As the industry prepares for Brazil’s second auction of wind energy contracts, Windpower Monthly talks to Abeeólica vice president Lauro Fiuza Jr, who is also chief executive of one of the country’s largest wind developers, Grupo Servtec.
Tony Danby What needs does Brazil have for energy sources such as wind?
Lauro Fiuza Jr Brazil has installed 105GW from all kinds of electricity generation, such as hydroelectric dams, which account for about 78% of the country’s energy, as well as nuclear, biomass and wind. If GDP continues to grow at 5% a year or more, however, it will need 6-7GW more energy a year. Wind could provide about 1.5GW a year.
We need new forms of energy generation to complement hydroelectricity, particularly in the second half of the year when rivers are drier and dams emptier. Although a large portion of our energy needs can come from building new dams in the Amazonian region, these dams are sensitive to water shortages. With the most new hydroelectric energy potential coming from this region, this option is also increasingly sensitive to environmental restrictions.
TD What is the potential for wind energy in Brazil?
LF New wind calculations show that Brazil has 305GW of wind potential along its coast and inland. Wind offers the best complementary renewable energy to hydroelectricity. Biomass, mainly residue from crushing sugar cane, is a viable option, but can only offer only around 15GW of potential energy. Wind offers 20 times more potential.
TD Brazil’s fledgling wind energy industry has seen false starts over the years. Is wind now developing in Brazil?
LF Yes, there were difficulties, such as lack of equipment and delays in renewable energy, up until 2009. But the government’s renewable energy programme, Proinfa, was a testing ground for wind power and has been a success.
The real turning point, however, was the country’s first wind auction last December, which attracted 13GW of projects interested in the auction process, and resulted in 1.8GW of contracts being signed. It also led to several more manufacturers joining incumbent Germany’s Wobben Windpower here, and Suzlon plans a manufacturing plant. Wind energy has reached a new level and is seen as a reliable source of electricity for the grid.
TD The auction in December resulted in 71 new projects, securing 20-year power supply agreements to deliver energy from July 2012 onwards. After the six-hour auction, prices plunged 21%. Have the low price raised concerns about the feasibility of projects?
LF The auctions saw an average price of BRL148.9/MWh ($84.7/MWh); most projects secured contracts at more than 152/MWh ($86.5/MWh). This was Brazil’s first wind-only auction and manufacturers pushed down prices to levels more usual in Europe or the US. Although most developers say that the price was low, the winning projects are still possible to build.
With Proinfa, single companies often won projects and then tried to sell the PPAs. In the auction, warranties and collateral were needed to enter the process and all the companies that won PPAs are major, established players.
Abeeólica expects 2-2.5GW of wind energy from the August auction. The auctions show the government’s commitment to building a viable market for wind and, as a result, Abeeólica expects some 10GW by 2020.
TD São Paulo-based Renova Energia secured the largest number of projects in the last auction, but has since scaled down its financing plans. Will this hamper its projects?
LF Renova delayed an initial public offering (IPO) because of financial and economic conditions that affected firms with recent IPOs in various sectors. This is not related to Renova as a wind company and its projects will go ahead.
TD Your company Servtec has already registered 340MW of projects in the auctions on August 19. As CEO, what do you see as the likely starting ceiling price and how do you expect the price to react during the downward bidding process?
LF We expected higher prices in the previous auction and we were wrong — we saw that prices can go down further than expected. I think the ceiling price will go up compared to BRL189/MWh ($107/MWh) in the last auction. This is the feeling I get from talking to technical specialists and government sources but I cannot give an exact figure.
TD How are you preparing for the auction?
LF This time, developers such as Servtec are forming agreements with manufacturers and financiers before the auction. It’s a partners’ game but it’s not just an issue of price — it is also about trust.
TD The new wind auction has somewhat overshadowed the government’s Proinfa programme, which has an official deadline of the end of this year. Where does this programme now stand?
LF Proinfa has 794MW online and another 300MW under construction with Argentinian firm Impsa’s major projects, Eólicas de Bom Jardim and Água Doce in Santa Catarina state, and one from Portuguese utility EDP in Rio Grande do Sul state. This experimental programme marked the birth of a new industry. It’s a huge success.
The main barrier to Proinfa was that the national content restriction slowed initial access to turbines and equipment. The government also failed to announce a Proinfa II or III, so manufacturers had no clear signal on future projects. Once regulations were changed to allow imports, manufacturers also started to arrive. Early financing constraints have also gone as development banks, such as BNDES and Banco do Nordeste do Brasil, have provided financing support.
A couple of projects have also hit hurdles: developer SIIF Energies do Brasil’s project in Rio de Janeiro state had legal problems as its park is near an airport. But if projects have serious reasons for delays, they may be given extra time.
TD What are the benefits for employment through wind?
LF There are many employment benefits from the projects across Brazil. For example, Servtec employed 800 workers to implement its 139MW Bons Ventos Aracati wind farm. This is just people working on the project and doesn’t include jobs created through transport and logistics companies, manufacturers and other suppliers.
TD What else could be done to keep this industry working?
LF Taxes need to be reduced throughout all stages, from manufacturing to operations. Taxes such as those for industrial products, social security and transportation need to be cut. Prices can then be lower, helping to attract more equipment makers and helping us to sell to the rest of Latin America or the US. Abeeólica has proposed lower taxes and this is being considered by the government.
TD Will the presidential election in October 2010 have any impact on the wind industry and new legislation?
LF Renewable energy, along with wind power, is part of a new mentality for politicians and law makers worldwide and in Brazil. If President da Silva’s candidate Dilma Rousseff wins, nothing will change because she essentially designed the current energy system. If José Serra of the Brazilian Social Democratic Party wins, change will still be unlikely as renewable energy is popular.
TD What is the situation regarding interconnection?
LF This is an ongoing problem and Electric Power Commercialization Chamber was created in 2004 to build transmission lines. Brazil is now seeing simultaneous development, with auctions bringing new projects and new transmission lines being built. This is different to say, China, where they are building wind projects but don’t have the necessary transmission lines in place.
TD Brazil discovered huge deep-sea oil reserves in 2007 that lie under a layer of salt rock as deep as four miles. Will this shift the focus to traditional oil and away from renewables?
LF Oil is gradually coming towards the end of its use and is increasingly expensive. Brazil uses ethanol and gasoline for its fleet of dual-fuel cars, and we don’t use oil for electricity. Brazil has all kinds of energy available and can move quickly to use renewable sources such as wind. There are signs that the government is committed to wind power, and wind is now seriously considered as able to play a key part in the country’s energy matrix.