Solar at $17/MWh in Brazil’s auction: is this really a world record?

Following the conclusion of the A-4 auction at the beginning of July, pv magazine has asked analysts if the two selected bids for solar power projects can really be considered the world's lowest offers efor the PV technology in an energy procurement exercise.

Parikh Manan, Analyst for Power & Renewables at Wood Mackenzie.

Sure, so combining the 202 MWdc Milagres project with the 50-MWdc, $19.20/MWh Jaiba project in Minas Gerais puts the average solar PV PPA at just over $17/MWh. Brazil’s last A-4 auction in 2018 saw an average of $35/MWh, marking almost a 50% decline in contract price.

So how will these projects pencil out? The four-year lead time to the commercial operation date allows for early interconnection and sale on the spot market (merchant head instead of merchant tail as seen with so many PV projects) or through private PPAs. Developers are also getting creative with how they sell generation when the PPA kicks in, opting to sign private PPAs or sell concurrently to the spot market for higher returns.

Brazilian solar industry association ABSOLAR has stated that Milagres will only sell 30% of its generation via the PPA, while Jaiba will sell 50% of its output tied to the A-4 contract. This would put capacity factor assumptions for each project above 28%.

When accounting for the fact that total MWh offered is over a 20-year period, and incorporating a conservative present-day capacity factor of 23%, Jaiba and Milagres would be selling 66% and 40% of their output via the PPA, respectively.

However, with efficiency increases and bifacial modules, it is entirely possible that capacity factors by 2022/2023 could reach up to 28% in both markets, given the stronger solar resources for both states. This would mean that Jaiba sells only half of its output via the PPA while each Milagres section would contribute one-third of its capacity to the yearly PPA.

Can we call this a world record? Yes and no. Yes in the sense that it is the lowest contracted price we have seen through an organized procurement round like the A-4. No, in the sense that not all of generation will be sold at this price. But then if that is the case, we must caveat the Mexico record auction in 2017 as well. Not all of the output from the record Pachamama PV project by Neoen would be sold at the $18.93/MWh. There will likely be some bilateral agreement or merchant sale from that project as well. The bottom line is that the true value of these projects cannot quite be quantified because it’s tough to gauge the intentions of the developer until the asset is operating and the offtakers are (sometimes, not always) revealed. Even then, the pricing terms of a bilateral agreement may be kept confidential as well.

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