The renewable energy sector faces an increasingly challenging scenario in Brazil. Shortfalls, regulatory uncertainty, strong intraday price volatility, and the disconnect between submarkets have created a context of risks that, until recently, were rarely considered in business models.
Despite this, experts remain optimistic about the future of the Brazilian market. They believe the sector will adapt to these new variables, which will require more creative and innovative solutions. However, energy prices are expected to rise, reflecting the need to accommodate these risks.
This was the central theme of the panel “Centralized solar photovoltaic generation: business models and financing landscape”, held on the second day of Intersolar South America, in São Paulo.
According to Rodrigo Borges, market leader at Aurora Energy Research in Brazil, developers currently need to add around R$109/MWh just to cover curtailment risks, differences between submarkets, and intraday PLD volatility.
"We need to better understand and price current risks. Curtailment is the biggest pain, but intraday price risk tends to have an even greater impact on business models. A healthy price is essential to enable new projects, and batteries will play a strategic role in managing these risks," Borges emphasized.
For Sasha Sampaio, vice president of structured finance at Lightsource BP, the solar and wind sectors are currently experiencing a similar situation to what hydroelectric plants faced in the past with hydrological risk (GSF).
"We're dealing with variables that weren't previously considered in valuation processes. On the one hand, this increases uncertainty and puts pressure on project margins. On the other, it brings more maturity to the market. Just as we learned to price GSF, players will have to learn to value curtailment," he assessed.
According to the executive, assuming a 5% curtailment rate over the entire life of a project, an increase of R$8 to R$10/MWh would be necessary to recover the minimum rate of return. However, since investors tend to demand an additional spread to assume this risk, the margin could increase by almost R$20/MWh. "What should happen is an increase in the minimum attractive rate so that this risk is absorbed within the asset," she stated.
Júlio Meirelles, CEO of Banco Santander Brasil, emphasized that, in addition to high interest rates, uncertainties permeate the discussion of new centralized solar generation projects. "Even so, we have an optimistic outlook regarding the continuity of these businesses," he said.
According to Mariana Galhardo, senior partner at G2A Consultores, the need for energy storage has been clear in the Brazilian market for at least five years. She believes the biggest opportunity for this technology to be introduced will be the auction of reserved capacity exclusively for batteries.
The bidding process was initially considered for July of this year, but it fell through due to a lack of planning by the MME (Ministry of Mines and Energy). The initial proposal called for contracting projects of up to 30 MW, with maximum power availability for four hours and ten-year contracts.
According to Galhardo, the critical points for the success of this auction would be the waiver of prior environmental licensing, the viability of revenue stacking, and the effective possibility of co-locating batteries with generation.
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