Why expectations for Brazil’s next backup capacity tender are low

Scheduled for August, Brazil’s next backup capacity tender is unlikely to attract much interest due to the energy surplus in the country. 

That is the assessment of Adriano Correia, a partner at PwC Brasil. 

In this interview, Correia also analyzes the scenario for two other auctions being studied by the government and for distributed generation.

BNamericas: What are your expectations regarding the backup capacity tender scheduled for August? Do you believe that energy storage systems will be able to participate?

Correia: I think it will be complex to include storage in this auction now because of the lack of regulations. 

And this auction already has its complexities. We're in a different period in the market, with an oversupply of energy and distributed generation still growing a lot. So we need to assess how it will actually attract interest. 

BNamericas: Even though we didn't hold a capacity auction last year and despite the less humid summer we’ve just had? 

Correia: There are, indeed, some factors in its favor. The summer was less humid and there is a forecast of a drier period in the coming months. We'll have to see what the hydroelectric reservoirs look like in October [when the dry period ends]. 

BNamericas: But the auction is scheduled for August. Was it a mistake for the government to set this schedule?

Correia: I can't say whether it was a mistake. The point is that, today, no one in the market can say what will happen in October. In any case, I don't believe it will be a super auction, with very high attractiveness. 

BNamericas: Couldn't the auction simply fulfill the role of replacing contracts that are coming to an end, without necessarily adding power to the system?

Correia: I think so, but perhaps with a slightly smaller volume, in order to balance out the issue of oversupply in the system. 

BNamericas: What is your view of the A-4 and A-6 auctions, which are due to take place in December? Are there any signs of demand from the distributors?

Correia: I don't think so. It's unlikely that there will be demand for new energy. From what I've been following in the market, the appetite is low. 

Editor's note: The A-4 and A-6 auctions, which are being analyzed by the government, provide for the contracting of greenfield projects.  

BNamericas: How do you assess the scenario for distributed generation, considering the gradual taxation of these projects provided for by the regulatory framework?

Correia: As subsidies are withdrawn, the tendency is for growth to slow down. But DG will continue to play an important role, complementing centralized generation and other technologies. 

I think it's important that we think of a way out of the subsidies for DG, so that we can have the capacity to invest in other technologies.

BNamericas: Should DG go through a process of consolidation, since it is still a very pulverized market?

Correia: Yes, I think that will be the next step, once it starts to experience a lower growth rate.