What to expect in Brazil’s 2020 power auctions

Brazil will hold six tenders to contract power generation projects in 2020 and the contracts awarded are expected to involve higher volumes with greater participation of gas-fired plants and renewables, especially wind and solar projects.   

The government will hold two tenders to buy electricity from existing plants, the A-1 and A-2 auctions in December, and two for new projects, namely A-4 and A-6 in April and September, respectively. Two more rounds, another A-4 and an A-5 tender in April, will for the first time contract power supply from new plants and existing units simultaneously, replacing diesel-fired plants with less expensive and less polluting gas-fired units.  

The expected higher volumes reflect forecasts of economic growth in the coming years. Brazilian economists who are surveyed weekly by the central bank expect the economy to expand this year by around 1% and then accelerate to around 2.2% in 2020.  

However, “those tenders do not depend on the effective economic growth in 2020 as they reflect the economic perspectives for the next three to four years,” Fabiano de Britto, infrastructure and energy partner at the Mattos Filho law firm, told BNamericas. “We expect growth in energy consumption in the coming years not only due to the economic recovery but also due to the changes in the energy matrix.” 

The expected greater role of gas-fired plants reflects not only the need for more constant supply to compensate for growth in intermittent generation from renewables but also forecasts of natural gas price reductions after the ongoing opening up of the downstream and midstream markets to private investors. As a result, there should be steep competition between thermopower plants fired by imported LNG and those fired by natural gas from Brazil's pre-salt fields.   

“Lately, solar and wind power were dominating the tenders, but the national power system needs this security offered by thermopower projects,” the president of consultancy firm Thymos Energia, João Carlos de Mello, told BNamericas.   

TRANSMISSION  

Brazil will also hold two transmission tenders in 2020, in June and December. According to Mello, the concessions for power lines and substations offered in those auctions should be smaller than in previous years, which will guarantee the entrance of small and medium-sized companies into the sector.   

“From now on, the trend is that the lines offered in the auctions are not so big as in the previous ones. Works now will be regionally located, focusing on guaranteeing the connection to wind, solar and thermopower projects. Those are smaller concessions, but as important as the largest ones,” Mello said.