The 14 natural gas thermoelectric plants contracted in the emergency auction held by ring (National Electric Energy Agency) and by the CCEE (Câmara de Comercialização de Energia Elétrica) in October are having the start of the operation delayed or without any forecast. According to the Simplified Competitive Procedure notice, these plants should start operating next Sunday (May 1, 2022).
The event was held in a hurry, after a decision by the then-current CREG (Chamber of Exceptional Rules for Hydroenergetic Management), presided over by the Minister of Mines and Energy, Bento Albuquerque. The inter-ministerial group took the decision in September, at the height of the water crisis.
At the time, with no forecast of rains that could recover the reservoirs of the hydroelectric plants, the government preferred not to risk a possible energy crisis in the middle of the election year and contracted the thermoelectric plants at about R$ 1,598/MWh – about 7 times the average value of the last 10 new energy auctions, considering natural gas plants.
Entrepreneurs fear the application of penalties. An unjustified delay of more than 90 days can lead to the termination of the contract, for example. There is also provision for contractual fines, of at least 2.5% of the declared value of the investment, and public notices. In addition, the guarantees presented in November by the 14 projects can be executed by the CCEE. They total R$ 251.7 million.
THE Power 360 found, however, that there is a negotiation, in the Ministry of Mines and Energy, for the mutual rescission of the contracts. They would be closed without fines.
Together, the 14 projects have about BRL 5 billion in planned investments and add up to a total of 1.3 GW of power injected into the system, equivalent to about 1/3 of the power of the Jirau hydroelectric plant, on the Madeira River, in Rondônia. The contracts are for about 3 and a half years, expiring on December 31, 2025.
The entrepreneurs heard by the Power 360 justify the delays for several reasons, but mainly because of the bureaucratic processes of environmental licensing, both for installation and operation.
According to Xisto Vieira Filho, president of Abraget (Brazilian Association of Thermoelectric Generators), even though the auction was held in an exceptional and emergency situation, the contracts must be fulfilled. He says, however, that it is customary for the agency to hear the reasons.
“But Aneel always asks the agent to justify and if the justification is plausible, it accepts. It turns out that for the vast majority of delays there [na Aneel] the justifications are not technically plausible. But we didn’t track this auction specifically because we didn’t have any interested associates.,” Shale said.
According to Juliana Melcop, from Souto Correa Advogados, Aneel usually accepts justifications for delays related to the environmental licensing process and force majeure events, such as the covid-19 pandemic. In such cases, “so that fines are not applied, they [os empreendedores] dshould provoke Aneel with an exclusion of liability”.
Another factor that may be behind the delayed schedule is fuel contracts. According to Aneel, half of the plants have not yet presented signed gas purchase contracts. THE Power 360 found that some entrepreneurs had agreed to the acquisition, but the supplier did not proceed with the negotiation.
“Contract renegotiations are actually taking place [no setor todo]. Because fuel prices are indexed according to various indices. There’s Henry Hub, Brent, etc. When you sign the contract, you say the index you are going to use. For example: when you import from Asia, you use JKL. If you import more from the United States, which is the majority of cases, then you use the Henry Hub”said Shale.
The contracts consider certain gas benchmarks for the Henry Hub (United States), NBP (United Kingdom), JKM (Japan) and Brent (oil, traded on the London Stock Exchange) indices. The Brent barrel, for example, has a reference price of US$ 59.13 in the contracts. With the war in Ukraine, it has outdated the $100.
Xisto says he doesn’t like the emergency modality, but he understands the reasons that led the government to hold the auction.
“We [os associados] We insisted not to participate. Generally speaking, the emergency auction is not good. Because it has very high costs. But I don’t criticize at all because if I had been there, as I have been, maybe I would have made the same decision. When in doubt, I don’t want rationing. How big is the cost? IT’S. But rationing would be much worse. I cannot compete with Saint Peter. Imagine if the government had done nothing and it hadn’t rained at all. There would be rationing and people would say it would have been an emergency”said Shale.
What the MME and Aneel say
Aneel stated that the public notice and the contracts establish the formula for calculating penalties, but that it still does not have the calculation per enterprise, as there is no fine yet applied.
“The effective application of the fine depends on the initiation of a specific administrative process, guaranteeing contradictory and full defense of the interested party.“, the agency said in a statement.
Regarding the forecast or lack of forecast for the start of the operation, the agency said that it depends on the analysis made monthly by it and by the Department of Monitoring of the Electric Sector, of the Ministry of Mines and Energy, “taking into account the situation of each work”.
