Sector wants to sell surplus electricity beyond short-term market, auctions
06/21/2023
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Newton Duarte — Foto: Ana Paula Paiva/Valor
Amid forecasts of a bumper sugarcane crop in 2023/24, the sugar-and-ethanol industry is now demanding from the Ministry of Mines and Energy that the projected surplus volume of electricity generated by biomass can also be sold on the free power market.
According to the rules of the industry established in the Ordinance 564/2014 of the ministry, the surplus firm power of biomass thermal plants can only be sold in the regulated market, the one served by power distribution companies.
Firm power is the amount of electricity a company can supply to the system, and it determines how generation companies are remunerated. Of the 388 sugarcane mills, nearly 230 export electricity to the National Interconnected System (SIN).
The Energy Cogeneration Industry Association (Cogen) and the Brazilian Sugarcane Industry Association (Unica) are asking the ministry to amend the ordinance to allow the surplus firm power to be commercialized in the free market.
Cogen President Newton Duarte told Valor that companies may also sell the surplus in the short-term market. For cyclical reasons, it is at very low values and do not reflect the marginal cost of operation. But due to litigation, it pays about 23% of the price of settlement of differences (PLD, a reference for the spot market).
“It is inconceivable that the industry strives to generate more and make an important contribution to the maintenance of the reservoirs, leaving 14 percentage points of the reservoirs in the Center-South, and is poorly remunerated,” he said. “We are asking for this change and giving the companies the opportunity to sell not only in the regulated auctions and PLD, but also in the free market.”
Mr. Duarte recalled that Brazil faced a water crisis in 2021, an event associated with large fires in the Center-South region, in addition to severe frosts that damaged that year’s harvest and reduced the amount of electricity produced and exported to the SIN. In 2022, despite being a very rainy year, sugarcane production was low, which resulted in low electricity exports.
In 2023, sugarcane fields are maturing and production is seen as rising 15%, which will translate into more bagasse to meet the needs of the mills – and surplus electricity for the system.
By the current standard, the formation of firm power is defined based on the previous year, but after many bad years in a row, the mills’ firm energy is being underestimated. “In 2023, the plants will have a very low firm energy and a higher export capacity. The regulatory alternative for entrepreneurs is the PLD or an auction,” he said.
In 2021 and 2022, the sector exported about 22,000 GWh. Mr. Newton believes that companies will export more than 25,000 GWh this year again, equivalent to a quarter of Itaipu’s generation.
Zilmar José de Souza, Unica’s bioelectricity manager, said there will be a bumper crop this year. According to Unica, energy generation from sugarcane bagasse increased by 28.7% from January to April 2023 compared to the same period in 2022, totaling more than 1.8 million megawatt-hours. The amount is equivalent to the annual electricity consumption of nearly 3 million people.
He also advocates that thermoelectric plants powered by biomass and biogas that have additional generation be able to market this surplus bilaterally through free contracting. Mr. Souza also recalled that the verification of the firm energy is done by the ministry in the usual way, which can take up to two years, but the generation of the plants depends a lot on the crop.
“The industry understands that it is not ideal to wait two to three years for the review of the firm energy,” he said. “In the case of biomass, there is an opportunity to have an ex ante firm energy and, depending on the performance, they could revise it later. Because nobody will plan to generate more than the firm energy if there is no remuneration for this investment,” he said. “This hinders any energy efficiency project that this industry can do to generate power in the short term.”
The subject was proposed for the former management of the Ministry of Mines and Energy, but the agents say they encounter resistance from the current administration. “The ministry had shown that it could study the matter and open a public consultation. We are waiting for this,” he said.
If the ministry amends the ordinance, the companies would already be able to sell the surplus electricity produced on the free market on a monthly basis. If the ordinance is not changed, power generation companies are expected to prefer to sell the bagasse. On the other hand, the companies report that suppliers never fully comply with supply contracts.
In a note, the Ministry of Mines and Energy said it understands that methodological changes and improvements are fundamental, and that such improvements also require time and compliance with essential steps within the public administration, with the preparation of technical studies, analysis of regulatory impacts, social participation process, all with the proper procedural instruction. It also said it is working to discuss and improve the norms in effect.
“With respect to the request of the biomass generating agents, to amend the ministry’s ordinance No. 564/2014, the understanding of this ministry is that this modification should not observe in isolation item I of Article 7, but that this normative act should be re-evaluated in an integrated manner, which will occur through this broad procedure of social participation.”
*Por Robson Rodrigues — São Paulo
Source: Valor International