Price squeeze as Brazil auctions smallest-ever clean-energy volumes

Only 401MW awarded by South American nation with record-low PV prices, as economy drags on A-4 process

Developers in Brazil sold power from six solar PV projects at a record-low average price of $17.7/MWh in a low-volume tender that continued to feel the impact of the nation's sluggish economy.

A total 203.7MW of solar power was contracted at an average price of R$67.48/MWh ($17.66/MWh) during the country's first tender of this year, known as A-4. Even less wind was sold, just 95.2MW at an average price of R$80/MWh, in Brazil’s smallest renewable energy tender since they began in 2009.

The low Brazilian PV price marks a renewed downward shift for global solar, which despite sharp reductions over recent years has rarely breached $20/MWh. For example, a landmark tender in Mexico in November 2016 raised eyebrows when solar came in at $19.70/MWh.

However, Rodrigo Sauaia, CEO of Brazilian solar association Absolar, cautioned that solar prices at the tender may not reflect a true trend, because the low demand and high volume of projects chasing capacity created intense competition. Additionally, investors were offered expansion of existing plants to reduce capital expenditure needs.

“This allowed bidders to bid aggressively,” he said. Sauaia added that he expects a bigger volume to be contracted in October's A-6 tender, through which power distributors will buy electricity starting in 2025.

The tender results confirmed the continued trend of declining power prices in Brazil amid strong competition and low demand. Only two power distribution companies bought power in 20 to 30 year power purchase agreements starting in 2023.

Including other technologies – biomass and small hydro – these two power utilities bought a total of 401MW.

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Secretary of electric energy at the Mines and Energy Ministry, Ricardo Cyrino, pointed out, however, that even with the low demand, developers continued with their so-called “blended strategy”. That involves part of the capacity of projects being left uncontracted in the tender to allow sponsors to offer the idle power at higher prices in the regulated market.

“Most of the projects sold only 30% of their capacity at the tender in order to sell the rest in the non-regulated market,” he said.

“It's clear by that companies allocated the lowest legally possible amount of power in the regulated market,” said the ePowerBay consulting firm, in a report which also indicated that short distances to the grid connections also allowed prices to be reduced. According to the auction results, the per-MW Capex for wind is R$5.5m/MW and for solar it is R$4m/MW.

Brazilian wind power association ABEEólica said that despite the low volumes, wind continues to be competitive and investors have the opportunity to sell power in the non-regulated market, which they estimate has contracted over 2GW in the past 12 months alone. “It's worth noting that only 30% of capacity of projects was traded in the auction, with the remainder left available for trading the non-regulated market,” said Elbia Silva Gannoum, CEO of ABEEólicas.

Solar power prices fell 37.6% from a similar tender last year, when around 1GW was procured. In US dollar terms, Brazil’s solar power prices are among the lowest in the world. Wind power prices, however, fell only 10% compared to the A-6 tender in August last year when over 1GW was bought.

Spanish developer Iberdrola, through its local renewable energy subsidiary Força Eólica Brasil, contracted power from the Oitis 1 and Oitis 8 wind projects, located in the state of Piauí, each with 31MW.

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French renewable energy development, Voltalia contracted power from its 21MW Vila Alagoas III project in the State of Rio Grande do Norte.

The controllers of the solar PV projects were local developers. Enerlife contracted power from five solar projects, Milagres 1 to 5, each with 40.5MW. Cei Renováveis sold power from its 40MW Jaíba SE1 project, in partnership with solar panel maker Canadian Solar.

According to the government, the 401MW contracted will require R$1.9bn in new investment and will create 4,500 jobs during their construction.

In October, the government will hold a second tender known as A-6 which will contract power for 2025.

Note: Updates earlier story to correct average winning PV price, and adds quotes

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