Brazil raises $4.4bn in hydro auction

As part of a plan to restore its ailing balance sheet, Brazil has auctioned rights to operate 29 operating hydroelectric power generation plants for about R$17 billion ($4.4 billion; €4.2 billion).

The sale, administered by state electricity regulator ANEEL, was originally scheduled for September, but was delayed three times while awaiting Senate authorisation. The green light came through last Tuesday night, clearing the way for bidding to move ahead. 

Plants with a total combined generation capacity of roughly 6.3 gigawatts (GW) from the states of Goias, Minas Gerais, Parana, Santa Catarina and Sao Paulo were grouped into five blocks. 

Cutting the biggest cheque at the auction was state-owned China Three Gorges, which has been actively investing in Brasil since 2011. The company offered R$2.38 billion for 30-year contracts and agreed to pay a concession fee of R$13.8 billion for rights to operate the 3.4 GW Ilha Solteira dam and the 1.5 GW Jupia dam, which were previously operated by Cia Energetica de Sao Paulo. The company was reportedly the sole bidder for the pair of assets that were designated Lot E.  

Cemig Geracao & Transmissao won the rights to the 18 plants included in Lot D representing 993 megawatts (MW) of operating capacity, the largest grouping in the auction, with its bid of R$498.6 million. 

Slot A (16MW) went to Celg Geracao & Transmissao for a bid of $498.6 million. Lot B (330 MW) was won jointly by Copel Geracao & Transmissao and local subsidiary of Italian multinational renewable energy firm Enel Green Power Brasil. Celesc Geracao won Lot C (63.4 MW). 

According to the original auction plan, 60 percent of auction proceeds are set to be delivered at closing, with the remaining 40 percent to be paid within 180 days.  

Auction winners will be allowed to sell up to 30 percent of their production on the open market without traditional price controls, which Ministry of Finance secretary of economic affairs Paulo Correa recently called “a good mix” to attract investors. In addition, operators will be allowed to pass along added costs that result from the prolonged drought to consumers. 

Investors are expected to earn revenues of roughly R$3 billion per year over the life of the contracts with an estimated internal return rate (IRR) of 9.04 percent annually, according to a finance ministry official.