Brazil plans to hold 7 power generation tenders a year until 2025

Brazil plans to hold seven power generation tenders a year in 2023-25, the mines and energy ministry (MME) announced on Thursday. 

Local experts consulted by BNamericas believe interest will be tepid for some of the auctions scheduled for next year due to the expansion of the non-regulated and distributed generation markets.  

Of the tenders, backup capacity auctions under Eletrobras’ privatization law will be held next July; the A-4 and A-6 new energy tenders in August; the isolated system (i.e. areas not connected to the national grid) auctions in October; the backup capacity tenders in the form of potency in November; and the A-1 and A-2 existing energy auctions in December. 

According to MME, the distribution agents must submit the forecasts of the need to contract in the A-4 and A-6 auctions by September 15 of the previous year. 

The objective is to know the utilities' demand before the publication of the guidelines for the auctions, allowing for more precise planning.

The government is also considering holding annual auctions for additional backup capacity in the form of potency in case this need is indicated in energy planning and electric system operation studies.

Likewise, the auctions for isolated system supply are conditioned to the contracting of the supply solution for expanding the offer presented in the planning studies, carried out by federal energy research company EPE.

Henrique Casotti, a partner at Genco Energia, believes there will be low demand from power distributors, as seen in the auctions held this year. 

“Despite the existence of old contracts expiring, the distributors were very conservative in the [demand] declaration this year, possibly given the strong growth of distributed generation and the expectation of market opening. So I believe this should also be the case in 2023,” Casotti told BNamericas. 

Regarding the A-4 and A-6 tenders, the regulation director and partner at Mercurio Partners, Eduardo Faria, thinks the demand will be low for the same reasons. 

“The expectation is that the potential winners of these auctions will be renewable source projects, in particular small hydro plants, which will have 50% of the total auctioned demand reserved, as per the privatization law of Eletrobras,” he told BNamericas. 

The legislation calls for mandatory contracting of 2GW of small hydro plants and 8GW of gas-fired generation units by 2030.  

The gas-fired tender in July 2023 will contract a yet to be defined amount in the north, center-west and southeast regions  

“For the backup capacity auction in November 2023, the demand is expected to be around 5GW, taking into account the capacity contracted at the Eletrobras auction, which will take place earlier,” Faria said. 

He added the power to be hired in these last two auctions will play an important role in the reliability of the system after 2028.

Also on Thursday, MME announced the beginning of a public consultation on what is called Brazil’s first margin competitive procedure (PCM), scheduled to take place in the first half of 2023. 

The objective of the auction is to provide greater efficiency in the allocation of transmission resources and the maximization of network use.

“This procedure will help in the viability of renewable energy projects in the free market,” Faria said.