Three dozen gas generators vie for Brazil PPAs

OREANDA-NEWS. October 26, 2015.  A total of 36 natural gas-fired thermoelectric projects with total installed capacity of 18,741MW have applied to participate in the Brazilian government's extensive power supply auction in February 2016.

The long-term power purchase agreements that will be awarded to new generating projects start in January 2021.

Mauricio Tomalquim, chief executive of the government-controlled energy research company (Epe) that runs the tenders, said the bulk of the proposed gas projects will use imported LNG.

Despite rising domestic gas production, a shortage of distribution infrastructure has kept a lid on the amount of gas available to the market.

Brazil produced 99.2mn m3/d (3.5bn ft3/d) of gas in August, of which only 57.23mn m3/d was available to the market, down from 59.65mn m3/d in August 2014, according to the oil regulator ANP.

Of the gas-based projects, seven are located in Rio de Janeiro state and have a total installed capacity of 5,144MW. Tolmasquim said these projects would not require the construction of new power transmission infrastructure.

The largest of state-controlled Petrobras? three regasification terminals, 28mn m3/d Guanabara, is located just outside of Rio de Janeiro.

Like the company?s two other regasification terminals, 7mn m3/d Pecem in Ceara state and 14mn m3/d Bahia in Bahia state, Guanabara is underutilized and Petrobras is seeking regasification clients to monetize it.

Precipitation in the strategic southeast/center-west subsystem has recovered following a severe drought last year, replenishing hydroelectric reservoirs and leaving the Guanabara terminal idle last month.

The Bahia terminal received 300,959 t (13.84mn m3/d) of LNG and Pecem another 117,303 t in September. Both terminals are located in the arid northeast.

The government recently eased requirements for gas-fired plants in an effort to attract more participants in the auctions.

To participate in the February auction, project developers must present a 15-year gas supply contract. In previous auctions, projects needed to have 25-year gas supply contracts.

The new rules also exempt gas-fired plants from buying power on the spot market during periods of maintenance, as long as the plants meet minimum operational requirements throughout the year.

Likewise, the new rules allow the developer to indicate which gas price index the project will use.

In addition to the three dozen gas-fired projects, another 1,019 generation projects applied to participate in the auction, including 864 wind farms with total installed capacity of 21,232MW, 63 biomass projects with 3,019MW of installed capacity and seven coal projects with 3,741MW.

Other contenders include 78 small hydroelectric projects with 1,019MW of installed capacity, as well as one 21MW biogas-fired project.

In an indication of the growing challenges to building new, large hydroelectric projects, only six projects with a total capacity of 529MW applied to participate in the auction.

The government will release the ceiling price for each type of power in early 2016.

Epe did not release the names of the developers. But companies such as AES Tiete, a subsidiary of US utility AES, have gas projects that could participate, Chief executive Britaldo Soares said the decision to compete in the auction will ultimately depend on the ceiling price established by the government. Other potential participants include the local subsidiaries of France?s Engie and Italian Enel-controlled Endesa. To date, only local companies, including Rio Grande do Sul-based Bolognesi and the Rio de Janeiro-based GPE consortium have successfully signed PPAs for greenfield LNG-based plants.

This is the largest number of projects ever submitted to participate in the government-sponsored auctions, which began in 2005.

Tolmasquim said the February auction has the potential to be the largest of its kind ever to take place in the world.

Epe will evaluate the projects, and pre-qualify those that meet requirements, including environmental licenses.

Typically, the environmental licensing process is not a bottleneck for thermoelectric projects, whereas large hydro projects face growing difficulties in meeting the government's strict environmental legislation.