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Brazil power generation hits peak pricing


Central de gas UEGA Araucária

- Brazil's power prices have risen because of a historic drought
- International gas price impact energy generating plants costs

By Rebecca Gompertz and Flávia Pierry / Argus

Petroleumworld 10 29 2021

The peak of the dry season in Brazil has prompted power sector authorities to pay one generator what appears to be the highest rates nationwide in recent memory amid an already costly year for electricity generation.

Brazil plans to buy power this week for R2,553.20/MWh ($454.92/MWh) from the gas-fired Araucaria plant, which is majority owned by Paraná state. It is the most expensive thermal power being dispatched this week among the plants listed by grid operator ONS, and it may be the top price this year. The monthly operation program is valid until 15 November, and rates exclude fixed costs.

The generator came to the market to take advantage of the high prices of power in the tight Brazilian market in October and November, the last months of the dry season in the southern and southeastern regions.

The Araucaria plant justifies its market-high electricity price by the record price of LNG in the international market. Araucaria is one of the few Brazilian power plants without long term contracts for gas supply and so procures gas in spot markets to offer power to the tight Brazilian market.

Brazil's power prices have risen because of a historic drought that has significantly hampered hydroelectric production, the country's main means of generation. As a merchant plant, without fixed contracts, Araucaria also tends to have higher prices than most power plants.

As the country's climate shifts to the rainy season, power prices are starting to fall.

Cooler weather in the first weeks of October reduced power consumption in the country, helping lower the risks of power shortages. Above normal precipitation this month also helped decrease the spot power price from the ceiling of R583.88/MWh seen at the end of September to the R167.22/MWh maximum on 28 October.

The situation with Araucaria highlights the need for planning, brokerage Ativa Investimentos analyst Ilan Arbetman said.

"The key from now on is that we have a flatter system, less vulnerable to this kind of volatility," Arbetman said. "There is a need for more planning."

With rains coming earlier than expected this year, water storage is increasing at reservoirs in the south, southeast, and center-west regions, according to ONS data. The amount of water reaching power plants for generation was forecast to reach 133pc of the southeastern and midwestern long-term average this week, and 125pc of the northeastern long-term average. Reservoirs in the country's power system are at just 25pc of capacity, compared with the record low of 17pc for this time of year set in 2017.

Hydroelectric generation represented 40pc of the Brazilian power grid on 27 October, followed by 27pc from thermal plants and 16pc from wind power. Solar energy generation registered a record 2,675MW in the northeast region.

Brazil will continue to import power from Argentina, as there remains a small risk of a power shortage, the country's electricity sector monitoring committee said this week.


By By Rebecca Gompertz and Flávia Pierry from Argus Media /10 29 2021



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