Brazil to hold contract termination auction by September

27 April 2017, Week 16, Issue 555

Brazil is planning to terminate a number of previously awarded renewable energy contracts by September, as it tries out new so-called ‘reverse auctions.’

The unusual measure will allow companies to cancel licences to build renewables plants, giving those that are struggling financially the chance to opt out of projects.

The contracts will be terminated via a reverse auction that will take place before September, the Ministry of Mines and Energy said in a statement. 

Firms will bid for the right to cancel the licences, and the winners will be those that offer the government the highest termination fees, it added. The fees, which will have to be paid in one instalment, will be calculated from the amount of energy in megawatts that each project would generate in one year.

To take part in the reverse auction, projects must have been secured during reserve energy auctions and cannot yet have entered into test operations.

One month before the date of the auction, the national power sector regulator Aneel will publish a list of all generation projects that are allowed to take part in the procedure, the ministry said. 

Once the projects have been formally cancelled, the government will be able to pass them on to other companies. In so doing, the government hopes to reignite investment in the sector, which has been hit by the country’s ongoing recession.

Opting to take part in the auction is something of a catch-22 for developers. While paying to cancel a project might appear counter-intuitive, they will face penalties if their projects do not begin generating within an allotted time after their award. 

Brazil is also intending to hold a new reserve renewable energy auction by September, according to reports. Wind, solar, hydropower and biomass are expected to compete in the tender.

The renewables sector has grown rapidly in the last decade, propelled by cheap credit and high demand for power while the economy was booming.

However, since 2015 the collapse in the price of oil has weighed heavily on the country, with economic output sliding by more than 7% in the last two years, resulting in one of the worst recessions Brazil has seen.

Six solar power developers wrote to the government last year asking if they could delay the start-up of a number of solar farms by two years, citing poor market conditions.

Edited by

Andrew Dykes

Editor

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