Brazil’s plan to auction 3.5 GW of photovoltaic capacity through 2018 comes as welcome news for the global solar industry as the ambitious plan is expected to drive solar growth in Latin America, according to a new report from IHS Technology.
The Brazilian Electricity Regulatory Agency (ANEEL) announced a reserve capacity auction slated for October to contract new power-generation capacity to hedge against unexpected drops in power supply. The auction will offer separate categories for different technologies. This approach will benefit the PV market compared to the regular new-capacity auctions, in which multiple renewable power technologies compete, a method that gives an advantage to wind, IHS says.
Exactly how much capacity will be awarded has not yet been disclosed, but IHS expects about 500 MW to be available for PV projects in the first round. The ceiling price for the 20-year power purchase agreement (PPA) for bids is likely to be set at approximately BRL 250 per megawatt-hour (MWh), or $112 per MWh.
"Bids will be highly competitive," said Josefin Berg, IHS’ solar demand senior analyst. "We expect bid prices to fall to less than BRL 200 per MWh, in line with offers from previous Brazil auctions where solar failed to compete with wind."
In view of the announcements, IHS has increased its installation forecast for the country in the latest edition of IHS’ Emerging PV Markets Tracker report, predicting that its annual installed solar capacity will rise to 1,023 MW in 2018, up from 167 MW in 2013.
Drought conditions push up power prices
IHS points out that Brazil is currently suffering a challenging year in power generation due to extreme drought conditions that have threatened electricity supply and forced an increase of costly thermal power generation. As peak wholesale power prices top $400 per MWh, alternative sources of generation have become attractive in the short term.
"Markets like Brazil that combine high solar resources and elevated power prices create opportunities for PV," Berg added. "The main constraint in Brazil is the price uncertainty in long-term power, tied to meteorological factors; revenue levels cannot be guaranteed without a PPA."