The Brazilian Ministry of Energy is poised to "amicably" cancel power purchase agreements (PPAs) worth 670 MW awarded in the countrys first solar tender after six companies requested a reprieve from the contracts due to unfavorable currency fluctuations.
Speaking at the Intersolar South America exhibition yesterday, Eduardo Azevedo, responsible for planning and development at the Ministry of Energy, said that the government would be willing to adapt the legal framework for solar companies awarded PPAs in the 2014 tender.
The contracts oblige these six firms to provide solar energy at the agreed rate by October 2017, but their request for cancelation based on the subsequent devaluation of the real against the U.S. dollar is likely to be accepted.
However, the ministry will seek to levy a penalty of less than 5% of the cost of the original project on each company, Azevedo warned at the Sao Paulo event.
The 670 MW likely to be canceled represents 70% of the energy auctioned in the first tender. The six companies requested earlier this year to modify the delivery schedule of the contracts they won. This request was originally rejected by the National Electric Energy Agency (Aneel) in late June.
According to the minutes published by Aneel, Canadian Solar (90 MW Minas Gerais project), Cobra Group (270 MW Sao Paulo project), Fotowatio (150 MW projects across Ceara and Bahia), Renova (100 MW project in Bahia), Rio Alto (30 MW project in Paraiba) and Inhare (30 MW project in Rio Grande do Norte) requested the cancelation of these PPAs.
Brazil does not issue PPAs from its solar tenders in U.S. dollars, unlike Chile. Hence, the average price of 215.12 reais ($87 dollars at the time) per MWh struck in the bidding in 2014 is now worth less than $66/MWh.
The devaluation of the Brazilian currency is not the only obstacle standing in the way of the realization of these projects. The companies also argued in their petition that throughout 2015 Brazil failed to create a solar production chain, which has directly resulted in difficulties in accessing competitive financing. The local content requirements for access to such favorable financing are thus hampered by a lack of local industry.
A two-year postponement of these PPAs, argue the firms, would offer sufficient scope and time for them to finance their projects either via BNDES (the Brazilian Development Bank) or with the use of imported materials. Such a model is followed by Enel Green Power, which self-funds its own solar projects in Brazil.
"The generation capacity that Brazil needs is what can be realized," said Azevedo. "A project that goes into operation with a non-viable price is no good for us. Even if we postpone deadlines, some of these projects will not connect to the network."
If the PPAs are canceled, there could well be an increase in the solar power available to tender later this year. Brazilian solar association Absolar has demanded that the government backs the installation of 2 GW of new capacity annually if the country is to create a viable solar industry and meet the energy targets proposed.
Article translated by Ian Clover. The original Spanish-language version appears on pv magazine Latam.