Booming Brazil wind power market draws foreigners

Tuesday, 06 December 2011 21:53 Most of Brazil's wind farms are located on land. PHOTO/FILE Salvador. Already blessed with huge hydro and fossil fuel resources, Brazil is seeing a wind power boom as production prices fall and government incentives lure in a growing number of foreign suppliers. The country's wind power sector has a current capacity of around 1,400 megawatts, and is expected to grow nearly eight-fold by 2014, according to the Brazilian Association of Wind Energy ABEEolica. And a study by IHS Emerging Energy Research says Brazil, already Latin America's leading wind energy market, is expected to have 31.6 gigawatts of installed capacity by 2025. At a government-organized power auction last August, developers of 44 wind farms in Brazil won 39 percent of the total capacity contracted an average price of 99.58 reals ($62.91) per megawatthour, offering for the first time a price below the average for two gas projects (103.26 reals) and a hydroelectric one (102 reals). Lower production prices, government incentives and Brazil's soaring electricity demand have attracted a number of significant foreign players. Wobben Windpower, a subsidiary of German group Enercon, set up the first wind turbine factory in Brazil in the 1990s and expects to install 22 wind farms totaling 554 MW by the end of 2012. It has since been followed by Spain's Gamesa, Argentina's Impsa, Germany's Siemens, Denmark's Vestas -- the world biggest wind turbine manufacturer -- GE Wind -- a branch of GE Energy, a subsidiary of General Electric of the United States -- and India's Suzlon. The latest to join was French engineering giant Alstom, which last Wednesday inaugurated a wind turbine manufacturing plant in the northeastern state of Bahia, its first in Latin America. The plant, located in the industrial complex of Camacari near Salvador, Bahia's state capital, will serve the domestic and export markets. Alstom says its ambition is to match its current 40 percent market share in the Brazilian hydropower plant sector, which is Brazil's main source of electricity generation. "We won't achieve that tomorrow, but in 10-15 years we can. We are very ambitious in this (wind) sector, not only in Brazil but in the rest of Latin America," said Philippe Delleur, president of Alstom's Brazilian unit, told AFP at the inauguration ceremony. As to production costs, Delleur expressed hope that they will not drop too much further. "We hope prices will stabilize around prices which correspond to the profitability of our investment," he noted. Domestic developers such as Desenvix, Dobreve, Renova and CPFL are also active and, according to industry sources, MPX, the energy division of Brazil's billionaire business tycoon Eike Batista is also expected to invest heavily in the wind sector. The greatest potential is in the country's northeast, particularly in the states of Bahia, Rio Grande do Norte and Ceara, due to fast wind speeds and low incidence of tornados or hurricanes. (AFP)

Brazil
TOTAL INSTALLED CAPACITY Year MW 2002 22 2003 29 2004 29 2005 29 2006 237 2007 247 2008 341 2009 606 2010 931

