Brazil sees biogas as power mandate alternative

Infrastructure market participants believe Brazil may use biomethane to fulfill Eletrobras' thermal power mandate, which would enable the construction of a new pipeline in the country's heartland.

The new gas-fired power plant requirement was added to the 2021 law that privatized power company Eletrobras and would lead to the construction of the 905km (562-mile) TGBC gas pipeline into Brazil's heartland.

The law required 8GW of gas-fire power generation capacity would need to be built in rural parts of the country, anchoring demand for the pipeline.

But this goal failed to come to fruition because an auction to sell a portion of the gas-fired power generation did not have enough bidders. The government held the first Eletrobras power tender last year, but only received offers for 75pc of the 1GW demand in northern Amazonas state and no offers for other states.

The result led some power sector advocacy groups to lobby congress to change the Eletrobras law to shift the remaining non-auctioned power capacity onto other sources, to stimulate their sectors.

Biomethane has emerged in discussions as an alternative that could make the construction of the pipeline economically viable as it can get higher final prices than regular natural gas because of its renewable attributes. A pipeline connecting biomethane plants to consumers would also find less political resistance, also because of its renewable characteristics, some groups in the industrial sector said.

A study funded by a coalition of Brazilian industries showed that taking natural gas to Minas Gerais state — instead of moving it to locations served by existing pipelines — would increase gas prices by around $3/mnBtu.

Market participants point to small hydroelectric plants as one of the most likely suppliers to benefit from these revisions, a source in the power sector told Argus. Brazil's power demand is oversupplied in the regulated market, leaving little room for thermal plants such as the ones in the Eletrobras mandate tenders. The only alternative, these participants point out, would be holding power capacity tenders to supply the country in moments of peak demand.

Congress members opposed to the mandate say they would prefer to end the obligation altogether, an opposition party government official told Argus. Some members of congress say that is highly unlikely to happen, as redistributing the 8GW of power projects among other generation sources — such as wind, solar, small hydroelectric and offshore generation plants — would be a more straightforward path than changing the law.

By Rebecca Gompertz