Experience with auctions for wind power in Brazil

In an international context, auctions are becoming increasingly common as a support scheme for renewable energies. In this case study, we analyze the Brazilian experience with wind power in the period from 2009 to 2015 with regard to the development of auction prices, rates of completion and market concentration.

Inflation-adjusted auction prices in Brazil decreased by 54% until the end of 2012, before subsequently growing again to 87% of the first round price. The declines in prices can be attributed to the increasing experience of actors and the increasing level of competition among project developers, investors and turbine manufacturers. Various factors played a role in the price increase, including both regulatory changes such as a modification of grid connection terms, as well as external factors such as the falling value of the Brazilian real against the US dollar.

Only 14% of wind projects from the first eight auction rounds were completed on schedule. The reasons cited for this include delayed grid connections, delays resulting from environmental feasibility permits, supply bottlenecks for wind power plants, the bankruptcy of the turbine manufacturer IMPSA or delayed financing approval by the Brazilian development bank BNDES. However, the number of project cancellations is low to date, so that a final rate of completion of between 89% and 98% is likely to be achieved.

The number of owners of wind power projects has increased from 16 to 49 actors. The market share of the five largest owners has declined from nearly 60% to 37%. The ratio of pre-qualified to awarded capacity was consistently at over five, and the Herfindahl Index suggests an unconcentrated market. These findings indicate that the level of competition is sufficient to ensure free price formation in the market.

The owners are primarily large, financially strong project planners, energy providers or investment firms.