A tremendous wind resource

In 2001, the first Brazilian wind atlas was published, estimating Brazils wind power potential at around 143 GW at 50m. In 2008 and 2009, new measurements carried out in several states at 80-100 meters indicate that the real potential is considerably higher, at more than 350 GW. This compares to the countrys total power generation capacity of 113.4 GW at the end of 2010. Large unpopulated land areas, a coastline of 9,650 km and excellent resources help secure Brazils prime position as a potential wind energy giant. The best proven wind resources are in the North/Northeast region of Brazil, and in particular in the states of Rio Grande do Norte, Cear, Pernambuco and Bahia. The South/Southeast also has good wind resources, especially in the states of Rio Grande do Sul and Santa Catarina. Wind energy and hydro power perfect partners Brazils windiest areas are located conveniently close to the electricity grid and to demand centers. In addition, in a country mainly powered by hydro energy and increasingly suffering from water shortages, wind power can, help alleviate some serious energy security concerns, especially during the dry winters. In addition to seasonal fluctuations, the new hydro power plants that are currently under construction will have very little, if any, water storage due to environmental concerns. This will leave the Brazilian electricity system more vulnerable to climatic variability and climate change. Since 2001, electricity shortages have plagued the Brazilian economy. To mitigate this risk, over the past decade Brazil has been investing in fossil fuel based power plants, thereby exposing the economy to high and volatile fuel prices. The Brazilian wind market in 2010 The Brazilian wind market grew by 326 MW in 2010, bringing the total installed capacity up to 931 MW, a growth of 54.2% in terms of total installed capacity, and a 23.8% increase in terms annual capacity additions. These numbers show that the Brazilian wind market has now reached a stable pace of growth, and total installed capacity is expected to reach 1,000 MW during the first few months of 2011. PROINFA programme extended to end of 2011 Brazils PROINFA scheme was first established in 2002 by the government to spur renewable energy development and to increase the share of renewable energy to 10% of Brazils electricity supply by 2020, by stimulating the addition of over 1,100 MW of wind power, which was later expanded to 1,400 MW. After a slow start, the programme was extended several times, now running until the end of 2011, and it looks increasingly likely that most of the 1,400 MW target will be met. Wind projects awarded through the PROINFA programme account for over 95% of all wind power installations in Brazil. All 14 wind power projects installed and connected in 2010 were PROINFA projects, representing 26% of the total 1,429 MW capacity contracted under the scheme. Overall, 40 PROINFA wind farms are now in operation, totaling 900 MW, while a further 13 projects (394.1 MW) are still under construction, and the majority of these are scheduled to be connected to the grid by mid-2011. Only one remaining 135 MW PROINFA project has not yet started construction. Wind power auctions in Brazil Reserv e Energy Auction LER-2009 In December 2009, the Brazilian energy regulator ANEEL hosted the countrys first wind-only auction, contracting 71 wind energy projects for a total capacity of 1,800 MW. Six major wind turbine manufacturers successfully received orders following the auction: GE, IMPSA Wind, Siemens, Suzlon, Vestas and Wobben/Enercon. At the time, ANEEL established a price ceiling of R$189 (EUR 83.4/USD 113.1) per MWh. Although this was already lower than expected, the average price achieved in the auction dropped to R$148 per MWh (EUR 88.6 / USD 65.3) on the day of the auction), as the result of the competition among developers of the more than 13 GW of wind projectsthat had already been licensed by ANEEL for this purpose. Alt ernative Energy Auction LFA-2010 and Reserv e Energy Auction LER-2010 In August 2010, ANEEL hosted another auction for small hydro, biomas and wind (Alternative Energy Auction LFA- 2010), and the average price realised was below that of the 2009 auction (R$134 per MWh). 1,519 MW of wind power were contracted at this auction with 20 year PPAs, spread over 50 peojects. The developers with the most contracted capacity were Impsa-Energimp (270 MW) and Iberdrola (258 MW), followed by CHESF, Contour Global and Energisa. The contracted projects will have to deliver electricity to the grid by 1 January 2013. On the same day, a second auction for the same renewable energy sources took place (Reserve Energy Auction LER- 2010), awarding contracts to 20 wind power projects totalling 528 MW. The main winning developers here were Renova Energia, Iberdrola and Enel. These projects need to beonline by 1 September 2013. The average price stayed below the previous auctions at R$ 123/MWh (EUR 54.3 /USD 73.6). Key players in the Brazilian market

Historically, only one wind turbine manufacturer, Wobben Windpower, a subsidiary of German company Enercon, was present in the Brazilian market, with two manufacturing plants. More recently other suppliers began to enter the market included the Argentinean company Impsa, as well as Suzlon and Vestas, which have both sold turbines to PROINFA projects. More new market entrants that sold turbines in the 2009 and 2010 auctions include Alstom, Gamesa, GE Wind and Siemens. These foreign suppliers have now become eligible for BNDES financing, based on their commitment to manufacture wind turbine generators in Brazil within a short time frame. The initial goal is to reach a local content share of 60%. In order to achieve this, both GE and Alstom Wind are currently building factories in Brazil, while Gamesa and Suzlon have announced local manufacturing plants. Siemens already has a large manufacturing base in Brazil which will allow the company to produce and assemble wind turbines. Brazil is well positioned to supply the wider Latin American market as well as the market in the United States, either with completed wind turbines or with partly assembled parts. Outlook for 2011 and beyond Assuming that the projects contracted in the auction are built according to schedule, the outlook for wind energy in Brazil is very positive. Together with the remaining 530 MW of PROINFA projects, which are scheduled to become operational in 2011 or 2012, 470 MW of the first projects from the auctions should be built in 2011 and another 1,800 MW by 2012. A further 1,500 MW could be coming online in 2013, according to the schedule of the 2010 auctions. A further two auctions have been announced for June 2011.

