Brazil sets 28 August date for de-contracting tender

Brazil’s power regulator Aneel has set the country’s de-contracting tender for 28 August, in a step to remove unbuilt power generation projects that is considered key for the government to organise a new renewable energy tender this year.

Aneel’s board approved the rules for the de-contracting tender that could lead to the cancellation of more than 1GW of wind, solar and small-hydroelectric projects contracted in reserve tenders – for stand-by power – over recent years.

Aneel set an initial minimum bid of R$33.68 per MWh on top of contracted energy prices to allow investors to cancel their long-term PPAs without having to pay all applicable penalties and fines. 

The government will announce how much it wants to decontract and the sponsors that offer the highest premium per MWh over the price the project was contracted at will be released first, until the full amount that the government wants is reached.

The selected projects will pay a year’s worth of power according to the price they offered for decontracting in one instalment. But in exchange they will not be charged fines while the government will allow them to get back guarantees deposited.

However, the biggest penalty for the winners of the cancellation tender is that they will not be allowed to bid in the next reserve tender.

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Aneel will publish the full list of projects eligible for the cancellation in 30 days, just a few days before the tender.

The projects initially eligible include those that haven’t started tests for several reasons, including absence of a transmission link, lack of equipment supply contracts and lack of economic and technical feasibility.

While many of the wind projects initially listed are due to the bankruptcy of Argentine turbine maker Impsa – and its Brazilian units WPE and Energimp – many of the solar projects short-listed for the tender were not built as a result of sharp volatility in foreign exchange rate since the first tender in 2014, making the projects unviable.

Among those lined up to cancel PPAs are local renewable power company Renova, Brazil’s federal power group Furnas, the local unit of Argentina’s Impsa Energimp, Spain’s Cobra, and Dutch renewable energy group FRV.

As well as clearing the specific issues with the projects, the government is taking the opportunity to ease problems caused by a steep decline in power demand since 2014.

This, say the government and analysts, will allow Brazil’s energy planners to project more clearly the growth in Brazil’s generation capacity, allowing the country to determine the need to contract new projects ahead of the expected economic recovery and demand for power from 2020 onwards.

According to the executive president of the Brazilian Wind Power Association (ABEEólica), Élbia Silva Gannoum, the de-contracting tender will pave the way for a renewable energy tender before the end of the year.

According to Gannoum, the Mines and Energy Minister, Fernando Coelho Filho, is personally committed to holding a tender this year to buoy Brazil’s renewable energy sector independent of power demand.

This reserve tender will likely contract new wind projects and other technology to start operation at least in 2019 or later, Gannoum said.