Wind developers line up to enter non-regulated market

BRAZIL: Increasing demand for clean power from private companies opens a new market independent of government auctions.

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Brazilian wind power firms are preparing to enter the non-regulated market to tap growing demand from companies for clean power, a potential market that accounts for as much as 20% of the country's total power consumption of around 420TWh a year.

Brazil's wind sector is mainly driven by the regulated market where 20-year contracts are auctioned off by the government to the lowest bidders. The non-regulated market offers a chance for generators to sell power at higher prices than they would get at the auctions.

Companies such as Tractebel Energia, CPFL Energia, Neoenergia and Iberdrola have already announced plans to sell part of the power from wind projects in the non-regulated market.

"Some industries have specified they want power from wind plants," said Marcelo Correa, president of power distributor Neoenergia, which teamed up with Spain's Iberdrola to form a wind power generation company last month.

The company plans to build 1GW of wind in five years, said Correa. It has 300MW in construction, which will require investment of 1 billion reais ($634 million).

Tractebel Energia, a subsidiary of French multinational GDF Suez, has announced investments of BRL 625 million ($397 million) in five wind projects aiming at selling in the non-regulated market. CPFL Energia has announced investments of BRL 600 million in another five projects with combined capacity of 150MW eyeing the same markets, according to company statements.

Meanwhile, the state government of Bahia has given preliminary approval to 20GW in new wind projects in both the regulated and non-regulated market. The former includes supplying several new industries in the state who want clean power. James Correia, Bahia's industry secretary, predicted that about a third of the new wind projects will be in the non-regulated market.

Sao Paulo-based power-trading firm Comerc Energia is in talks with one wind power company to sell energy in the non-regulated market. "Prices in the non-regulated market are higher and contracts are on average five years," said Christopher Vlavianos, the firm's CEO.

Up until now, the amount of wind power available in the non-regulated market is small. Of the 42 wind farms currently selling power in the country, only two have left-over capacity to sell in the non-regulated market, said Cesar Pereira, market services manager at Brazil power-trading chamber CCEE.

Mounting demand

But on the demand side, the number of companies registered to buy renewable power in the non-regulated market has grown by more than 50% to 451 companies in the past 12 months, said Pereira. These companies take advantage of a regulation that allows small industries and commerce that consume an equivalent of 0.5-3MW of installed capacity to seek bilateral supply agreements as long as they buy clean power.

"This growth is motivated by falling prices of wind power and other renewables and 50% discounts on transmission fees that can reduce power prices for them by as much as 20%," said Pereira.

CCEE is planning to further boost the demand for renewable power by small companies and has prepared regulatory changes that will create a new form of power-trading companies known as retail power traders. This will allow power-trading companies to represent several small companies at the same time when negotiating power-supply contracts with generating companies. For buyers this will reduce the necessity to specialise in power acquisition, while for generators it allows several small contracts to be replaced by one larger contract with the power retailer who will then resell to smaller consumers.

The proposal is awaiting final approval by power regulator Aneel.

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