Wind Could Become Brazil's Second Power Generation Source in 2015

By Ivan Castano, Contributor November 22, 2011 | 4 Comments

BRAZIL -- It's one of those stories everyone's talking about, at least in Brazil's wind energy space. And it should come as no surprise. Under its newly launched energy expansion plan, the government intends to boost installed wind power generation capacity to 11.5 GW by 2020 from a mere 1.5 GW now, bringing new and exciting investment opportunities for developers and entrepreneurs. "Everyone's excited and there are hundreds of projects planned," says Jonathan Kendall, founding partner of Rio Energy Consulting - TSS Brazil. This fact has of course not been lost by industry heavyweights such as Gamesa, Iberdrola, Vestas and Alstom, which are licking their chops in anticipation of a string of upcoming auctions that will put at least 6 GW of capacity on the block by 2015. Accroding to Ricardo Baitelo, Greenpeace's renewable energy campaign coordinator in Sao Paulo, the future tenders will also be more profitable. This is because the government is poised to introduce equipment-import and other tax breaks, as well as cheaper financing rates through Brazil's development bank BNDES, to make it all happen. Baitelo says a European-style feed-in tariff is not contemplated, however. "The production price will go down to 200 reais (US$111) or even 100 reais (US$55) from around 300 reais (US$166) now," once the government introduces the incentives, he adds.

According to Baitelo, the expansion is so aggressive that wind farms could very well overtake natural gas thermal plants as Brazil's second-power generation source in five years, moving right behind the number one source hydroelectric power. "Right now the majority of the thermal power plants are running on natural gas, accounting for five percent of generation, though there is a small percentage of oil and diesel, accounting for four percent and coal for 1.8 percent," Baitelo explains. "But the government doesn't want to build more fuel-powered plants after 2015 as oil and biodiesel are more expensive to import and more polluting." That is why wind, as well as biomass, are expected to see huge development in coming years, observers say. Technological Leap According to Elbia Melo, CEO of the Brazilian Windpower Association, building a wind power plant in Brazil has become 70 percent cheaper than it was seven years ago. She says a significant addition of 100-meter towers in recents years has sharply boosted windmill's generation/cost equation (as the new towers produce significantly more electricity) compared to the older facilities running on 50-meter towers. She says some developers' plans to begin building 120-meter towers should boost productivity even more. At the same time, Melo claims Brazil has become the world's most coveted wind power market. "China purchases everything it needs to build its own farms domestically while India buys from China so European and U.S. developers are left with Brazil as the only real viable market," she adds. Wind power generation prices have also fallen to around 100 reais (US$55) per MWh versus 50-55 (US$27-30) MWh for hydropower, making the technology much more competitive than in the past. "The government wants consumers to get the best power price and they can definitely do this with wind now," Melo boasts, adding that growing environmentalist complaints against state plants to boost hydropower by 10 GW by 2015 (mainly because the new projects would cut through the Amazon forest, negatively impacting its ecosystem and displacing its indigenous populations) could encourage the state to favour more wind projects. Minus 5 and Minus 3 Auctions As the state works to ramp up its renewables development, the Minus 5 wind power auction is planned in December when 2 GW of capacity for parks scheduled to be built five years will be put on the block. In 2012, a Minus 3 and Minus 5 auctions should also hand another 2 GW to private developers. "The idea is to tender at lest 2 GW per year until the [2020] objective is met," Melo says. North and South Build Up According to Belo, the latest government auction, managed by main electricity regulator Aneeel, saw 1 GW handed to state-owned power firm Electrosur and another 1GW to five companies, most of which are Brazilian except Italy's Enel.

