First published in Cleantech magazine 2011 Issue 5. Copyright Cleantech Investor Ltd
Brazil’s integrated industrial and energy policy is paying off as wind prices fall below natural gas
By Anne McIvor
Given its potential wind resources, Brazil has been slower than fellow ‘bric’ economies, China and India, to embrace wind. It is, however, catching up fast. A report by the Global Wind Energy Council (GWEC) and the Brazilian Wind Energy Association (ABEEólica), in partnership with the Renewable Energy Efficiency Partnership (REEEP), forecasts that Brazilian wind power deployment will exceed 5GW by 2013. Brazil currently has installed capacity of 1.4GW, representing around 1% of the country’s total installed generating capacity. Electricity consumption in Brazil is forecast to rise by 60% by 2020, on the back of rapid economic growth, and wind power is expected to account for a growing part of the mix. The 5GW forecast assumes that wind will contribute over 4% of the nation’s power generating capacity by 2014, according to ABEEólica.
Brazil’s wind energy is currently derived entirely from onshore generation, with the bulk of the resources concentrated in the north east and the south. The country has massive resources of onshore wind and there is little inclination to explore the potential of offshore wind at this point.
A total of 31 wind farms have contracted to deliver energy in the future at two digit Brazilian real prices (i.e. below US$63, €44 or £38 at the exchange rates prevailing on the date of the auctions).
The ongoing auction system is underpinning investment in wind energy in Brazil. ABEEólica has projected investment totalling R$25 billion between 2009 and the end of 2013, with a large chunk of this funding 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).
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), Odebrecht Energia and Bioenergy, which secured contracts for 86.4MW in three projects. Odebrecht won 120MW of capacity for parks, which will use Alstom equipment. The consortium led by Rio Bravo Investments has contracts with both Gamesa and Impsa.
As well as Electrosul, utilities which were successful in the auctions included Furnas (in partnership with the Famosa consortium, which includes BMG and Ventos Tecnologia) and Chesf (in partnership with Voltalia).
Renova Energia, which featured prominently in last year’s wind energy auctions, was again a significant participant, securing capacity of 212MW. Renova, which is listed on the Sao Paulo borse, is now majority owned by Light S.A. whose major shareholder, in turn, is fellow utility Companhia Energetica de Minas Gerais (Cemig). Cemig was one of the key electricity utilities contracting to buy energy in the recent auctions, agreeing to purchase 25.2% of the total. Other utilities contracting to buy wind energy included CPFL Piratininga (11.07%) and Amazonas Energia (10.81%).
The Brazilian Government has adopted an integrated industrial strategy to promote wind energy. It has avoided overt incentives such as feed-In tariffs, but has provided incentives in the form of discounted bank loans, through government-owned Development Bank BNDES, to projects which purchase equipment majority manufactured domestically. The result has been a concerted move to establish manufacturing bases in the country. The north east of Brazil – where much of the wind resources are concentrated – is becoming a hub for production. GE of the US, Gamesa of Spain, Germany’s Wobben and Argentina’s Impsa have already established turbine manufacturing in Brazil. Companies in the process of setting up include Alstom, Vestas, Furlander and Suzlon Energy (which has invested in newly established blade manufacturer Aeris Energy). Alstom is expected to inaugurate its factory in Bahia later this year, located close to a plant being constructed by Brazilian tower manufacturer Torrebrás, scheduled for opening in 2012.
The trend for international equipment manufacturers to set up in Brazil is also attributed by some to the global financial crisis: turbine manufacturers struggling in their traditional markets of Europe or North America are looking to Brazil. However, the strength of the currency is currently something of a deterrent to investors in the country.
The low prices for wind energy are being held up as a success for the Brazilian auction model by Mauricio Tolmasquim, President of Empresa de Pesquisa Energética (EPE), the Government agency which manages the auction system. Tolmasquim claims that the arrival of wind equipment manufacturers in Brazil has made the market more competitive - because the manufacturers, who often work in partnership with project developers, need markets for their turbines.
Tolmasquim argues that Brazil's auction model serves to "stimulate efficiency and innovation". His view is that in Europe, where feed-in tariffs are the norm, developers don't necessarily think creatively to work towards the lowest cost solutions. Tolmasquim considers the European model to be flawed.
The EPE has opened up the A-5 energy auction to wind projects. The next auction, which offers 20 year energy supply contracts for wind, will take place on 20 December 2011. In contrast to previous auctions, this auction allows project developers five years before they must connect to the grid – which is expected to permit more daring strategic approaches. 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 prices lower than those for Chinese equipment. The question is whether further declines in wind energy prices will be at the expense of profit margins for project developers and turbine manufacturers.
There are concerns in some quarters 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. Before the recent auctions, Ângelo Vidal, the President of Wobben (one of the longest established manufacturers in Brazil), cautioned against unreal expectations and a “euphoria” in the market.
However, the Brazilian Government seems to be riding high on the back of an integrated strategy to promote renewable energy, which appears to be working much better than the policies of many other nations in Europe or the US. The promotion of wind, through the auction system, has permitted market forces to drive down prices – and has simultaneously resulted in the creation of a manufacturing industry in the country. Indeed, Brazil looks set to become a leading manufacturing hub for the rest of Latin America – and may ultimately become a significant exporter of equipment to North America.
Brazil offers a rare bright spot in the global wind energy market which, with the exception of the offshore boom, is somewhat subdued, and looks set to remain a fast growing wind market for the foreseeable future.
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