ANALYSIS: Smaller players rule A-3

Brazil's independent renewable power developer, Casa do Ventos, won the largest number of contracts at the A-3 power auction, leading a group of smaller developers to dominate Friday’s much-anticipated wind tender.

Large names like Renova Energia, CPFL Renováveis, Tractebel, CIIF and federal power company Eletrosul, stayed out of the bidding, although most registered for part of 6.2GW of projects for the tender.

CPFL Renováveis said that it decided not to participate in this auction because of grid connection risks, availability of machinery and deadlines to conclude projects were too short.

The company concluded saying that current conditions would not guarantee minimum returns determined by its shareholders.

Analysts say most of the largest players remained on the sidelines to avoid potential risks and costly project delays.

"Brazil's wind power sector is mature and companies are now very experienced in appraising risks,”Elbia Melo, executive president of the Brazilian Windpower Association (Abeeolica) tells Recharge. “They must have opted to participate in this year's other auctions."

She cites risk factors such a transmission connections, higher supply guarantees and regulations that do not allow developers to change more than 10% of projects' layout and capacities.

The only big player in today's tender was Spain's Iberdrola that sold power from three projects in the state of Rio Grande do Norte with a total capacity 84MW.

Mauricio Tolmasquim, the president of Brazil's energy planning authority (EPE), agrees with Melo. After the auction he told reporters that because the projects can be almost automatically registered for other auctions, developers will likely sell power at the A-5 and reserve auction in September and October, respectively.

He believes that biggest risks are the number of projects being developed now – that need to be completed by 2018 - and the bottlenecks in delivery of machinery, towers and blades.

The A-5 auction will be very competitive,”Tolmasquim predicts.

Power sold in today’s auction - 20-year power purchase agreements (PPA) - will come from 21 projects, with total capacity of 551MW. They must be in commercial operation by 2017.

Casa dos Ventos was responsible of eight of the 21 projects, with a total of 220MW. All its projects are located in the state of Pernambuco, in Brazil's windy northeastern region.

Rio Energy, a Brazilian investment fund that represents US equity fund, Denham Capital Management, was the second biggest seller, with five projects in the northeastern state of Ceara. They will have a total capacity of 117MW.

Brazil's Altantic Energias Renováveis sold power from two projects in the southern state of Rio Grande do Sul with 48MW, independent power developers from Pernambuco, Ouro Branco and Eolica Energia sold power from two and one project respectively. Ouro Branco's projects add up to 60MW and Eolica Energia's projects has 22MW.

Melo notes that Abeeólica's 1GW estimate for new projects at this auction came from higher projections for future demand. “We expected demand to be the double what it was and since wind usually accounts for 50% of new projects commissioned. So we expected more,”she says.

But she reaffirms projections that Brazil will maintain the average of at least 2GW in commissioning of new wind power a year to guarantee payback for investments that turbine and equipment makers have made in the country.

"This is the first auction this year, so there are another two opportunities and our yearly commissioning average is still 2.3GW after 4.7GW were contracted last year,” she adds.

Note: Updates to add comment from CPFL