The five firms plan to install the farms in Brazil's windy northeast regions of Bahia, Ceara, Rio Grande do Norte and Sergipe. Meanwhile, Electrosur is expected to build most wind farms in Porto Alegre, Southern Brazil, Belo says Overall, Belo boasts Brazil's wind power potential stands at 300 GW compared to an estimated 100 GW in 2001 when the smaller towers and older technologies were considered. That is nearly triple Brazil's current installed power generation capacity of 115 GW. Because of its large sugar cane bagasse, wood and other plant and animal waste resources, industry observers were unsurprised the state wants to boost biomass capacity to 9.1 GW from 7.3 GW. Between 20112015, capacity will increase 62 percent. But what many wondered why the government has failed to launch an official development scheme for solar power. "That's because it's very expensive," Melo says, at some 600 reais (US$333) per MWh. "In Brazil we have large renewable resources, first hydro and then wind and biomass so we prefer to invest in sources that bring good power prices to consumers." However, she adds solar PV costs are sliding, encouraging the state to consider solar for which she predicts it will launch a large-scale development scheme in December 2012.
Apr

Wind power In Brazil

Posted by Big Gav in brazil, wind power

63Cleantech.com reports that the wind power market in Brazil has the potential for 143 GW of generation - Brazil: More than just ethanol?.
The wind power market in Brazil is an untapped resource, ready to explode with the right mix of foreign developers, government incentives, and capital availability. That was the message from a new report by Jorge De Rosa, an industry analyst with the Frost & Sullivan Energy & Environment and Chemical & Materials practices.

Brazil has the theoretical potential to produce 143 gigawatts of wind power, a potential $100 billion opportunity. That potential wind is concentrated along the countrys eastern coast, which holds 70 percent of the countrys population. We believe the potential might be even larger than that, however we see that Brazil still has some barriers and restraints, De Rosa said. Brazil is best known for its biofuel production. Together, the U.S. and Brazil produce 75 percent of the world's ethanol (see Officials lament U.S.-Brazil ethanol cooperation). That expertise has led to interest in bioplastics in Brazil (see Braskem claims first green polyethylene). But Brazil has experienced a risk of energy shortages in recent years because it is highly dependent on hydropower as its main source of energy, accounting for about 80 percent of demand. Wind power will not be a significant portion [of the overall energy supply], but no other power source will ever be significant because of the dominance of hydropower, he said. The country is looking to diversify its energy sources, as well as boost overall generation by at least 4.5 GW, De Rosa said. The wind power in Brazil could be an very interesting and complementary source due to the seasonality, De Rosa said. Wind power can supply energy in the dry season of Brazil, and vice versa. The opposite seasonality of hydro and wind is also driving the wind sector in Vietnam (see Vietnam's Cavico moves from hydro to wind). Brazil had about 341 MW of installed wind power capacityabout 0.4 percent of the country's energy supplyat the end of 2008, after the sector experienced a significant spike starting in 2006 thanks to a new government program to boost wind, small hydro and biomass.

By comparison, the U.S. had 28,000 MW of installed wind power at the end of 2008, with a compound annual growth rate of 27 percent thanks to subsidies and other political and economic incentives, De Rosa said. America could be a case study for the Brazilians, he said. The 143 GW of potential wind power only incorporates wind farms on land. Offshore wind power will be in the very distant future, De Rosa said. We first have to develop onshore, and then maybe we can think about offshore wind technology. Also distant in the future is solar power or natural gas as major power sources, he said. Unattractive pricing compared to other forms of energy has limited interest in wind power in Brazila situation De Rosa said could only be solved by government incentives or pricing strategies. Those could come as soon as November, in the range of about $100 per megawatt-hour.

Event Review: London seminar on prospects for Brazilian wind energy - with a focus on Bahia
The 'Brazil: Wind Energy Opportunities' seminar, a warm-up session ahead of BWEC 2012 (which will take place in So Paulo on 2-3 April), was held in London on 8 March. The event was organized by Cleantech Investor and supported by TheCityUK and Bird & Bird. An introduction by Matt Bonass (a Partner at Bird & Bird, which kindly hosted the event) was followed by presentations from Colin Johnson (Grant Thornton/The City UK), Anne McIvor (Cleantech Investor), Miguel Ferreira (Megajoule) and Paulo Roberto Britto Guimares (from the Government of the State of Bahia).

