Coronavirus threatens Brazilian power auctions
The power generation tenders that the Brazilian government had planned for this year are now at risk due to the coronavirus and its impact on the economy and energy consumption.
“Even before the crisis, there was already an uncertain landscape regarding demand for big power projects via tenders, since Brazil is undergoing an expected change in its electricity regulatory framework, as well as strong growth in distributed power generation. This makes distributors more averse to risks,” Lívia Amorim, a lawyer specialized in energy and regulations at law firm Souto Correa, told BNamericas.
The confirmation Wednesday that energy minister Bento Albuquerque had been infected with coronavirus has only added to the expectations that some tenders could be postponed.
Brazil plans to hold six tenders to contract power generation projects in 2020. Two tenders will buy electricity from existing plants (the A-1 and A-2 auctions in December) and two others are for new projects (the A-4 and A-6 auctions in April and September, respectively).
The A-4 and A-5 tenders scheduled for April will contract power supply from new plants and existing units simultaneously for the first time, replacing diesel-fired plants with less expensive and less polluting gas-fired units.
The prices in those two auctions are seen as crucial to reflect the expected reduction in natural gas prices in long-term contracts, as part of the federal government's program to open up the sector to private investors and stimulate competition.
Distribution power companies base their calculations of the amount of electricity they buy in the tenders on economic growth forecasts, which are now suffering downward revisions due to the Covid-19 pandemic.
The 100 economists that are surveyed each week by the country's central bank have lowered their average GDP growth forecast for 2020 to 1.68% (published March 13) from 1.99% a week earlier and from 2.23% four weeks prior. And a recent analysis by Credit Suisse says that Brazil's growth rate could be zero this year.
The coronavirus is also affecting power generation companies, since they depend heavily on equipment imported from China for their projects, and the depreciation of the Brazilian real is making investors uneasy since most imported equipment is priced in US dollars.
“With the spread of the crisis to other countries, the effect we saw coming from Chinese suppliers will now also be felt by other providers. This will have a repercussion on the contracts, but there are no other alternatives to manage it at this point,” said Amorim.
Projects are also being delayed because of stricter health inspections by Brazilian customs authorities, Fábio Di Lallo, an attorney specialized in the power market at law firm Souto Correa Advogados, told BNamericas. So far, the worst affected power market segments are solar power and other distributed power generation projects, according to Di Lallo.
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