IN DEPTH: Brazil wind tenders

Ask any Brazilian wind executive, and you'll find anxious questions about this year's energy tenders.

Top of that list is whether the latest measures will make other energy sources – such as thermal, biomass and small hydro – more competitive with wind. Grid-connection location and capacity on the national system are also concerns as investors try to define their strategy.

Last week, government officials disclosed details about the three tenders scheduled for the second half of the year. Full rules and conditions are expected to be announced by the end of the month.

The good news is that Altino Ventura, a director of the Energy Ministry, has confirmed that there is going to be an exclusive tender for wind as well as the usual A-3 and A-5 competitions, which normally comprise different sources, with delivery in three or five years.

Ventura refused to reveal how much energy will be contracted through the wind tender.

Developers will have less time than usual to build up the awarded projects; two years is considered the most probable construction period.

Other crucial new information is that the government will demand more guarantees from developers in terms of annual energy production. The yield prediction factor is going to be raised from 50% to 90% of the wind farm's lifetime. (Brazilian wind energy association Abeeólica asked for 75%, but Ventura says that is out of question, as this figure has not been reached in any studies by ministry technicians.)

According to the federal energy research centre, EPE, this measure will increase wind prices by 10-15%, as projects will need to install more turbines.

“It will raise the price, but wind will cost what it really costs,” said Ventura, during a speech at a renewable-energy conference in the northeast state of Pernambuco.

He explained that the decision was based on the recent default production of others sources, such as large and small hydro, as well as biomass. “We have a very short experience on wind production. We don't want to buy fake energy stakes,” he warned.

Optimistic industry sources hope that this year's tenders will set a record for awarded wind projects. They point that wind prices are still very competitive despite the potential price increase. Offers could be driven below the R$100 ($50) per MWh ceiling, a mark that only hydropower projects can beat (although wind and hydro don't compete directly against each other).

On the other hand, there are those who see thermal projects gaining force to become a real threat to wind.

According to speculation – neither confirmed nor denied by government sources – wind and thermal projects could compete separately within the A-3 and A-5 tenders, as the national grid operator is begging for baseload generation sources to take the pressure off hydro.

Ventura underlined that “at the moment” the decision is to have all sources competing on those tenders. “The final decision will be released on tender's call”.

José Carlos de Miranda Farias, a director of EPE, has told Recharge that there will not be any specific thermal tender.

Apart from the new yield prediction factor, what could make wind less competitive for the exclusive and A-3 tenders is the grid-connection matter.

Unlike last year, developers will have to sort out their own grid connection, which means wind projects close to substations are more likely to sell their output. That could reduce the 16GW pipeline of wind projects registered with EPE.

Miranda says data related to grid-connection availability will soon be released by EPE.

Abeeólica vice-president Pedro Cavalcanti says it is important to unveil this information as soon as possible. He believes that some states will suffer due to lack of connections, and “that's a very critical point for 2013 tenders”.

However, Miranda insists that the grid connection availability is higher than the national demand for wind projects.