The session provided a host of valuable insights into the potential for the wind sector - both project development and manufacturing - in Brazil. Not least amongst the messages was the sheer scale of the opportunity in Brazil - which, as more than one speaker emphasized, is more comparable to a continent than a country. Brazil has a large economy: the event took place during the same week it was confirmed that the Brazilian economy has overtaken the UK to rank number six in the world - with GDP of US$2.44 trillion in 2011. This large economy has a substantial energy market: Colin Johnson of Grant Thornton/TheCityUK quoted one statistic in which Brazil ranks as the third biggest electricity market in the Western Hemisphere. And that market is growing fast. According to Miguel Ferreira (quoting statistics from EPE), energy demand is growing in Brazil at a rate of 3,200MW/year. The existing energy matrix in Brazil includes a high proportion of renewables (45% of energy comes from renewables compared with the world average of 14%, according to Johnson's sources) - mostly in the form of hydro. Miguel Ferreira, founder of Megajoule (a wind energy consultancy), emphasised the strong seasonal complementarity between wind and hydro - a factor which bodes well for the development of wind energy in the future. Another driver behind the wind power sector in Brazil is a lack of other options. Possible future constraints on new energy generation capacity from sources other than wind, mentioned by the speakers, included: 1. Hydro: Environmental question marks over the future of further hydro electric developments, such as the giant Belamonte project in the Amazon region, and an ongoing debate over 'neighbouring hydro' (imported from countries such as Argentina and Peru). 2. Nuclear: Brazil has a nuclear programme but, as Colin Johnson mentioned, there are further concerns about the Angra III nuclear project in terms of its safety (given the older design being used and landslide concerns at the location itself) which have provoked opposition from Greenpeace. This may make its completion less likely, particularly as a significant part of its financing is from the German development bank; the Greenpeace concerns may make that difficult politically. 3. Natural gas: Prices of natural gas are set domestically in Brazil and are higher than in some other markets (notably much higher than in the US). The conclusion from all of the speakers was that the outlook for wind in Brazil is extremely promising and that Government policy is very supportive of the industry. That support is channeled largely through the state-owned Brazilian Development Bank, 'banco nacional do desenvolvimento' or BNDES. BNDES, as Colin Johnson pointed out, is the world's largest development bank - larger than the World Bank. It has played a central role in kick-starting the Brazilian wind energy industry: according to Johnson's sources, of R$5.1 billion invested in wind in 2011, R$3.4 billion was financed by BNDES. One key aspect of the Brazilian wind energy market is that there are no longer any overt subsidies (such as feed-in tariffs) provided to wind power. Prices for wind energy contracts are established through an auction system. Although there are dedicated wind auctions, wind also competes head-to-head with fossil fuel (natural gas) and other renewable energy sources (notably bagasse - waste biomass from the sugarcane/ethanol processing industries) in open auctions. In landmark auctions held in August 2011, the price contracted by wind energy projects - on average - fell below the equivalent price for natural gas, implying wind power at 'grid parity': a world first (see 'Brazilian Wind Power Reaches Grid Parity', published in Cleantech magazine last year). Miguel Ferreira confirmed that the ability of project developers to enter bids at low levels in the Brazilian wind auctions is often the

