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Brazil since 2009 has had a tendering system to regulate the allocation of wind capacity, leaving behind a feed-in tariff system (PROINFA program) that fostered wind energy in its early days. tenders allow the government to secure the energy supply at the least cost for consumers, which is paramount for economic development.

In recent years there has been a strong tendency towards developing wind energy in Brazil, mainly because of the complementary seasonal behavior of wind and hydro energies, with wind peaking during the dry hydro season. Fostering renewable energy can also strengthen energy supply, mainly avoiding fuel generation. at an industrial level, the development of a robust wind industry is seen as an opportunity to attract international turbine manufacturers. although the local content requirement is not explicitly included in tenders, it is yet a requirement for developers to be eligible to subsidized financing from development banks as BNDES (Banco Nacional do Desenvolvimento) or BNB “(Banco do Nordeste do Brasil”).

The tender system has some particularities in Brazil. First of all, the amount to be tendered is decided by the Government, which removes the risk of over capacity. once the auction is held, the contracts offer 20-year power purchase agreements. there are two types of tenders:

  • Reserve tender: designed to provide back-up power to guarantee the security of the energy supply, allowing an additional “reserve” to the national interconnection system. the reserve tenders are managed by the Electric Energy Commercialization Agency (CCEE) and the energy is bought by the Government. In the reserve tenders, a fixed amount of generation is set in each contract and penalties are triggered when power generation is below 90%. There is an associated extra-revenue, at 70% of contract price, to any generation exceeding 130% of the contracted energy. the output level is reviewed every 4 year-period.
  • Alternative energy tender: in this type of tender, the buyers are national distribution companies. Contracts refer to baseload capacity and winning bidders are granted a 20-year power purchase agreement. The contracts refer to a generation level and any annual unbalance below 90% must be settled at selling price in favor of buyers. through a real-time generation escrow account, the excess of generation of one year can compensate any lack of generation, since not lower than 90%, within the 4 year-period. any excess of generation leading to a 4-year period balance over 100% is settled in the wholesale market.

In 2010, Brazil conducted two tender processes in august, a reserve and an alternative energy tender, totaling 2.05 GW. the reserve tender allocated 528 MW of wind capacity at an average price of r$122,7/MWh ($70,4) and the alternative energy tender 1,519 MW at r$134,1/MWh ($76,6). The fierce competition lowered the average prices, which has caused concern among developers and suppliers.

In December 2010 Brazil’s Ministry of Mines and Energy approved a new Decennial plan for energy expansion to 2019. The plan calls for a big boost in renewables as no new fossil fuel power plants are expected to be build after 2014. Under this strategy, more than 6 GW of wind installed capacity are expected by 2019 (from its current level of approximately 1.5 GW), although the industry expects a larger figure.

Wind sources will have the opportunity to secure PPAs in 2011 as new tenders will be conducted in the second quarter of 2011 according to ordinance no 113 of February 1st. One tender will be an “A-3” (baseload capacity to be delivered in three years time) and the other one a “reserve tender” (reserve capacity). The energy to be auctioned and the ceiling price have still not being revealed.

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