Brazil raises the price cap for its November solar auction

Brazil’s National Agency for Electrical Energy (ANEEL) announced on Wednesday that the maximum price for solar projects in the auction this November has been set at 381 Reals per MWh (US$99/MWh).

This is higher than the maximum price of 349 Reals that was set for the solar auction held in August, under which the average price of awarded projects was 302 Reals.

GTM Research Senior Analyst Adam James says that the higher price ceiling increases the odds that solar projects which are awarded will actually get built.

"The key variable now will be how much less the final clearing price is below the ceiling price," explains James. "Given the competition in past auctions, we could still see a highly competitive auction process pushing those prices lower."

The Real has depreciated 40% versus this U.S. dollar over the last year, and James calls currency risk the "number one problem" for utility-scale PV in Brazil.

"Contracts signed in past auctions have significantly lost their value, which has certainly been an issue for any developers that did not lock in their equipment prices at the time of the tender in hopes that currency would recover," notes James. "Looking ahead, collecting revenues in Real also presents a challenge for any companies seeking outside debt financing."

James says that policy changes could ease the problems developers face with currency risk. "Even assuming higher power contract prices and lower-cost financing from domestic development banks – higher capital expenditures from the use of local content will put downward pressure on project returns," says James.

"The passage of tax exemptions, or a loosening of the restrictions on qualifying for development bank financing, would go a long way towards helping projects get across the finish line."

For this next reserve auction, which will take place on the 13th of November, 20.953 GW of PV projects have pre-registered. This auction is open to participation from wind and solar projects.

This is the third auction in a special category for wind and solar projects at the national level in Brazil. Around 1 GW of projects were awarded in each previous auction.

Brazil recently doubled its solar goal to 7 GW in 2024.

This article was modified on October 14th at 2:30 PM U.S. Eastern Time to include commentary by Adam James.

Translation and additional reporting provided by Christian Roselund. The original article in Spanish can be read on the pv magazine LatinoAmérica website.