Brazil to Hold First Solar Power Auction

Brazil will take its first leap into commercial solar power generation on Friday with a rights auction of at least 500 megawatts of new solar parks, adding a new energy source as a drought reveals the danger of depending on hydropower.

Sun-kissed Brazil has one of the highest solar radiation factors in the world and plenty of land for solar farms, plus large reserves of silicon to make solar panels. Yet pilot projects have installed just 30 MW of solar capacity in the country so far.

About 400 solar projects are registered to participate in Friday's auction, representing more than 10 gigawatts of potential capacity. But an energy price ceiling and financing issues may limit new licenses, according to companies involved.

Dozens of local and foreign companies are lining up to enter the new market, including SunEdison Inc, Elecnor SA , Alupar Investimento SA, Renova Energia SA and CPFL Energias Renováveis SA.

The Brazilian Solar Power Association (Absolar) estimates the auction will distribute between 500 MW and one gigawatt of new rights do sell solar energy. Investment bank Itau BBA, whose energy experts are advising companies in the auction, has a similar forecast.

"I would say it will be closer to 500 MW than to one GW," said Marcelo Girao, who oversees project finance for the energy sector at Itau BBA.

He estimates the auction will trigger 2.25 billion reais to 5.5 billion reais ($0.9 billion-$2.3 billion) of investments in new Brazilian solar parks, based on a cost between 4.5 million and 5.5 million reais per installed megawatt.

Brazil's state development bank, BNDES, will finance up to 80 percent of the investments, depending on each project's specifications.

"Commercial banks will enter with bridge loans, while each project awaits the government's credit clearance," said Girao. "We could also finance aspects not covered by the BNDES, such as some imported equipment."

Solar panel makers are likely teaming up with power companies, expecting to win rights for several projects that would justify opening plants in Brazil, Girao added. If the auction reaches one gigawatt of new licenses, he said, as many as four manufacturers could set up plants in the country.

Brazil aims to add 3.5 GW of solar power projects to its grid by 2018. That target remains well behind other major emerging markets such as China, which added 12 GW last year alone.

Friday's auction will set a maximum price to sell solar power at 262 reais per megawatt-hour, which most companies consider fair. By comparison, a recent auction open to non-solar energy sources awarded contracts at an average price of 130 reais/MWh, mostly for wind projects.

($1 = 2.40 Brazilian reais)

(By Anna Flávia Rochas and Marcelo Teixeira)