Total renewables generation capacity is planned to reach almost 90% over the next decade. This dynamic will be driven by wind and solar, as hydropower loses share.
- Brazil has been pivoting towards wind projects (without subsidies) and away from hydropower as its fastest growing source of renewable energy
- Solar energy investments in Brazil offer solid risk-adjusted returns
- We expect 5GW to 7GW of capacity additions over the next five years.
FREE MARKET IN BRAZIL
ACL allows free and special consumers to buy energy directly from generators through Power Purchase Agreements (PPAs). After PPAs dispatch, both generators and consumers can sell and buy their surplus and lack of energy in the PLD or wholesale market.
PLD is similar to the spot price in the sense that is a marginal price, but it does not reflect the real electricity cost at a given time. Instead, this indicates the electricity price in the long-term, taking into account precipitation forecast, reservoir levels, and thermal production costs. PLDs are beneficial for thermal and small hydro developers since they reduce price volatility, caused by fuel cost instability and extreme weather events.
POWER PURCHASE AGREEMENTS
PPAs are also a stable and attractive structure that reduce investment risks. They allow generators that fall short during auctions to still participate in the electric market. In general, the Brazilian power market permits developers to participate through different ways: auctions, PPAs, and wholesale market. Particularly, non-traditional renewable energy has dedicated auctions and are highly encouraged by the government’s desire to reduce its dependence on large hydro, which is strongly affected during drought periods.
Contact Latam Energy Advisors to find out more about the opportunities for power suppliers and industrial consumers in Brazil. Latam Energy Advisors is a specialist in reviewing power purchase agreements and mitigating risks with counterparties.
Paola Moreno, Senior Consultant, Latam Energy Advisors LLC