Brazil Small Hydro Developers Expect ‘Weak’ Auction Results

(Bloomberg) -- Clean energy developers in Brazil are concerned an energy auction Friday won’t provide enough contracts to sustain the small hydroelectric power industry.

About 400 megawatts of new contracts is the minimum needed to support the industry’s supply chain, according to Paulo Arbex, president of the Brazilian Association of Small Hydropower Plants, known as Abrapch.

“Less than that would condemn the hydroelectric chain in the country,” Arbex said in a telephone interview Thursday. “The government has said it will be difficult.” Ideally, he’d like to see at least 500 megawatts of contracts to ensure there are enough new projects in development to maintain the health of the industry.

The auction will award contracts to sell power from two categories of small hydro projects, those with as much as 30 megawatts of capacity and power plants as big as 3 megawatts. Brazil is facing an energy surplus and the government is focusing on addressing the problems of distributors, which have already signed contracts to purchase more power than they need.

‘Weak’ Auction

“We’re not expecting much -- the auction will be weak,” said Thais Prandini, director of Thymos Energy, an energy consulting firm. “The biggest problem for the small hydroelectric projects is that wind projects in Brazil got cheaper and took over the hydro space.”

Hydroelectric projects are increasingly more expensive and have a more bureaucratic, time-consuming approval and licensing process, according Prandini.

In 2014 and 2015, Brazil awarded contracts for 274 megawatts of small hydro power, compared to 3,423 megawatts of wind, 2,862 megawatts of solar and 4,602 megawatts of natural gas power plants, according to Abrapch.

Brazil’s energy research agency EPE approved 64 hydroelectric projects with a total of 641 megawatts of capacity to participate in Friday’s auction. Developers that win the auction will have to start delivering energy in March 2020.

The ceiling price for the auction will be 248 reais ($77) a megawatt-hour. In Brazil’s power auctions, the government sets a ceiling price and developers bid down the price at which they are willing to sell power. The lowest bids win contracts with distributors.