Government proposes termination of contracts for thermal plants

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The Ministry of Mines and Energy (MME) opened this Thursday (27) a public consultation with the objective of terminating all contracts of thermal plants chosen after a competition held in October last year. According to the government, the measure will avoid paying up to R$39 billion and reduce tariffs in the country by up to 4.5% for the next three years.

The plants were contracted through a process called PCS (Simplified Competitive Procedure) and were supposed to operate from May 1, 2022 to December 31, 2025 with advantageous conditions for the companies.

As the auction took place at the time of the water crisis, the price of energy within the PCS was R$ 1,560 per MWh (megawatt-hour). Today, with the hydroelectric reservoirs full, the market works with a spot price of R$ 55.70 per MWh.

All 17 PCS thermal plants would cost R$ 39 billion in the electricity bill, according to estimates by Abrace (Brazilian Association of Large Energy Consumers and Free Consumers).

According to the government, the proposal will reduce electricity generation costs, preserve energy supply and respect PCS rules.

The draft ordinance presented in the consultation authorizes Aneel (National Electric Energy Agency) to rescind the contracts of plants that came into operation on time and that are in compliance with their obligations at no cost to companies or the government.

According to the MME’s proposal, non-defaulting generators who agree to amicable termination will have 30 days, after the publication of the directives ordinance, to present the acceptance term to Aneel.

The government points out that the amicable resolution does not apply to generators that have breached contractual obligations. Several are late.

It is expected that the plants that did not start operating within the agreed terms will have their contracts terminated due to default, with the consequent collection of the fine penalties established in the contracts.

According to the government, the amicable termination and reduction of contracted generation had already been requested by some generators to Aneel and MME. In addition, the TCU (Union Court of Auditors) has pointed out the need to analyze alternatives to reduce PCS costs, including contractual termination.

“The solution submitted to society seeks to meet the public interest, insofar as it provides an opportunity to reduce costs and electricity tariffs, respecting the contracts signed and preserving the legal and regulatory security of the bidding process”, says the ministry.

The guidelines and conditions for terminating the contracts will be available for public consultation until 28 November.

Contributed by Alexa Salomao

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