Brazil to Let Developers Cancel Contracts for First Solar Farms

(Bloomberg) -- Brazil will let clean-energy developers cancel their contracts to build the nation’s first large-scale solar farms, reversing an earlier decision.

The Ministry of Energy is drafting new rules to let developers get out of the contracts, and is still discussing possible penalties for companies that had pledged to complete the power plants by October 2017, according to the ministry’s Planning Secretary Eduardo Azevedo.

The move is a shift, after the Ministry took a hard line in June against developers that had won the contracts in 2014 and requested extensions earlier this year. Clean-energy companies had said the weak economy was making it hard to line up financing or supply deals, and they wanted more time to finish the projects. The government initially said it would impose fines of as much as 5 percent of the solar farms’ proposed costs, and the new rules will be lower, Azevedo said Tuesday.

“The idea is to cancel contracts now in a friendly way,” Azevedo told journalists at an event in Sao Paulo. “Thus, we can zero out the liability of default, zero out the list of projects that can generate problems in our planning with indefinite deadline extension requests.”

Solar Auction

Brazil held its first national energy auction with a dedicated category for solar power in 2014, and eight companies including Renova Energia SA, Rio Alto Energia, Canadian Solar Inc., and Enel SpA won contracts. A group of seven -- all but Enel -- requested the extension in February for their 3 billion reais ($928 million) of planned solar farms.

Companies won contracts to sell power at an average price of 215.12 reais a megawatt-hour in the auction, worth about $87 at the time. After the economy and the currency slumped, that’s now worth about $67, making it more expensive to import solar panels.

“The real devaluation can make projects nonviable,” said Azevedo. “The capacity that Brazil needs is the one that can be realized. A project that goes into operation with a non-feasible price it not good for us. Even if we postpone deadlines, some projects will never come online.”

To contact the reporter on this story: Vanessa Dezem in Sao Paulo at vdezem@bloomberg.net. To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Will Wade, Stephen Cunningham