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Brazil may hold new RE tender as Northeast states warn of 'doom'

Brazil’s mines and energy Minister Fernando Coelho Filho has commissioned studies to prepare a solar and wind tender for the first half of 2017, signalling the continuation of Brazil’s auction-centred renewable energy policies after the last-minute cancellation of the reserve tender in 2016.

Mines and Energy Ministry officials said that studies for the necessity of a tender would be done by a newly created Committee for the Management of Energetic Information that will be comprise regulator Aneel, the federal energetic planning authority EPE, the National Grid Operator and the oil and gas sector regulator ANP. The officials didn't say when the new committee would be functional.

The decision was announced yesterday during a meeting between Coelho Filho and the governors and officials from the states of Bahia, Ceará, Pernambuco, Piauí and Rio Grande do Norte, Pernambuco’s executive secretary for energy, Pedro Cavalcanti, who was present at the meeting told Recharge.

“It was a tense but cordial meeting and the minister, despite his young age, showed a political maturity and understood the importance of holding a tender in order to support the economies of these states,” Cavalcanti said.

Cavalcanti added that if the tender is held he expects that a total of between 1GW and 1.2GW of combined solar and wind capacity could be contracted for 2020.

A slowing economy and last minute calculations of a stronger than expected decline in power consumption led to the decision to cancel the mid-December tender, which was the only hope for contracting solar and wind power in 2016. Local and foreign investors had registered 21GW of wind and 13GW of solar projects for the tender.

“It will be a reserve tender in which the government can contract power independent of demand from power distributors. But the minister has to [take responsibility], since the government’s own audit bodies could hold ministry officials personally responsible if there is power contracted without need,” said Cavalcanti.

Renewables are more than megawatts to Brazil's Northeast

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The decision to cancel the tender last year came as hard blow not only for the Northeastern states – which have increasingly relied on wind and solar projects to buoy their underdeveloped, mostly rural economies –  but for the wind and solar power industries, which face a cliff-edge of new contracts from 2019 onwards, after investing billions in the supply chain in the country.

By then, Brazil will have added another 8GW to the existing 11GW of wind and just 3GW of solar PV contracted in recent tenders, but there are no further orders after that.

“The governors were united in their request for the tender and they argued that the economies of some states, such as Rio Grande do Norte, are doomed if regular tenders stopped,” he said.

The nine states of Brazil’s Northeastern region account for 95% of Brazil’s 11GW capacity, with Rio Grande do Norte representing 3GW of the total.

Cavalcanti said that the governors presented studies from the Brazilian Wind Power Association (ABEEólica) and the Brazilian Solar Power Association (Absolar) showing the importance of the industry, and that contracting renewables now would be a way to guarantee power supply when the country starts to grow again, and to avoid switching on pollution thermoelectric power plants. 

“The decision to cancel the tender was extremely hurtful to Brazil’s image and credibility and Coelho Filho does not want to be known as the minister who held no renewable energy tenders in 2017,” said Cavalcanti.

The studies for the tender will be developed by the energy planning and development secretariat under Eduardo Azevedo, and are expected to be concluded in March. 

“The decision shows a greater synergy between all the government departments involved in renewable energy, especially as we now see the [National Development Bank] BNDES prioritising financing for areas that will have a broader social return for the Brazilian society, and renewables fits in very well,” Rafael Valverde, owner of independent renewable energy consulting firm Eolus told Recharge.

Although the 1GW of solar and wind expected to be contracted is well below the minimum of 2GW for each source sought by supply chains in Brazil, it’s a positive signal for an industry that fears being demobilised because of the lack of future orders, he points out.

Valverde, however, is wary of the fact that oversupply studies need to be carried out, showing the tender is not yet guaranteed. since

Brazil’s teetering economy, which is still politically troubled, reduces the level of accuracy of economic forecasts, but he agrees that Brazil needs to contract power now for 2020 or after, when the economy is expected to rebound.

Still, he thinks it’s unlikely the tender will happen before June.

“You will have 60 days for the conclusion of studies, then you have all the bureaucratic steps within the ministry and [power regulator] Aneel, including obligatory public consultation periods, that push the tender to the second half,” he said.

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