Wave of Energy Auctions to Spur $8.2 Billion in Brazil Spending

(Bloomberg) -- Brazil is expecting to see about 27 billion reais ($8.2 billion) invested into the country’s energy infrastructure over the next six years, the result of an end-of-year flurry of auctions aimed at boosting its electricity capacity.

Energy companies won contracts to build about 5,000 kilometers (3,100 miles) of new power lines and more than 4.5 gigawatts of power plants, in a trio of auctions over the past week.

The events led to record low power prices, with strong competition dragging one auction out to five hours. They reflect both growing demand for power and increasing confidence as Brazil’s economy starts to recover from the worst recession in a generation, according to Luiz Augusto Barroso, head of the government’s Energy Research Agency, EPE.

“Brazil has once again became an interesting investment hub for large-scale investments,” he said.

Brazil will end 2017 with power consumption levels similar to the ones from 2014, mainly due to a decline in industrial production. That’s expected to increase next year, as Brazil’s gross domestic product is forecast to expand by more than 2 percent, and almost 3 percent in 2021. As a result, electricity consumption is anticipated to swell 3.7 percent from 2017 to 2021, according to EPE estimates.

“Brazil’s electric sector has become an oasis for investors,” said Reive dos Santos, director of the country’s power regulator Aneel.

Power lines

International energy companies dominated the power-line auction on Friday. After long lines to enter Sao Paulo’s B3 exchange where the event was held, France’s Engie SA, India’s Sterlite Technologies Ltd. and Neoenergia SA -- majority-owned by Spain’s Iberdrola SA -- were among companies that won the right to build transmission lines at prices averaging 40 percent below ceiling values set by regulators.

The auction will spur 8.75 billion reais in spending to build power lines crossing 10 states, mainly in the northeast.

“The power-line auction showed investors’ confidence,” Brazil’s President Michel Temer said on Twitter. “More than 17,000 new jobs will be created directly and consumers will save billions of reais over 30 years.”

Solar and Wind

Solar and wind power stood out in auctions Monday and Wednesday for new power plants. A total of 574 megawatts of new solar farms and 1,387 megawatts of new wind parks won contracts to sell electricity, as the government seeks to increase installed clean-energy capacity by 19 gigawatts by 2026 to diversify the local grid.

The auctions were the first in two years for wind and solar developers. The government canceled two auctions in 2016 as the recession curbed electricity demand. That put the brakes on the nascent solar industry and stifled the wind industry’s supply chain.

With pent-up demand, the events were competitive, dragging down prices for solar and wind. Solar was sold at an average price of 145.68 reais a megawatt-hour on Monday, while wind developers won contracts at an average of 98.62 reais per megawatt-hour on Wednesday, both record lows.

“Brazil has gotten onto the radar of countries that are buying renewables for prices below $40 a megawatt-hour,” said Luiz Barroso, president at EPE. “Prices we’ve seen today are in line with the ones seen in the rest of the world.”

“Wind technology is improving -- there are new machines with better capacity factors,” said Marcos Meireles, founder of Brazilian energy company Rio Energy. “The Brazilian wind market is more mature and Brazil has a better macroeconomic scenario. All these factors push wind power prices down.”

To contact the reporter on this story: Vanessa Dezem in Sao Paulo at vdezem@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Will Wade, Joe Richter

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