Solar ready to take more risks in Brazil’s upcoming auction

Solar projects to be selected in Brazil’s A-4 energy auction, which will be held on June 27, will be granted a different kind of contract compared to those awarded in previous auctions of the same kind.

According to information provided to pv magazine by Rodrigo Sauaia, the CEO of the Brazilian solar energy association ABSOLAR, the new contract will be given “by quantity”, and no more “by availability”, as in previous procurement exercises.

“The change from an availability contract to a quantity contract for PV projects selected in electricity auctions of the Brazilian federal government was well received by the solar sector,” Sauaia stated. “It reflects the evolution and growing maturity of solar PV in Brazil, as well as the standardization of contracts in tune with the conditions currently used with other renewable energy sources, such as wind, as well as in the free electricity market.”

“Nevertheless,” Sauaia also said, “it is important to notice that changes in contract structures require adequate adaptation and correct implementation to achieve success.” In this regard, ABSOLAR has recommended to government to include in the contracts the possibility of modulating the electricity generation delivered by solar projects, taking into consideration the optimization of hourly, monthly, and seasonal generation profiles of the technology. “These adaptations were fundamental during the implementation of quantity contracts in Brazil and, similarly, will have a crucial role to improve the results of the transition to new contract structures for the solar PV sector,” he further explained.

The transition from availability contracts to quantity contracts

Quantity contracts, which were initially used only for hydropower, were used for the first time for wind power in the A-6 energy auction of last year, from which solar was excluded.

The quantity contract is a standard financial contract, in which the power generator submits a bid in BRL /kWh and the risk of physical delivery led by the Brazilian national grid operator ONS’s central dispatch is assumed by the plant owner. The availability contract, instead, is a typical call action contract, in which the plant owner is granted a tariff expressed in BRL /kWh to remain available to the dispatch and receive an operational cost every time it is dispatched. In the latter, the risks deriving from the plant's unavailability resulting in a production lower than the amount contracted are taken by the buyer.

Two weeks ago, Brazilian energy agency the Empresa de Pesquisa Energetica (EPE) revealed it admitted 1,581 wind, solar, hydro and biomass projects with a combined capacity of 51.2 GW to the initial phase of the A-4 energy auction, planned for June 27. Of the contenders, 751 are solar projects totaling 26 GW of generation capacity, wind has a 23 GW share from exactly the same number of projects.

Solar should be included in A-6 auctions

ABSOLAR has also urged the Brazilian Ministry of Energy and Mines (MEM) to include the solar source in the three A-6 auction that will be held this year, in 2020 and 2021. “This should be done in such a way that solar power has also the same treatment given to wind power and other renewable energy sources such as biomass and hydropower,” Sauaia also said. According to him, the A-6 auctions will be the most important power auctions in the coming years, due to the lower demand available for contracting new projects in the A-4 auctions. “We are expecting an isonomic approach from the government and justice to be made to the solar sector, which was excluded from previous A-6 auctions,” he added. “We strongly recommend the inclusion of solar in this kind of auctions from this year.”