Brazilian electricity regulator Aneel approved the country's first combination energy-only/capacity-only auction, a new model for the sector aimed at reducing future power shortage risks.
The auction, scheduled for 21 December, aims to contract for supply from new and existing thermal power plants starting in 2026, with 15-year contracts.
At a price cap of R600/MWh ($108.16/MWh) and a 30pc guaranteed dispatch rate the tender will introduce new elements to Brazil's traditional power auction model, including taking bids for both actual power supply and for access to a power plant's capacity to provide firm, non-interruptible generation.
Adding the capacity component to the auction will introduce a key update to the Brazilian power framework through defining the cost of power stability by stimulating the purchase of this attribute by power consumers, both regulated and those under bilateral contracts. This can help reduce the risks of power shortages resulting from the increase of intermittent generation, such as wind and solar, by sharing the reliability costs with all consumers — currently only consumers getting power through local power distribution companies are paying for the reliability attribute.
The December auction will also be the first time industrial consumers will be able to bid for supply directly, something previously only allowed for power distribution companies.
The bilateral contract market has incentives for consumers to purchase wind power, a less expensive source that does not provide the same level of reliability offered by more expensive thermal generation.
"Almost all the expansion of the country's free market power relies on intermittent renewable energy," said Reginaldo Medeiros, president of electricity resellers' association Abraceel. "We need to steady this energy to hold our supply, by having thermoelectric capacity with costs shared to all consumers."
Alexandre Viana, managing director at energy trading firm Thymos Energia, expects the capacity market to attract the most attention. "The energy product will be less attractive, as its inflexibility is indexed to the government's IPCA inflation index, making it vulnerable to currency fluctuations", he said.
Some power plants are better suited for the capacity market over the energy market, thermoelectric generation association Abraget said, while some are suitable for both.
"Energy-only auctions are here to stay and should be perfected," the association said.
