On Tuesday, the Brazilian state of Pernambuco signed the second power purchase agreement (PPA) with developers for 50 MW of solar PV from projects approved under a 2013 auction. Developers Kroma Energia and Cone were each granted approvals under the 2013 auction, and the US$57 million project represents a collaboration between the two companies.
GTM Research notes that while the government of Pernambuco facilitated these auctions, that final details of contracts were negotiated between the developers and off-takers. He says this is part of the reason that PPAs for projects awarded in 2013 are being signed a year and a half later.
"Delays can be attributed both to a lack of commercial clients interested in power purchase agreements at the bid prices, and to project development issues – particularly taxes on capex, forex risk, and financing," notes GTM Research Senior Solar Analyst Adam James.
"At this point, the pricing of the solar contracts is more attractive due to increased electricity pricing on the wholesale power markets, so commercial clients are coming around."
James says that utility-scale solar projects in the nation face a number of development risks. "Foreign exchange risk is prominent, notably for the Real against U.S. Dollar," explains James. "With power purchase agreements signed in Real, developers are highly exposed to currency fluctuations."
And while high taxes in Brazil are also an issue, the project will be spared at least one tax. As of last Friday, Pernambuco is giving wind and solar projects an exemption from the Tax on the Circulation of Goods and Services (ICMS).
Kroma Energia and Cone plan to utilize up to 60% local content in the project, with components produced in the state of Pernambuco. The plant will be built in the city of Flores, and the companies expect an output of 80 gigawatt-hours (GWh) annually.
Pernambuco held Brazil’s first auction for solar energy systems at the end of 2013. Six projects were approved, and the first PPA from that auction was signed with Enel Green Power, which began construction on its 11 MW project in February.
For the other projects, a PPA is only one step. "Signed PPAs don’t mean the projects will get built," clarifies James, noting that these projects – including the Kroma Energia/Cone project – still have financing to secure.
Update: This article was modified at 13:00 EST on August 19 to include commentary by GTM Research.
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