Interview: Large-scale PV in Brazil should be perfect fit for auction, says solar association president

pv magazine: Mr. Sauaia, the Brazilian government decided to include solar in just one of the auctions to be held this year. How does ABSOLAR view this decision?
Rodrigo Sauaia: ABSOLAR considers that there is no reasonable justification for the discriminatory exclusion of PV from the A-6 auction. The arguments put forward by the government that the implementation of the technology is not fast enough and that it would be difficult to calculate the prices of the energy in the longer term have no technical or economic basis. The PV source not only has the same implementation speed as the wind source, which instead was included in the auction A-6, but is often contracted to be delivered in 5 years, a model applied in several countries. Even in Brazil, the PV source had already participated in two A-5 auctions in the past. That means there is no historical backing for this measure. We consider that the decision was a serious mistake, which should be avoided in the future. Equality and justice for the sector is necessary, incorporating it in all auctions of electric energy of the country, without discrimination or subjective prejudices. However, the inclusion of solar PV in auction A-4, to be held on December 18, is an important signal of the resumption of contracting PV projects after the cancellation of the 2016 auctions. In addition, we are asking the government to hold an additional auction for solar in the first quarter of 2018, with project completion scheduled for mid-2020, to recover the continuity of contracting and the adequate development of the Brazilian photovoltaic solar sector.

Which volume of PV projects do you expect will be contracted in this year's A-4 auction?
This information will only be known after the auction will be concluded and will depend on the allocation made by the government. ABSOLAR’s recommendation is that the government maintains an annual contracting in the range of 2,000 MW, a volume capable of promoting the adequate development of the entire supply chain of the solar industry. We had this level of contracting in 2015, with two auctions that included the participation of solar.

Are you expecting a further fall in prices in the auction?
There are several factors that need to be taken into account in this analysis, some of them point to a reduction and others to a rise in prices. On the one hand, the costs of solar continue a path of reduction in the medium and long term. However, a slight increase is possible in the short term, due to the increase in the seasonal demand of some countries such as the U.S. and China, but the long-term trend prevails. I am optimistic and believe that the intense competition planned for the A-4, which had more than 18.3 GW in pre-selected projects, as well as the diversification of financing models, will contribute to a reduction of prices in the auction of this year.

Do you think that the winning projects of the auction will be better positioned for construction in relation to those selected in the previous years?
ABSOLAR market research indicates that only some of the 2014 auction projects had problems for delivery due to strong turbulence in Brazilian macroeconomics and politics during that period. For the A-4 of this year, a delivery period of four years is available, which is considered comfortable by developers and brings more security for the execution of the projects. However, in order to determine whether these projects will be better positioned compared to previous auctions, we should expect the definition of the ceiling price and contractual conditions, two crucial elements that have not yet been finalized.

Will the Brazilian states with the best transmission infrastructure get more contracts?
Solar is attracting a lot of interest in all regions of the country, because the Brazilian solar resource is very high and well distributed in the national territory. There are projects registered for the next auction in the northeast, southeast, north and central-eastern regions of the country. The northeastern region has the best solar resource, but may have to compete with wind for power transmission, due to restrictions on the region's flow capacity. On the other hand, many projects are beginning to be registered in the Southeast and Midwest, where there is a flow margin available. With this factor, we have a new variable relevant for entrepreneurs: in addition to a project with competitive energy, they will need to evaluate the availability of transmission to have greater possibilities in the auction.

Do you believe that, as is happening in countries like Chile or Argentina, also in Brazil will it be possible to close PPAs between private entities in the near future?
From the regulatory and legal point of view, there are no obstacles to the realization of energy sales contracts between private entities, just as it is happening in other Latin American countries. In Brazil, this would occur in the so-called Free Contracting Environment (Ambiente de Contratação Livre – ACL). However, there are two challenges for contracting in this market: the first is direct competition with projects from other sources, such as old and already amortized hydroelectric plants, which can offer more competitive prices for being old and already depreciated investments. A second factor is the difficulty of finding financing for these PPPs, whose deadlines in Brazil vary between two and five years. This period of time is extremely short for the investment cycle of a PV plant. That is why, at this stage of technology in the country, the 20-year contracts offered by the government in the auctions of the Regulated Contracting Environment are more attractive. When PV technology reaches a higher degree of maturity in Brazil, a greater contraction in the ACL will be natural, as we are now observing in the national wind sector.