The conundrum of contracting thermal capacity in Brazil

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18 June 2021

The conundrum of contracting thermal capacity in Brazil

Report summary

The 2021 round of regulated electricity auctions in Brazil will start on 25 June, with the auction to re-contract existing thermal power plants. Although 9.1 GW of gas-fired power plants are eager to secure PPAs, the auction will award only about 10% of it, based on current expectations. The country must provide fixed revenue streams to thermal power plants and keep them operating as backup amid low-demand prospects from electricity distribution companies. To address this challenge, authorities developed a new capacity mechanism, with the first capacity auction anticipated for December 2021. To provide insights on the potential volume that will be awarded in future auctions, we studied the evolution of the portfolio of contracts at each distribution company and compared it with our demand forecast.

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