result of hard bargaining with equipment producers. He explained that bartering on prices for turbines takes place even as the auction is in progress. Turbine manufacturers have been suffering over the last year or more, which may have worked in favour of the Brazilian project developers. (With traditional markets such as the US and Europe in recession, turbine manufacturers needed to focus on Brazil and other fast growth markets to maintain their market presence - even at prices below what they might have preferred.) The speakers confirmed that prices contracted for wind energy are now stabilising, with no further price falls (on average) seen in subsequent auctions. Any concerns about the workings of the auction system from the largely British audience (some of whom have memories of failed wind auction systems, when projects were contracted at low prices, but were never built) were allayed by the speakers, who explained that the Brazilian auction system imposes heavy penalties on a developer who fails to deliver energy on time and as promised. Tough requirements are also imposed upon developers before a project can qualify to enter the auction. Paulo Guimares pointed out that the State of Bahia works closely with developers to help them meet environmental and other permitting requirements. The Federal Government recently decided to extend to three years the length of time required for wind resources to be measured at a site before a project is eligible to enter the auction. According to Guimares, the State of Bahia was instrumental in negotiating that the new policy shouldn't come into force until the end of 2012 - to ensure that some of the projects planning to participate in the next auctions in Bahia will still qualify. Despite that extension, there are bottlenecks in the process of approvals to enter the auctions (notably in the area of environmental permitting). This has resulted in the postponement of the auction which had been scheduled for the end of March until later in the year. A second important aspect of the Brazilian wind market is that the development of wind power forms part of an integrated Government policy on both energy and economic development. Wind is not considered to be just a crucial future source of energy: it also forms an important plank of Brazilian economic development policy, which focuses on the scope for wind power to contribute to the economic development of the (less developed) North East of the country. Wind is contributing to economic development in the North East of Brazil in two ways: 1. Wind project development - a focus on the 'semi-arid' regions in states such as Bahia (which was discussed in depth at the event by Paulo Guimares) and Rio Grande do Norte is important (these regions happen to have great wind resources - but they are also relatively poor and the introduction of wind energy has economic benefits). 2. The emergence of wind equipment manufacturing hubs in states including Bahia, Pernambuco and Ceara - with a focus on the creation of manufacturing jobs in the North East of the country. BNDES, the Brazilian Development Bank, is central to this 'joined up' policy. Brazil - unlike China - doesn't impose any legal restrictions on the source of the equipment which can be used in its wind power industry. However, for a project developer to benefit from loan finance at favourable rates, local content requirements are imposed by BNDES. This subtle policy - combined with the practicalities of manufacturing locally, given the distances involved- has encouraged a host of equipment manufacturers to set up shop in Brazil. The emergence of Bahia as one of several manufacturing hubs was discussed in depth at the seminar by Paulo Guimares. His presentation was timely, in the week that GE confirmed it will become the third turbine manufacturer to set up in the State of Bahia (and predicted 25% growth in its revenues from Latin America, which the US giant expects to outstrip China in its results in 2012 - albeit overall, not just wind!). GE is set to join Alstom and Gamesa in the Camaari industrial complex in Bahia, wherewind equipment manufacturing companies benefit from a host of favourable conditions ranging from reduced rents and tax exemptions to favourable loan rates for the construction of manufacturing plants, from both BNDES and the regional development bank of the North East of Brazil, Banco do Nord Est (BNB). The Camaari complex (which is also a major petrochemical complex and is the base of a large automotive manufacturing industry) is also the base for manufacturing plants owned by tower manufacturer, Torrebras (WINDAR Renovables), steel manufacturer Dacero (which supplies towers) and a blade manufacturer. Paulo Guimares spoke in depth about the potential for wind project development in the State of Bahia - which is comparable in size to France. The economy of Bahia is the largest in the North East of Brazil and ranks number six overall in the country. There are 1,563MW of wind projects under development in Bahia and, according to Government of Bahia statistics, a further 1,345MW of capacity is at the point where it is ready to sign contracts, another 4,634MW of projects are under evaluation in the state, and there are preliminary studies relating to projects with projected capacity of a massive 8,900MW in Bahia.

Overall potential for wind energy in Brazil was estimated, by Miguel Ferreira, to bebetween 300GW and 350GW. Ferreira quoted the 2001 Brazilian wind atlas, which estimated a potential of 143GW - but observed that the 2001 numbers are considerably out of date, taking into account updated methodologies. The potential for the development of specific technology, tailored for the Brazilian market, was mentioned (examples include the very high altitude wind - tall - towers, which have considerable potential in some regions in Brazil (including Bahia). In terms of returns being achieved by investors in projects in Brazil, numbers are difficult to come by. Returns are clearly influenced by the interest rates on loans and vary according to the region. In the past, BNB provided loans at even lower rates than BNDES for projects in the North East. However, it withdrew from the project financing market last year. One option under consideration (according to Paulo Guimares) to encourage the development of the market in the North East of the country in the future is regional auctions. However, no decision has been made on that at this stage. Since the auction system permits a wind project operator to sell energy at prices under avery long term contract of 20 years, key investors are - not surprisingly - utility companies and long term investors who require a stable rate of return. However, it was pointed out that there are many examples of more entrepreneurial developers entering the market, establishing projects, and selling out at a later stage to larger entities, or investors with a longer term risk/reward profile. This phenomenon explains a rise in merger and acquisition activity in the Brazilian wind project development sector over the last year or more - with the utility companies prominent amongst the buyers. One point highlighted in London was that the trends in investment and finance are changing in Brazilian wind project development. The private sector banks look set to play an increasingly important role in the financing of wind energy in the future: the role of BNDES will decline as the industry matures and reaches critical mass. The implications of this trend for investors in the sector is one of the aspects which will be covered in more depth at BWEC 2012 on 2-3 April.

