Why Brazil’s energy auctions are drawing so little demand

Change is afoot in the Brazilian energy market. This has notably translated into lower demand in the country’s energy auctions, due to a variety of factors ranging from the impact of the pandemic to growing self-generation and measures aimed at expanding access to the free energy market.

An energy auction held in October by the National Electricity Agency (Aneel) and Brazil’s Electricity Trading Chamber (CCEE) illustrates this lower demand. Although Aneel hailed the tender as a success, saying it met the demand of distributors, it attracted the interest of only two of the 54 energy distributors that currently serve Brazil. The Mines and Energy Ministry also said it had prioritized the procurement of cheaper energy sources.

The tender attracted 15- and 20-year contracts worth a total BRL 6.6 billion (USD 1.3 billion), which will generate an estimated BRL 2.95 billion in investments.

The market had expected this lower demand, in line with a trend observed in the government’s recent energy auctions. In August, the government even decided to cancel an energy tender planned for this year due to lack of demand from distributors.

According to experts, a combination of low economic growth in recent years – exacerbated by the pandemic – and very long-term contracts has led distributors to seek out lower energy contracts, that are close to their existing markets’ demand.

“What is most important in rethinking the energy contracting model is the terms of the contracts; we no longer need to contract energy...