The auction, known as the A-5, was postponed from April to 16 August to give more time for project developers to obtain environmental licensing. It offers 20-year contracts for projects, which must be delivered by 1 January 2017. It was designed for medium or large power generation projects such as hydroelectric and thermal plants, which take more time build.
"This is good news for the wind power industry in Brazil," said Joao Carlos Mello, chief executive of energy consultancy Andrade Canellas.
Participation in the A-5 auction had long been a plea by Brazilian Wind Power Association Abeeolica, which wants a guarantee of at least 2GW wind power a year through contracts. Developers have until 18 April to register new projects for the auction.
This is the second time wind-power projects have been allowed to enter the A-5 auction. Last year, wind projects were responsible for 976MW of the 1,211MW of installed capacity commissioned through the A-5 auction. The average price for wind power was BRL 105/MWh ($58/MWh). The rest of the power sold came from two biomass and one hydroelectric project at 100MW and 135MW respectively.
According to Nivalde de Castro, the co-ordinator of the electric power sector studies group at the Federal University of Rio de Janeiro, the A-5 is a good opportunity but, as in 2011, he expects larger players to stay away.
"There is too much uncertainty because of the long-time frame for the start of commercial operations," he said, pointing out that it takes between 18 months and two years to build a wind farm in Brazil. "Larger companies don't want to take on the risk of having to offer power in the non-regulated market."
But larger players will be attracted to the A-3 auction, in which wind projects make up 51% of the 25.85GW in installed capacity already registered. The auction was scheduled to take place last month, but the government has postponed it until June. Despite the delay, the mandatory start date has not been moved from 1 January 2015.
Deadline pressure
"The delay means we don't have the full three years to start operations - it becomes two-and-a-half years and this could be a tight schedule to get all the necessary licensing and financing in place after winning," said elbia Melo, executive secretary at Abeeolica. "The auctions should really be held at the beginning of the year to allow for delays."
Developers risk a fine if they do not build their projects on time. The government gives them some leeway if the delay is caused by problems with licensing or connection to the grid. In these cases, the regulator Aneel has to approve a new start date for commercial operations and can waive the fines.
The government set a maximum price of BRL 116/MWh for the auction. It is not expected to change this, despite citing a lack of demand from power from distribution companies as the reason for the delay. But this could result in prices coming down.
"There will be more offer than demand at the A-3 auction," said de Castro. "Distributors have to fine-tune their demand and adapt to a slower economy."
Brazil's GDP grew only 2.7% in 2011, compared with 7.5% in 2010. This in turn has reduced power demand, which rose by 3.6% in 2011 compared with 7.8% in 2010. This could result in lower prices since local interest rates are also falling. In 2011, average prices for wind-power contracts at the A-3 auction were BRL 99.58/MWh, down from the maximum price of BRL 139/MWh.
For Andrade Canella's Mello, who has consulting and engineering contracts with three projects registered at the A-3 auction, the delay is a cause for concern because of the timeframe, but on the upside it will allow more time to negotiate better terms with suppliers. "Now we can go back to the projects and do some fine tuning," he said.
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