Brazil has unexpectedly set a R$349/MWh ($103) price cap for PV project power for the upcoming 28 August auction, 33% higher than R$262/MWh cap set at last year's auction which included solar generation.
The price cap was also well above the R$300/MWh that the Brazilian Solar Power Association (ABSOLAR) was expecting because of a 20% devaluation in the local currency since the beginning of the year, higher inflation and financing costs.
“This is a good price,” says Rodrigo Sauaia, executive director of ABSOLAR. “Such a price will allow strong participation of players at the auction and reflects the perceived risk of investing in Brazil”.
Sauaia expects around 10GW to be finally cleared to bid at the first auction, which will make it competitive. Together with a second auction which includes solar power scheduled for November, he expects more solar power to be contracted this year than the 890MW of PV contracted last year.
The move was even more surprising given Brazil last week announced a low price cap for wind at another auction scheduled for 21 August. The R$184/MWh price for wind was barely above the R$179/MWh in last year's auction and well below the R$210/MWh that the wind industry was seeking to cover similar rising costs as solar.
The higher price for solar is part of the government's strategy to kick-start Brazil's solar industry, which includes complex local content requirements.
This is first solar-only auction in which PV projects will compete with each other for 20-year regulated market contracts with power distribution companies.
The government preliminarily registered 382 projects for the first reserve auction this year with 12.5GW total nameplate capacity, with the greater part in the country's sunny northeastern region.
Winning projects have to start commercial operations by January 1, 2017.
Among players interested in bidding in the auction are Italy's Enel Green Power (EGP), Brazil's Renova Energia and CPFL Renováveis, Spain's Elecnor, Solatio Fotowatio and Cobra, among others. Some won contracts in last year’s auction.
The government thus far has contracted 890MW of PV at last year's federal auction, while an additional 122MW was given contracts at a 2013 regional auction. Keen competition led to an final average price for PV of R$215/MWh.
Currently, Brazil's PV installed capacity is 15MW of on-grid and about 30MW off-grid - less than 1% of Brazil's total generation capacity.
EGP later this year is due to complete the first commercial PV project in Brazil in the state of Pernambuco with a 11MW capacity.
Brazil's 10-year plan for expanding energy generation capacity aims for 6.9GW of PV by 2024.