Brazil's ambitious solar plan
July 11, 2014 | By
Barbara Vergetis Lundin
Brazil's ambitious plan to auction 3.5 GW of photovoltaic (PV) capacity through 2018 is expected to catalyze solar growth in Latin America, according to IHS Technology. The Brazilian Electricity Regulatory Agency has announced a so-called reserve capacity auction to contract new power-generation capacity to hedge against unexpected drops in power supply -- for example, low hydroelectric power levels during drought years.
Extreme drought conditions have challenged Brazil's electricity supply and forced an increase of costly thermal power generation. As peak wholesale power prices top $400 per MWh, alternative sources of generation have become attractive options in the short term. October's auction will offer separate categories for different technologies. This approach will benefit the PV market compared to the regular new-capacity auctions, where multiple renewable power technologies compete, giving an advantage to wind. Exactly how much capacity will be awarded has not yet been disclosed, but IHS expects about 500 MW to be available for PV projects in the first round. The ceiling price for bids for the 20-year power purchase agreement (PPA) is likely to be set at approximately RS250 per MWh, or $112 per MWh. "Bids will be highly competitive. We expect bid prices to fall to less than RS200 per megawatt-hour, in line with offers from previous Brazil auctions where solar failed to compete with wind," said Josefin Berg, senior analyst for solar demand at IHS. "Markets like Brazil that combine high solar resources and elevated power prices create opportunities for PV. The main constraint in Brazil is the price uncertainty in long-term power, tied to meteorological factors; revenue levels cannot be guaranteed without a PPA." In light of recent announcements, IHS has increased its installation forecast for the country, and predicts that the annual installed solar capacity for Brazil will rise to 1,023 MW in 2018 -- up from 167 MW in 2013. IHS expects competition for PV projects in the reserve capacity auction to be tough contenders. As an indicator of the PV project pipeline in Brazil, about 6.1 GW worth of PV projects have registered for September's new capacity auction. In the October reserve capacity auction, locally established utilities and independent power producers (IPP) are best positioned to offer sufficiently low bid prices to take home the bulk of awarded PV capacity. CPFL, the largest utility not owned by the government, has a PV pipeline of nearly 600 MW, while wind-focused IPP Renova Energia has claims to bids of a combined capacity amounting to 240 MW, according to IHS. Of the international power producers already established in Brazil, GDF Suez has installed a 3.5 MW solar plant, and Enel was awarded 15 MW in the February Pernambuco PV tender. Overall, IHS anticipates that Brazil's installed PV capacity will grow from 39 MW to 1.2 GW by the end of 2016, with the main share in utility-scale projects as awarded in national and regional auctions. As for commercial and residential PV, IHS says that, despite a net-metering scheme being in place, deployment remains limited by tax challenges and low visibility on retail power prices that do not reflect the real power generation costs. For more: © 2014 FierceMarkets, a division of Questex Media Group LLC. All rights reserved. http://www.fierceenergy.com/story/brazils-ambitious-solar-plan/2014-07-11 |