Our consultant, Luiz Felipe Monteiro Seixas, was featured in a BNamericas article on the risks faced by projects awarded contracts in the largest auction in the Brazilian electricity sector.
Held in March this year, the capacity reserve auction (LRCAP) secured contracts for around 20GW, the majority of which are gas-fired thermal power stations, including new projects not connected to the gas pipeline network and which will be supplied with imported fuel. The projects, however, face risks associated with pricing, logistics, supply, regulation and financing.
Although the Ministry of Mines and Energy (MME) raised the price caps prior to the auction precisely to reflect the rise in capital, equipment and financing costs, this does not eliminate the economic risk associated with each project.
Luiz points out that banks tend to demand assurances regarding licences, shareholder guarantees and contracts for construction, equipment and fuel. “Interest rates, exchange rates and increased investment may require more equity capital and make it difficult to secure financing,” he said.