Why Brazil’s next transmission tender will be challenging

Brazil is set to hold a major power transmission auction on June 30, with investments forecast at 15.7bn reais (US$3.3bn). 

The auction is expected to attract major players to bid for the construction and maintenance of nearly 6,200km of lines and 400MVA of transformation capacity. 

In an interview with BNamericas, the CEO of ISA CTEEP, Rui Chammas, explains why the auction will be challenging.

BNamericas: What are your expectations regarding the upcoming transmission auction on June 30?

Chamas: We’re at a superlative point in time as a reflection of the high investments in renewable energy, especially in the north of Minas Gerais state and in the northeast region. 

So now we need to connect this intermittent renewable energy generation capacity to the center-south. The more we can connect it and put it on the grid, the less intermittency there will be. 

The auction is huge, it brings very good opportunities for the transmission sector. But it’s also superlative in terms of challenges. The lots are very large, which makes this auction more challenging without a doubt.

BNamericas: There are cases of lots in remote areas which will involve logistical challenges, right?

Chammas: More than the logistical issue, there will be a concurrence of environmental permitting, which could delay the processes. 

There are lots, such as lots 1, 2 and 6, that go through quilombola areas [settlements first established by escaped slaves] that are demarcated and not demarcated, and the permits to go through these areas can be complicated. And it’s not always simple to go around these areas 

Lot 7, for example, has more Atlantic forest. Others, like lots 3 and 4, have irrigation pivot areas, which also require a detour. 

Lot 5 has a power substation that is expanding in river spring areas, so it can't go ahead there. It will be essential to resolve that issue. 

And Lot 9 is a substation of ours, Água Vermelha, which has very complicated ground. 

Consider all this in an environment of high interest rates and inflation, and we have an extremely difficult auction to model. But we’re working and seeking as much knowledge as we can. 

And that is not to mention the longer lead times for equipment delivery by suppliers. The energy transition is a reality in Europe because of the war in Ukraine. And the US wants to accelerate renewables. All this has generated very high demand for substations and transmission lines.

BNamericas: What are ISA’s main projects under construction and what are their timelines?

Chammas: In the last 12 months, we delivered six concession projects and one battery project. Today, in the investment portfolio, we have 10bn reais [US$2.1bn] of projects to carry out. Of the total, 5bn reais is linked to five greenfield projects that we won at auction. One of them, dubbed Triângulo Mineiro, should be energized this year, and the others in the coming years. 

Besides this, we have another 5bn reais of projects to upgrade the networks and substations that we have in São Paulo state. These are assets of renewed concessions. We have the responsibility to guarantee that they remain operational by substituting equipment. 

BNamericas: How does the issue of concession renewals work? Can they be renewed without auction?

Chammas: The first cases of our lines that will have contracts that end will happen in 2026. These are talks that are being held between the [mines and energy ministry] MME and [electric power regulator] Aneel. The concessions can be renewed or re-auctioned. Both options are on the table, and it’s up to the authorities to find what is best for society. 

An asset that has already undergone a lot of maintenance or has potential maintenance implies risks for whoever takes it over. There are regulatory issues that need to be discussed by the authorities – both the granting authority and the regulator.

BNamericas: What technological innovations are being developed by the company?

Chammas: I’d like to talk about trends in the world. We increasingly understand that the transmitters will have to equip themselves with solutions like batteries to provide adequate service quality, considering that part of the demand has self-generation [distributed generation] with PV solar panels. In some regions, suddenly the load drops [as solar power is intermittent] and you need to come in with more load. 

This year we had a good level of rainfall and a lot of intermittent generation coming in. For a large part of the year, we didn't have hydroelectric power coming in.

BNamericas: So much so that Brazil has been exporting larger volumes of electricity to Argentina and Uruguay?

Chammas: Exactly. Investments in transmission can be important to carry out integrated planning in the region. I was happy to see the idea of reactivating the connection between Brazil and Venezuela. 

Now, we’re going to have a year with a climatic impact generated by El Niño. This causes some of the energy sources to undergo some stress. So, the more connected countries are, the better. Energy storage and international connection are global trends. It’s even a way of democratizing cheap energy. 

To me, transmission lines are playing the role that roads did in the past, taking competitive energy everywhere. 

We’re facing an opportunity to take advantage of competitively priced energy in order to generate more value for Brazilian products and reindustrialize ourselves.