[A-4 2017] FLOW MARGIN ANALYSIS

The next energy auction that will occur at the end of this year, A-4 (December 18th) and A-6 (December 20th), will be extremely important for the investments resumption to the renewable energy industry in Brazil. With the demand reduction and consequent over-contracting of the energy distributors of last years, the country has been through a low contracting of energy affecting the entire productive chain.

An aspect that is of extreme importance and will affect a resumption of the industry in some regions, is linked to a solution of energy flow. For this reason, ePowerBay carried out some studies, based on the last technical note NT 121/2016-r0¹, in order to assist the Agents in the analysis of opportunities being evaluated.

The recent reverse of projects via MCSD A4+² Reverse Auctions³ and some annulments made by ANEEL(4), added to a resumption of economic growth and the demand of Distributors, indicate that these upcoming auctions should be a fresh outbreak and re-establishment of the renewable industry.

Comparing the registration made for the auctions 2º LER/2016 and A-4/2017, it was observed that in addition to the new sources that could commercialize energy (PCH, CGH and Biomass), there was an increase in the number of wind and photovoltaic ventures, due to the cancellation of the 2016 auction and the development of new projects.

When analyzing the flow capacity of the existing structure in the SIN (National Interconnected Power System), it is observed that the great restrictions are in the states of Bahia, Rio Grande do Norte and Rio Grande do Sul, being caused by problems in the concessions of Abengoa and Eletrosul Companies. In 2016, these 3 states were responsible for 56% of the projects, and by 2017 they represented 55% of the projects, with a significant increase in projects in the states of Bahia and Rio Grande do Norte and a reduction in Rio Grande do Sul.

An analysis carried out for the Connection Points shows that the Northeast region was highlighted with 86 requests and Bahia the state with the largest number of projects.

Extracting the no-margin states and analyzing the Northeast region, it is verified that Ceará had the best opportunities, with the lowest competition in the available buses.

Other states that stood out were Pernambuco, Sergipe, Paraíba and Maranhão. Piauí is also included in the list, but with more competitive outlets and relatively higher costs (500 kV connections or 230 kV and 500 kV sectioning)(5).

When one observes the geographical position of these connection options in the image below, it is verified that they are more concentrated in the interior of the northeast region. The Substations Sobral III, Teresina II, Eliseu Martins and Sobradinho do not have space for connection.

In accordance with Administrative Rule nº 293 of August 2017, Chapter II, art. 7, paragraph 4, a new technical note on remaining capacity shall be published by November 10, 2017, and shall be the starting point for the projects that may compete in Auction A-4.

The auction A-4 will be carried out in two phases, according to ordinance nº 390 of October 2017:

• Initially the projects will compete for the connection point requested in the registration and that it contains margin of drainage;

• In the second phase, the Classified Sellers in the first phase may submit bids for the products under negotiation;

If in the 1st phase the competition for the connection point is very large, the proponent may have a loss in the sale price and consequently decrease in the profitability of the Projects.

Transmission Auction Considerations 002/2017 and the A-6 Generation Auction 2017.

On December 15, a major transmission auction (002/2017) will occur, which may reduce limitations in Bahia and Rio Grande do Norte and give conditions to the projects of these states, to compete in Auction A-6.

For the Auction A-6, the projects do not depend on the Technical Note, and the EPE is responsible for giving the project access advice, but this fact does not detract from the entrepreneur risk of problems or delays in the connections that planning or construction.

Lot 4 (TO-BA): Abengoa-Bahia Solution

• Transmission Line 500 kV Miracema - Gilbués II - 418 km;

• Transmission Line 500 kV Gilbués II - Barreiras II - 311 km;

• Operation Date entry by the concession contract: 03/09/2023

*ANEEL defines that the term of the contract should be as short as possible;

Lot 5 (RN): Abengoa-Rio Grande do Norte Solution

• Substation 230-500 kV Açu III;

• Operation Date entry by the concession contract: 09/09/2021

*ANEEL defines that the term of the contract should be as short as possible;

None of the 11 lots to be auctioned minimizes Rio Grande do Sul's outflow problems.

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¹: NT ONS-EPE-ANEEL - 2º LER/2016: Quantitative of the remaining SIN capacity.

²: Mechanism of Offset and Deficit Compensation A4+ in May 2017, reversed a capacity of 815,03 MW average in BA/CE/PE/RN/RS states.

³: Reserve Power Outage LER 2017 in August 2017, reversed a capacity of 128,4 MW average of wind power and 54,8 MW average of photovoltaic power in BA/CE/RN/SP states.

4: Aneel canceled the contract of 8 wind plants (Energimp) and a photovoltaic plant due to delays in the implementation schedules of the projects, corresponding to 249 MW of capacity.

5: The sectioning options are alternatives to obtain margin of flow and to circumvent the restrictions, but it requires big projects for the proper apportionment of the costs.

#leilão2017