x Abu Dhabi, UAEWednesday 26 July 2017

Cheapest wind power blows into Brazil

Four energy developers agreed to sell power from 10 proposed wind farms in Brazil at the cheapest rates ever.

Windmills in Brazil. The price of wind power is prompting concern that some of the planned wind farms will not get built. Adriano Machado / Bloomberg News
Windmills in Brazil. The price of wind power is prompting concern that some of the planned wind farms will not get built. Adriano Machado / Bloomberg News

Four energy developers agreed to sell power from 10 proposed wind farms in Brazil at the cheapest rates ever.

Enerfin Sociedad de Energia, Renova Energia, EGP-Serra Azul and Bioenergy Geradora de Energia won contracts to sell electricity to distributors for an average price of 87.94 Brazilian reais (Dh154.82) per megawatt-hour (MWh), Brazil's national energy agency Empresa de Pesquisa Energetica said on Friday.

"This is definitely the cheapest wind energy in the world," said Maria Gabriela da Rocha Oliveira, an analyst in Sao Paulo with Bloomberg New Energy Finance.

The price is 12 per cent lower than the auction in August last year that yielded an average price of 99.58 reais an MWh. That was the lowest price in the world for wind power then and the least expensive power in Brazil, beating natural gas and hydroelectricity.

A scarcity of contracts in yesterday's government-organised auction spurred competition and drove down prices, said Elbia Melo, the executive president of the wind-industry trade group, Associacao Brasileira de Energia Eolica. In Brazil's power auctions, developers bid down the price they will accept to sell power and the lowest offer wins.

Renova Energia, Enerfin and EGP may have agreed to low prices because they can attach the additional capacity to existing projects, a strategy that requires less capital than developing a new wind farm, Mr Melo said.

Bioenergy will sell 201.6MW of capacity for 87.77 reais a MWh, the lowest price of the auction.

"It's uncertain how Bioenergy will make money at this price," Mr Melo said. "This fall in prices isn't indicative of where prices for wind energy is going in Brazil."

The price is prompting concern some of the planned wind farms will not get built.

Last year's prices "were so low some projects may not be executed," said Joao Paulo Gualberto Silva, the commercial manager for Jaragua Do Sul, before the auction.

"If lots of projects don't get built because they're not profitable, this ends up hurting the wind industry's credibility," Mr Silva said.

Developers will probably pressure turbine makers for cheaper equipment, Ms Oliveira said. Suppliers may find it hard to meet such requests because the national development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES) is increasing local-content requirements that may make turbines more expensive.

"Suppliers will both have to provide cheap equipment and invest in new local assembly lines to meet BNDES's requirements," she said.

The developers are planning wind farms with total capacity of 281.9 MW that are to be completed by January 2017.

Energias de Portugal, Portugal's biggest utility, also sold energy from two large hydroelectric projects with total capacity of 292.4MW in the event, according to the regulator's statement. The 12 projects will require about 1.1 billion reais in investment.

Brazil auctioned contracts to sell 574MW of capacity this year, about 10 per cent of what power companies expect to sell annually, said Sergio Tamashiro, an analyst at Banco Safra in Sao Paulo.

* Bloomberg News