Brazil skirts auctions to boost depleted power supply

Brazil is urging off line power plants to come on line by offering to pay for electricity outside of the traditional auction system, part of a national effort to avoid power shortages.

The program would pay for generation from plants that do not have firm long-term contracts, under an authorization provided by a committee headed by the energy and mines ministry.

The measure aims to encourage dispatch from natural gas-fired power plants, especially those that are part of cogeneration projects, in which gas is used to generate power and the excess heat is captured for industrial uses.

Brazil has 3.15GW of installed gas-fired cogeneration capacity, including 71pc at petrochemical plants, but most is not operating because of higher natural gas costs.

Newton Duarte, president of the Brazilian association of power cogeneration (Cogen), estimates that the segment has more than 90 cogeneration plants ready to offer power for the system. While he declined to forecast how much electricity the sector would offer, any amount of power that can be added through the new program can help save water in the country's depleted reservoirs, he said.

Under the new measure, power plants that are not operational can notify the power sector monitoring committee CMSE — headed by the minister of mines and energy — that they have available power and request a payment rate per MWh. The CMSE will evaluate each offer and decide whether to include the power into the portfolio on a monthly basis or for as long as six months at a time. Costs will be paid mostly by consumers through power distributors.

"This additional power generation offer can be the least expensive resource to match the national power demand at times of water scarcity," the National Power Operator said.

Brazilian authorities are adopting a range of actions to avoid power shortages this year, as a severe drought has limited hydropower generation in the country. One of them allowed thermal power plants that have no long-term contract with distribution companies to include their capital spending costs on top of fuel costs.

By Flavia Pierry