"The wind sector is expected to grow at around 30% a year," says Antonio Carlos Tovar, head of the alternative power department at the government's national development bank BNDES. "This is because it has reached a scale that is allowing prices to fall to make wind power competitive."
Such optimism for the wind sector comes from declining prices of equipment, falling financing costs and government policies that allow renewable energy to connect to the grid at a 50% discount.
"Normally, about 20% of what is offered in the auctions is contracted and we are ready to finance these projects," says Tovar. The bank can finance 60-70% of the projects' values, he adds. BNDES offers rates of just over 6% a year, which is low in a country where basic interest rates are about 12% and financing from commercial banks tops 16%. Additionally, BNDES' loans can be repaid over 16 years, starting six months after commercial operations of the plant.
Consequently, the cost of installing one kilowatt of wind power has fallen 38%, from 5,500 reais (US$3,489) in 2004 to 4,000 reais in 2010 and wind power developers have been able to accept declining prices for the 20-year power contracts at competitive auctions. In 2010, the lowest price for a wind power project was 122 reais/MWh. This compares well with 83-116 reais/MWh from the hydroelectric plants that account for around 70% of Brazil's installed capacity.
Such optimism is a radical departure from the sluggish Proinfa renewable energy programme, launched in 2004, which contracted 1.4GW of wind projects. Most of these will probably only start commercial operations this year, six years after they were contracted.
Proinfa was rife with problems, including the price of 260 reais/MWh, which made wind power uncompetitive and forced government-controlled power company Eletrobras to buy up all the energy. A government demand for 60% local content and slow-moving environmental licensing processes also caused delays.
"Brazil's wind sector has learned from its experience both in engineering and contractual issues," says Monica Rodrigues de Souza, head of alternative energy at engineering and energy consulting firm Andrade & Canellas. "It has also benefited from the international financial crisis, when investment declined, forcing suppliers to look for new markets."
De Souza believes that, despite its pitfalls, Proinfa was important to get the wind power sector started in earnest. When the programme started, Brazil had only one wind power equipment supplier, Wobben Wind Power, a unit of Germany's Enercon. The lack of a domestic market meant that the company exported most of its production. Since then, Argentina's Impsa has opened manufacturing facilities in the country and will shortly be followed by Suzlon and Alstom.
New technology promises to allow expansion to other areas outside the north east and the windswept Pampas plains in the south. In May, Minas Gerais state power company Cemig unveiled a map that showed 40GW of wind potential in the inland state. Total wind resource in Brazil is estimated at 140GW.
However, while government auctions are good for wind in increasing competition, they could force prices lower since wind will compete with other power sources.