The Ministry of Mines and Energy said that, “although the current hydrological scenario has improved, the contracted plants make an important contribution to increasing the electrical and energy security of the National Interconnected System (SIN), in the short and medium term“.
According to the ministry, the use of the plants “also tends to provide lower costs with thermoelectric generation during the dry period of 2022, to the benefit of all consumers“.
The folder also stated that the CMSE (Committee for Monitoring the Electricity Sector) will continue to carry out the monitoring, “given the uncertainties associated with future hydrological scenarios“.
What companies say
THE Power 360 contacted the owners of all 14 plants.
Owner of MP Paulínia, Mercurio Partners said that the construction schedule “andis regular and within the parameters established by Aneel in the auction notice“. The company also stated that the start of commercial operation of the thermal plant is planned “for May 2022“. However, it did not clarify the day of entry into operation.
Turkish company Karpowership, owner of 4 plants that won the auction (Karkey 013, Karkey 019, Porsud I and Porsud II), stated that “the time to start commercial operation is very short, in view of the many challenges. However, all investments, efforts and measures are being adopted by the company so that the project goes into operation as soon as possible, as provided for in the contracts and in the rules of the sector”.
Asked about the possibility of fines and termination, the company said that “complies with all legal and contractual requirements and that any delays will be dealt with in strict compliance with the rules”.
Until the publication of this report, the Power received no response from EPP (Evolution Power Partners), owner of Edlux X, EPP II, EPP IV and Rio de Janeiro I plants. The space remains open for demonstrations.
Below is the full text of the statements received by the report.
Mercury Partners
“Mercurio Partners informs that the construction schedule of UTE Paulínia Verde [MP Paulínia], undertaking contemplated within the Simplified Competitive Procedure 1/2021, is regular and within the parameters established by Aneel in the auction notice held last year. The start of commercial operation of the UTE is scheduled for May 2022.”
karpowership
“Karpowership is committed to the country and to fulfilling the obligations assumed in the ANEEL emergency auction for electricity generation in the context of the water crisis. The company offered a more competitive price with an innovative, fast, reliable and efficient solution to supply the country’s energy supply.
“The company presented a project that has a low environmental impact, as it uses Liquefied Natural Gas (LNG), a fuel for the energy transition, which ensures that the project’s energy is much cleaner compared to traditional thermoelectric plants.
“Karpowership’s technology adds knowledge and reliability to the Brazilian electricity sector. There is reduced occupation of the area and there is no pollution of the sea.
“As it is about generating energy at sea, in a port region, by a foreign company, different bodies and authorities were involved, with requirements that are being fully met.
“The deadline for starting commercial operations is very short, in view of the many challenges. However, all investments, efforts and measures are being adopted by the company so that the project goes into operation as soon as possible, as provided for in the contracts and in the rules of the sector.
“On the possibilities of fines and termination, both are provided for in the contracts and are analyzed on a case-by-case basis by the competent authorities. The company reinforces that it complies with all legal and contractual requirements and that any delays will be dealt with in strict compliance with the rules.
“Karpowership is a global company founded in Turkey in 1948 and is heavily involved in the energy sector with its investments in renewable, onshore, LNG and floating power plant solutions.
“The company is proud to have won this auction to generate, for a period of 44 months, up to 560 MW of electricity in Brazil – enough energy to supply around 2 million people – using its ability to provide fast and clean energy. The company is committed to helping the country overcome energy-related challenges.”
trader
The company’s president, Walfrido Avila, stated that the delay at the Barra Bonita I plant was caused by several factors, including a delay in the environmental licensing process.
“All civil works are ready now. Now it’s time to assemble the substation. It takes longer. The license to arrive with the equipment etc… all this needs a license. Now the equipment is arriving. But it’s already well ahead“, said Walfrido.
According to the businessman, the plant should be operational before the end of June. He says that he recognizes that “probably” there will be a fine, but believes that, upon analysis by Aneel, the application of the penalty can be reviewed in light of the reasons presented not only by him but by other entrepreneurs.
“The fines, in the implementation of works in Brazil, are an inhibitor of investments. We didn’t need to worry about that. It’s not that we don’t want to do it, but our urgencies are so great that no one can imagine”.
Other companies
THE Power 360 questioned the companies Evolution Power Partners, Rovema Energia and the representative of the contracts of the Tevisa and Linhares Geração SA plants about the delays and the status of the works, but did not receive a response until the conclusion of this report. The space remains open.
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