called A-3 auction, which is for projects that will deliver power to the grid in 2019.