Brazil’s backup energy tender set to generate US$1bn in investments

Brazil is expected to see nearly 6bn reais (US$1bn) in investments related to contracts closed in a thermal backup energy tender held on Tuesday by the mining and energy ministry.

The auction hired power from new and existing plants, with supply starting in 2026. All contracts will be for 15 years and most of the investments will come from new plants.

The auction was the first in Brazil to contract backup capacity and attracted 132 projects, involving 50.6GW of capacity.

The 17 winning plants will provide 4.6GW of energy to supply national grid operator ONS. Of the winners, nine are plants powered by gas, one by sugarcane bagasse, two by diesel and five by fuel oil. 

Winners include Petrobras, Neoenergia and Eneva, along with projects of Global Participações, Delta Geração, Geramar, LGSA, Paranaíba, Portocem, Termopernambuco, Tevisa, Trombudo and UTLP.

Only four of the winning projects are new thermal plants.

“They are few, but large, representing 2GW. Considering that the auction contracted 4.6GW, we’re talking about more than 40% coming from new thermal plants," Alexandre Americano, founding partner at power trader Mercurio Partners, told BNamericas.

“The clusters of Petrobras and Eneva were usual suspects [for the tender]. The big surprise was the seven thermal plants powered by oil," Americano said.

The seven fuel oil and diesel plants involve existing projects and only qualified for the bidding due to injunctions granted by courts, as their operating costs exceeded the limit set by the government.

The average price of contracted power in the tender was 824.553 reais MW/year. 

The figure represented a discount of 15.3% on the auction's ceiling price.

"It was a good haircut, [which will generate] savings of more than 10bn reais for end-consumers over the reserve capacity contracts," André Patrus, executive manager at power regulator Aneel's auction department, told a press conference.

According to Americano, demand was as expected and the discount low. Mercurio had projected contracting to range between 4GW and 5GW.

The average tender discount was pulled down mainly by the "extremely low" discount of Neoenergia's Termopernambuco, whose bid was 487,000 reais MW/year, according to the trader.

Petrobras' participation was small, with a little more than 1.5GW being contracted, but it was also somewhat expected, according to Americano.

FLEXIBILITY

The auction model of flexible demand is considered innovative. Under this format, ONS will make use of power contracted according to demand.

The idea is that these thermoelectric plants are available to contribute power to the electrical system when renewable generation is at its lowest, ensuring customer service even at peak demand.

Americano expects new auctions in this format to take place next year, to buy capacity reserves for 2027 onwards.

“We will only know if everything was successful when the thermal plants start operating,” he said.

“But of the players that took part in the tender, practically all are first-grade, established companies that are already used to the sector, familiar with risk management and with the need to have a good supply of gas to supply this flexible product.”

Detailed results of the tender can be found here