“The cap price has to be adjusted,” says Absolar chief executive Rodrigo Sauaia, without specifying a number.

The suggestion of raising the price for solar energy cuts against the trend in the rest of Latin America, where prices – including cap prices in tenders – have been in decline.

Solar power was contracted for $29/MWh in Chile’s tender earlier this month, and the cap price in Mexico will be cut from $70/MWh in the first tender to $63/MWh in the second and upcoming one.

At the time of Brazil's tender in November 2015, the solar cap was set at a price equivalent to $100, a level the Brazilian government has held to since the first tender in 2014 even as the BRL weakened against the US dollar.

Competitive bidding, however, pushed prices down into the $80-$90/MWh range for the 3GW or so of solar contracted in the November's tender.

While saying that the Brazilian government has done a “very good job” adjusting the cap price in past tenders, Sauaia insists the local industry needs more room to manoeuvre this time round.

Despite Brazil’s solar industry enjoying a stronger BRL and a bigger local supply chain, other factors are raising the costs of building solar plants in the country, Sauaia says.

The most important is the cost of finance.

The National Development Bank (BNDES), Brazil's main long-term financier for renewables, has been raising its rates and has signalled that it will reduce the proportion of a given project that it will finance.

Meanwhile, recent moves by rating agencies to downgrade Brazil to below investment grade have made financing from abroad more expensive.

Inflation in Brazil has risen and the government has increased the requirements on solar developers looking to register projects for the tender, including lengthening the mandated measurement periods and requiring bidders to identify grid-connection points.

Unlike other big Latin American solar markets, Brazil is offering contracts denominated in the local currency rather than US dollars, Sauaia notes. “We are in another universe from Chile, Mexico and Peru.”

One potential way to reduce the price of solar energy in Brazil would be to start offering dollar-denominated contracts, he says. 

Such a move has been discussed in Brazil’s renewables community since earlier this year, when the BNDES began increasing its lending rates, but so far government authorities haven't commented on the idea.

Sauaia is quick to point out that he expects December’s tender to be competitive, which would mean lower prices than whatever cap is set by the government.

The tender will be the only chance for solar developers to win long-term contracts this year after the government cancelled a tender in July and postponed a tender in October to December.

13GW of solar projects have been preliminarily registered for the tender.