Brazilian Wind Power achieves Grid Parity

First published in Cleantech magazine 2011 Issue 5. Copyright Cleantech Investor Ltd BRAZILS 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 (ABEElica), 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 countrys 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 nations power generating capacity by 2014, according to ABEElica. Brazils 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 series of energy auctions has contracted 5.2GW of projects which will take total installed capacity in Brazil to 7.2GW by 2014 and will attract over US$12 billion in investment. The most recent energy auctions, in August, 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.

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. ABEElica 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 Econmico, 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 years 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, Germanys Wobben and Argentinas 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 Torrebrs, 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 Energtica (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 Fbio 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, ngelo 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.

In the run up to BWEC 2012, a high level conference on finance and investment in wind in Brazil, which will take place on 2-3 April, Cleantech Investor, in partnership with Carta Capital (a leading Brazilian business publication) and law firm Bird&Bird, will host an event in London on 8 March, on the theme of Wind Energy Opportunities in Brazil. Brazil has been largely unaffected by the slowdown hitting other eonomies and the Brazilian wind energy industry is experiencing rapid growth. Brazil is one of the world's fastest growing economies and demand for energy is rising rapidly. Government policy in Brazil supports the development of the wind energy industry, as part of the overall energy policy. The country has rich wind resources onshore and an integrated economic and energy policy in Brazil supports the development of the wind turbine manufacturing industry (most of the world's major turbine manufacturing companies are opening up plants in the country - which aims to become an exporter of equipment to the rest of Latin America, and beyond). This afternoon event will provide an overview of the Brazilian wind energy market including information on:

The Brazilian energy auction system - which has been successful in bringing down prices to'grid parity' (helped by the excellent wind conditions in Brazil which have encouraged investment) Brazilian government incentives in the form of subsidised loans for the purchase of locally manufactured equipment. The key players in project development and project finance (including background on the European and Chinese entrants into the market The key locations for wind energy in Brazil: the 'wind states' in the North East (wheremanufacturing hubs are emerging) and in the South. Opportunities for UK/European companies who are interested in becoming suppliers to/investing in the wind energy market in Brazil.

Wind Project Developers interested in investing in the Brazilian wind market Wind sector supply chain companies keen to explore opportunities to enter this fast growth market Stock market investors/analysts who want to learn more about the manufacturing hubs opening up in Brazil and the players in this fast growth market Advisors and consultants operating in the wind energy sector

In its upcoming research report Brazil Wind Power Market Analysis, Kuick Research analyzes the multiple aspects related to wind power market in Brazil. According to the report, the wind power installed capacity has witnessed phenomenal growth in recent years. The cumulative installed capacity for wind power has multiplied by almost six times during 2006-2011 and surpassed 1 GW by end of 2011. The current growth is anticipated to continue in future also with overall cumulative installed capacity is estimated to cross 10 GW by 2016. As per the research report Brazil Wind Power Market Analysis findings, the lower cost for production coupled with government incentives schemes has led to favorable environment for the development of wind power market in recent years. The lucrative market conditions due to supportive policy framework has led to entry of many international players like Vestas, Gamesa, Siemens, Suzlon and GE into Brazilian wind power market landscape. The Wind farm auctions process followed by the Brazilian government has been the major contributor towards the unprecedented growth of the wind power market in recent years. The auction process has given an edge to Brazil wind power sector development programme as compare to its neighbors in Latin America. The auction process adopted by the government has not only contributed in the past growth trajectory attained by wind power market but it has also led to the favorable platform required for the future growth and expansion of the market.