Brazil will have unprecedented auction to shorten the line of renewable energy projects, says government

By Letícia Fucuchima

SAO PAULO (Reuters) – The Brazilian government is preparing to lay the groundwork in the coming weeks for a new electricity sector auction that will help sift through the huge backlog of renewable energy generation projects that have formed in the last year after entrepreneurs scurried against time to guarantee discounts on distribution and transmission rates.

The new format bidding, which is expected to take place in 2023, foresees placing generators to compete for the connection of their plants to the electricity transmission system, the Ministry of Mines and Energy (MME) told Reuters.

The idea is to select the projects that will actually be built among the nearly 200 gigawatts (GW) of power that are awaiting grant. These enterprises, which “on paper” double the country’s generation capacity, were boosted by tariff discounts that increase their competitiveness.

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The ministry said that it is working on opening a public consultation on the matter “in the coming weeks”, with an ordinance expected to be published by the end of the year.

“The issue has been treated with priority in the ministry. The drafting of the ordinance aims to establish a competition criterion that provides greater effectiveness and efficiency in the allocation of transmission resources, whose access… has been characterized as a scarce resource”, said the ministry, in a note.

Hence the importance of the auction, which will bring more clarity about the future expansion of the generating park to the regulatory agency, the electric system planner and also to the entrepreneurs themselves.

The auction proposal began to be conceived amidst the rush of generators after Law 14,120, which led to a surge in grant requests – the deadline for new projects to try to guarantee the extension of discounts on distribution and transmission tariffs (Tusd et al. Tust) ended in March.

However, the theme has advanced little so far, without the dynamics and guidelines for this competition having been defined. Meanwhile, generators are experiencing an unusual delay in granting concessions at Aneel, which hinders the development of new renewable plants.

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With the free market starting to command the expansion of energy generation in Brazil in recent years, it has become more difficult for the government to predict the rate of growth in supply and plan transmission – therefore, the connection of plants to the interconnected system has passed. to become increasingly competitive.

There is no information on how many gigawatts of power could be made possible from the auction.

GENERATORS’ VISION

The idea of ​​a new auction to organize the queue of renewable plants is well regarded among generators, who face an increasingly competitive market to make their projects viable.

The agents’ assessment is that the current criteria for plants to access the electricity grid are no longer adequate. Today, the issuance of access opinions by the ONS operator follows a chronological order of the request date – that is, whoever arrives first has preference, so that “paper” projects can be ahead of others that could actually be built.

“We understand that some competitive process is very important to differentiate projects”, said Carlos Dornellas, director of the Brazilian Photovoltaic Solar Energy Association (Absolar).

“What we have doubts about is the proposed solution… We defend something simpler, the auction seemed to us something very complex”, added Dornellas.

One option, according to him, would be to ask the solar projects – which represent the vast majority of the current stock – to provide financial security, which would indicate a “firmness” on the part of the entrepreneur in the construction of the plant.

Elbia Gannoum, president of the Brazilian Wind Energy Association (ABEEólica), welcomes the auction idea, but understands that the market itself will be in charge of selecting the good projects.

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“The solution tends to happen naturally, even if the flow margin mechanism is not changed”, he says.

“The tendency is for this bubble of projects to dissipate as we move away from the discounted Tusd and Tust tariffs… Then we will return to normality, projects asking for grants at full price, at a normal pace”.

DELAY IN GRANTS

The “filter” for the projects would also help to organize the granting process by Aneel, which has been proving to be time consuming this year, according to Omega Energia.

Bernardo Bezerra, director of Innovation, Products and Regulatory at Omega, told Reuters that the sluggishness on the regulator’s side has been a hindrance to new renewable projects, even more than the high prices of wind and solar equipment.

According to him, the company’s grant requests that were made until March this year have not yet been forwarded by Aneel. Typically, the time to obtain a grant was three to four months.

When questioned, Aneel said that it has been efficient in the instruction and issuance of grants, although it recognizes that there has been a large increase in requests due to the regulatory change.

Between the end of 2021 and the beginning of this year, around 4,000 requests for grants for new plants were filed, almost double the number of grants that have already been effectively issued in the last seven years, said Aneel. This year, through mid-October, the agency issued 989 grants.

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