The Turnaround Capacity Reserve Auction

At the turn of the year, the MME publishes ordinance 2 on January 97 of the new year which already amends ordinance 96 of December 31, 2024. It is interesting to observe how everything is resolved when the lights go out in various aspects of the government. 

In this case, this auction was scheduled to take place in August 2024 as per the public consultation established in MME Ordinance 774 of March 7, 2024. 

This auction (LRCAP 2024) can be called a thermal auction despite including the addition of power to hydroelectric plants. Most of the contributions received at the time pointed to the inclusion of storage as a good alternative for providing reserves, including discussions held in public hearings in Congress. 

The government's response to the process was to launch another public consultation (CP 176) in September 2024 specifically to define a set of guidelines for a battery storage auction to be held in July 2025. 

It was thought that the government had given up on the auction of thermal plants, but the pressure to accommodate existing thermal plants whose contracts are due to expire in the next three years seems to have been the reason for the LRCAP's turnaround.

The suggested changes point in this direction when this ordinance changes Art. 4 proposed in March 2024 to provide greater detail on the products. There was even a last minute modification to serve Eneva's thermal plants. 

The contracts to be signed are for ten years and require flexibility, that is, they are availability contracts as they should be when it comes to power provision. 

I understand that the cost for existing thermal plants with access to the already designed gas supply tends to be opportune for the sector despite efforts towards decarbonization. 

However, the acquisition of new plants should not be present or, at the very least, should be competing with storage technology as was widely discussed last year. 

The crucial point now is the definition of the necessary quantity, which was the responsibility of the ONS and EPE, which depends on the evolution of new renewable generation and the growth in load. 

The discussion about the entry of green hydrogen, data centers and electric mobility is reflected in the energy balance and the behavior of the load curve of the system where the power requirement is based. 

It is important not to forget the demand response that in many countries has solved the cutting-edge problem through market mechanisms, reducing the need for a high-cost generating park. 

Another important point is the location of power resources, where it is often possible to optimize the expansion of the transmission network. In this case, storage tends to be more effective than thermal power plants, i.e., the auctions should define the regions of adverse load behavior where the capacity reserve should be present.

All of these issues were addressed in the agents' contributions, which unfortunately were not accepted. Given the time it took for the MME to mature the issues raised, a better solution was expected at the turn of the year.