Cleantech Investor

Brazil’s recent energy auctions were hailed by most as an overwhelming success with over 1.9GW of wind energy projects securing contracts to sell energy to the grid at fixed prices for 20 years, commencing in 2014. A total of 1,068MW was contracted through 34 wind energy projects in the general auction. At prices below the average for natural gas, against which wind competed in the auction, Brazilian wind can now claim to have reached 'grid parity'. A further 44 projects were successful in the reserve auction, contracting to supply 861MW. The average price was R$99.57 for the general auction and R$99.54 for the reserve auction.

As a result of the ongoing auction system, investment in wind energy in Brazil is surging. The Brazilian Wind Energy Association, ABEEólica, has projected investment totalling R$25 billion between 2009 and the end of 2013. A large chunk of this funding is set to come from international investors. According to local newspaper Valor Econômico, 80% of a total of R$10 billion of projected investment in wind committed in the recent auctions will come from private sector sources. And around a quarter of that private capital is being invested by European energy companies. European project developers successful in the August 2011 auctions included Abengoa (Spain), Endesa (Spain), Enel Green Power (Italy), Gestamp (Spain), Voltalia (France) and MAN B&W Energia (Germany).

The growing interest in investment in Brazilian wind is attributed by Valor Econômico in part to the global financial crisis: wind turbine manufacturers are looking to Brazil because they are struggling in their traditional European and North American markets.  The newspaper quotes Ricardo Simões, President of ABEEólica, who attributes the growth in interest in Brazilian wind to the arrival of equipment manufacturers in the country. Equipment accounts for 70% of the costs entailed in a wind park.

GE of the US, Gamesa of Spain, Germany’s Wobben and Argentina’s Impsa are already established in Brazil, producing turbines in the country. Companies in the process of setting up include Alstom, Vestas, Suzlon Energy and Furlander. Alstom is expected to inauguarate its factory in Bahia later this year. It will be located close to a plant being constructed by Brazilian tower manufacturer Torrebrás, scheduled for opening in 2012.

But Simões cautions that profit margins for both investors and manufacturers are being squeezed. And some observers are concerned that a bubble is brewing in Brazilian wind energy. Adriano Pires from the Brazilian Centre for Infrastructure is quoted as stating that the government has encouraged excessive optimism about wind power which, in his opinion, may not be sustainable “in the long run”. Pires is concerned that project developers may not be able to deliver power at the rates they are promising, observing that "Brazil has a history of euphoria when it comes to power generation".

Before the recent auctions, Ângelo Vidal, the President of Wobben (one of the longest established manufacturers in Brazil), cautioned about unreal expectations and a “euphoria” in the market.

In addition to the European project developers, the recent auctions were notable for the participation of new Brazilian companies including Rio Bravo (in a consortium which includes state owned utility Electrosul) and Odebrecht Energia. Odebrecht won 120MW of capacity for parks which will use Alstom equipment. The Rio Bravo Investments led consortium has contracts with both Gamesa and Impsa.

Renova Energia, which featured prominently in last year’s wind energy auctions, was again a significant participant, securing capacity of 212MW. Another Brazilian company, Bioenergy, secured contracts for 86.4MW in three projects. Both Renova Energia and Bioenegy have historically purchased equipment from GE.

In addition to Electrosul, utilities which were successful in the auction included Furnas (in partnership with the Famosa consortium, which includes BMG and Ventos Tecnologia) and Chesf (in partnership with Voltalia of France).

Brazil currently has installed wind power capacity of 1.4GW, representing around just 1% of the country’s total installed generating capacity. Wind power is expected to account for over 4% of the nation’s power generating capacity by 2014 according to ABEEólica. Electricity consumption in Brazil is forecast to rise by 60% by 2020, on the back of rapid economic growth, and the government plans to expand generating capacity by at least 5GW annually to meet demand – with wind playing an increasingly important part.

Brazil’s next auctions will take place in December. Prices for energy will be watched closely. Rio Bravo Investments representative Fábio Okamoto is quoted as observing that equipment prices have fallen so much that his company has been able to contract to buy Brazilian produced turbines at lower prices than for Chinese equipment. Further declines in wind energy prices are likely to be at the expense of profit margins for projct developers and turbine manufacturers.