Brazil 'can't promise' 2GW of PV contracts as sector's nerves grow

The Brazilian government cannot guarantee that at least 2GW a year of solar PV will be contracted in tenders, a figure industry players had anticipated to guarantee a return for solar equipment makers that have invested in Brazil, and to attract new investments.

In discussions with industry, interim government planners were keen to signal that solar power will be contracted regularly at auctions, but they could not commit to how and when that would happen.

“I would like to contract 2GW [a year] but I cannot promise that,” Eduardo Azevedo, the federal government's energy planning secretary said during the second day of the Brasil Solar Power show in Rio de Janeiro.

Azevedo insisted that whole concept of reserve tenders – through which the government contracts for standby generation capacity, independent of demand – will be revised, but he didn't give a time frame.

The guidelines for this year's single tender will be published in "less than a month", Azevedo said, answering a direct question from Laura Porto, chief executive of Iberdrola-owned Froça Eólica.

Porto said that the government needed to give a firm signal about a new tender because her company has been investing in registering and licensing projects. Spain's Iberdrola has interests in Brazilian solar developments, in addition to wind.

No further details were given but Azevedo told journalists later that solar and wind would be contemplated in the tender.

Since mid-April, when President Dilma Rousseff was suspended to undergo impeachment proceedings, the interim government has made widespread personnel and policy changes that have reduced already-faltering investor confidence in Brazil's renewables sector.

Firms had counted on recurring annual tenders with long-term PPAs to bring investment to Brazil's fledgling solar market and its consolidating wind power sector.

This week was first time that interim government figures – including acting mines and energy minister Fernando Coelho Filho – have spoken in public specifically about solar PV power and renewables.

Around 3GW of PV is contracted to be built in Brazil by mid-2017, while wind has around 8GW to be built through to 2019. After these deadlines no new contracts are visible, so tenders are seen as essential for renewable developers and equipment suppliers who set up shop in Brazil to comply with the country's local-content requirements.

Wind, which had been contracted at a rate of 2.3GW a year through 2014, won only 1.6GW of contracts in 2015 and none so far this year. The five wind turbine makers with combined 3GW a year of capacity are facing an eventual cliff in contracts if new tenders are not held.

The interim government this week announced that it will replace the two planned reserve tenders – set to contract for solar and wind power – with one, but has yet to give details about the new auction.

“We are concluding our studies,” said Azevedo. He added that the short-term planning aims to confront current woes faced by the Brazilian economy.

“We have to recover investor confidence, we have to take into account the devaluation of the local currency and the excess contracts of power distribution companies,” he said.

Luiz Barroso, who is expected to be officially sworn in as the new president of Brazil's federal energy planning authority (EPE) in the coming days, said that reserve tenders need also to be revised.

“These reserve tenders were created to allow for supply security and cover any unexpected delay in the planned expansion of generation," Barroso said.
"But they have been also used as public policy to introduce new technologies and we have been able to diversify our power mix at the right time."

But Barroso agreed with Azevedo that over-contracted distribution companies are creating a chain reaction of financial problems in the country's power sector.

“If you compare today's power demand to projections made in 2011, you have a negative 7GW difference,” he said.

But he gave a positive signal for solar PV in the country. “The low prices of solar power in other countries in the region and the world indicate that solar has gained competitiveness and momentum. Brazil will not stand still, and we won't let the moment pass.”

But Barroso said that if energy planning sees the need for new power, and if public and industrial policies foresee new contracts to maintain equipment suppliers busy, then reserve tenders could be held.

The Brazilian Wind Power Association (ABEEólica) is concluding a study to convince the government to continue to hold reserve tenders to contract wind power independent of demand. The Brazilian Solar Power Association (Absolar), which officially said 2GW a year is needed to kick-start the solar industry in the country, said it would continue to talk with government on the same issues.