The Brazilian state of Pernambuco just held its first solar-only auction with some success, clearing 122 megawatts of PV at a price of $98/megawatt-hour. This is a huge step forward for a country with about 20 megawatts of installed solar, and it places Brazil firmly in the running to become a dominant force in the Latin America PV market alongside Mexico and Chile in coming years.

A Tale of Solar Spurned

Past national power auctions in Brazil have been disappointing for solar developers. Despite high insolation levels, solar PV is unable to compete against lower-cost resources. In one recent auction, 2,700 megawatts of solar PV bid in -- only to see 0 megawatts go through when the price cleared at $54.92/megawatt-hour.

The abundance of cheap hydropower and the strong economics of wind and biomass in the country mean that solar has long played fourth fiddle among renewable resources. Throw in cheap fossil fuels, and it is no surprise that solar has had no success. The national regulator toyed with the idea of having a solar-only auction to alleviate these concerns, but such a structure has failed to materialize.

A State of Excitement

While the national auction dragged its feet, the Brazilian state of Pernambuco has charged full steam ahead.

At first, Pernambuco indicated it would auction 180 megawatts of PV over three years at a rate of 60 megawatts per year through a solar-only auction. When 2,700 gigawatts' worth of solar was effectively shut out of the national auction, Pernambuco decided to auction off 180 megawatts this year alone -- and moved the date up from February 2014 to the end of December 2013.

The final clearing price of $98/megawatt-hour is good news for solar developers and for Brazilian electricity customers. Representatives of the industry had indicated that they needed at least $83 to $87/megawatt-hour, so the final clearing price makes solar an attractive investment in the country. The clearing price was also bid down 9 percent from the ceiling price of $109/megawatt-hour, and not all of the available 180 megawatt allocation was filled, indicating the presence of competition and some discretion in sorting out speculative bids from those submitted by serious developers.

Five solar plants, each up to 30 megawatts in size, cleared the auction and will be located in the cities of Santa Maria da Boa Vista, Flores, Cabo de Santo Agostinho, Joaquim Nabuco and Tacaratu. These plants receive a twenty-year power purchase agreement at the clearing price and must begin operation within eighteen months.

Pernambuco has just disclosed the winning bidders: Sun Premier Holding Participações Ltda, Kroma Energia, Cone Concierge S/A, and Enel Green Power.

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Adam James is an analyst covering global downstream solar markets for GTM Research. For more on this topic, see the new Latin America PV Playbook.