Prices for purchasing energy on the Brazilian free market through long-term purchase and sale contracts (PPAs) tend to come under greater pressure in the coming years due to greater demand. Therefore, these agreements will require more agile decision-making. The conclusion is from a report prepared by Schneider Electric.
One of the factors contributing to this scenario is the gradual reduction in distribution tariff discounts (TUSD) for new renewable generation projects. The availability of new projects to supply energy to PPAs is expected to decline by 2028.
Another issue is the change in the RE100 group’s rules for renewable energy certification from 2024.
Rules change
RE100 is a global business initiative by the Climate Group in partnership with CDP11, with more than 400 members. Starting this year, the group’s rules for the acquisition of certified energy from renewable sources began to provide that certificates (I-Recs) will only be valid within a limit of 15 years, from the commissioning or repowering of a plant.
According to the Schneider Electric report, this will lead to less availability on the market of certificates compatible with the group’s rules. The estimate is that 54% of the I-RECs previously available in the country are excluded.
Continues after advertising
The study points out that the demand for I-Recs in Brazil has been growing: demand for these certificates increased to 13.9 TWh (terawatt-hour) in the first quarter of 2023, growth of 63% compared to the previous year.
The combination of increased demand for renewable energy certificates and reduced supply, due to changes in rules, tends to impact prices.
Continues after advertising
Requirements
According to Schneider Electric’s Director of Sustainable Business for Latin America, Mathieu Piccin, one of the most important factors when a company decides to close a PPA on the free market tends to be the price.
Other issues that are also taken into consideration are the quality of the project and its environmental attributes.
Read more:
Continues after advertising
“In other words, is it really a project that won’t have any associated problems, in environmental, reputational and sustainability terms? Do the attributes, that is, the renewable energy certificates, meet the requirements, for example, of international associations”, he asks.
In the executive’s view, one of the issues that could impact the new PPAs to be closed in the Brazilian market in the coming years are discussions about new pricing models in the free market, such as hourly pricing.
The inclusion of new technologies in the Brazilian electrical system, such as batteries, can also lead to changes in the market.
Continues after advertising
“With the entry of batteries into the market, at increasingly lower costs, will this change the most common products on the market to accommodate these load profiles for different customers”, asks Piccin
Self-production is a trend for 2025
For next year, the report concludes that the trend is for stable demand in Brazil for traditional renewable generation PPAs, but growing interest in the self-production model of energy.
In self-production, the client becomes a partner in the generation project by investing in or leasing a plant and, as a result, is exempt from charging sectoral charges.
Find out more:
In the case of self-production through matching, the consumer becomes partial owner of an energy generation asset through the acquisition of shares. In self-production through leasing, the developer builds the generation asset and rents the asset to the customer.
The director of Schneider Electric points out that there are complexities and risks associated with each model. “[É importante] understand these factors and what type of complexity of risks the company will want to face depending on the return, both financial and reputational”, explains the executive.
