Brazil's largest-ever power-sector auction, held in March 2024, contracted around 20GW of capacity, primarily from gas-fired thermal plants. Many of these projects are greenfield initiatives not yet connected to the national gas pipeline grid, relying instead on imported liquefied natural gas (LNG). Experts warn of multiple risks, including price volatility, logistics challenges, supply constraints, regulatory hurdles, and financing difficulties.
Adriana Oliveira, head of thermal plants at Thymos Energia, highlights that while physical gas shortages are a moderate concern, price fluctuations pose a greater threat, especially during dry years when demand peaks. Recent long-term LNG contracts signed by Petrobras with US companies Sempra Infrastructure and Cheniere aim to mitigate some of these risks by reducing exposure to the volatile spot market.
Logistics and infrastructure present additional challenges. Only 70% of plant operations are covered by firm transportation contracts, and new gas pipeline exit points must be operational by 2028 to avoid congestion during high-demand periods. Isolated power plants face even greater risks due to the need for yet-to-be-built LNG terminals and the lack of underground gas storage facilities in Brazil.
Project execution risks are also a concern, as many auction-winning ventures historically fail to progress beyond the planning stage. Bianca Wolf and Marvin Menezes, partners at TAGD Advogados, note that scheduling pressures and supply chain constraints, particularly in the international turbine market, could lead to cost overruns and delays. Financing these projects is further complicated by the need for extensive security measures and the potential for increased investment costs.
Regulatory risks include the burden of obtaining licenses, contracting equipment and fuel, and ensuring timely plant construction and operation. Delays can result in fines, loss of concessions, or contract termination. Additionally, nine disqualified plants totaling 1.8GW are awaiting final decisions from regulatory authorities, adding uncertainty to the auction's final outcome.