Brazil Marks ‘Birth of Solar Energy Market’ With First Sales at National Energy Auction

12/02/15 | São Paulo

International Environment Reporter

BNA Snapshot
Solar Auction
Key Development: Future solar-produced electricity is for the first time sold in Brazil at a national energy auction.
Potential Impact: The auction is expected to spur growth of the country's
fledgling solar power market.
What's Next: The next auction in which solar is offered competitively likely will occur in 2015.

Oct. 31 — In Brazil, future solar-produced electricity was for the first time sold at a government-organized national energy auction Oct. 31, signaling the birth of the solar market and the government's intention to help boost the generation of this type of renewable energy, solar industry sources told Bloomberg BNA.

Developers sold distributors 889.6 megawatts (MWs) of future solar power for an average price of 215.12 reais ($86.8) per megawatt hour (MWh), 18 percent below the maximum price ceiling for solar power of 262 reais per MWh, according to the Electric Energy Trading Chamber (CCEE), the clearinghouse that handles the auction's financial transactions.

The sales were made via 20-year purchase contracts that require developers to begin delivering the electricity by October 2017.

At the auctions, developers, mostly of renewable energy, offer future power to electricity distributors at the lowest prices below a government-set ceiling, signing long-term contracts with the first distributors that agree to buy it.

The government, for the first time, registered solar projects in energy auctions twice in late 2013, but none won contracts because they had to compete with other renewable sources, like hydropower, wind and biomass projects, that generate cheaper electricity.
At the Oct. 31 auction, 769.1 MWs of wind power were sold for 142.3 reais ($57.3) per MWh. No biomass power was sold.

‘Substantial Amount of Solar Power.'

“The Oct. 31 auction successfully sold a substantial amount of solar power because it was the first time the government both created a separate category for solar power and set a maximum price ceiling for it that was attractive to developers,” Rodrigo Lopes Sauaia, executive director of the Brazilian Association of Solar Photovoltaic Energy Producers (Absolar), which represents solar developers, told Bloomberg BNA Oct. 31. “The amount of energy sold was within the 500 to 1,000 MWs that Absolar had estimated would be sold before the auction.”

Among the developers that sold solar power were Enel Green Power, an Italian renewable energy company; Solatio Energia, a Spanish-Brazilian joint venture; and Brazilian solar developers Renova Energia and Rio Energy, the CCEE said.

Distributors bought the solar power specifically for future backup energy to the grid, rather than the wind and biomass also being sold, for two reasons, said Lopes Sauaia of Absolar.

First, the government put limits on the amount of each type of future backup energy that could be sold, he said.

Second, had distributors not bought some future solar backup power then they likely would have been later forced to buy backup energy from thermoelectric plants on the spot market—where individual developers sell to individual distributors—at much higher prices, upwards of 700 reais per MWh, than the prices at energy auctions, he added.

Low-Cost Equipment

Another factor that encouraged solar developers to register for the auction: Brazil's Development Bank (BNDES) announced in August that it was going to provide low-cost financing for the local sourcing of components and equipment for solar photovoltaic projects that sold future power at renewable energy auctions, beginning at the Oct. 31 auction (37INER1184,8/27/14).

No domestic company is currently building solar equipment, but Brazilian companies provide components such as aluminum for solar panel frames and glass for panels, and copper used in solar installations.
Solar developers import panels, mainly from China, and pay 25  percent import tariffs to do so.

To spur the creation of a fledgling solar equipment market and bring down prices by avoiding such import tariffs, BNDES will progressively raise the percentage of Brazil-sourced solar equipment that must be bought under its funding rules.

‘Birth of the Solar Energy Market.'

“This auction's selling 889 MWs of power, a terrific amount, marks the birth of the solar energy market in Brazil,” Markus Vlasits, manager in Brazil of the China-based Yingli Solar, the world's largest solar panel manufacturer and Brazil's largest supplier of solar panels, told Bloomberg BNA Oct. 31. “Whether we will build solar panels in Brazil, rather than importing them from our factories in China, however, depends on the demand for BNDES- financed solar panels generated by this auction and near-future solar auctions in Brazil.”

The country currently has 46 MWs of installed solar capacity, which represents an insignificant 0.02 percent of the energy matrix, according to Absolar. Most of that electricity is generated by households or businesses, given that there are few solar farms now operating in Brazil.

The government estimates that auctions for solar-produced electricity in the next four years are expected to create a demand for 3,500 MWs of solar power by 2018, or 2 percent of the energy matrix.

The government has not yet scheduled the next auction in which solar power will be offered as a separate category, thus not competing with other cheaper forms of renewable energy. But Absolar expects that auction to occur in 2015.