FHCunha, a law firm that specialises in the infrastructure and energy sectors in Brazil, is advising wind companies about mergers and acquisitions, Cristiane Cordeiro, a partner at the firm, told Windpower Monthly. She declined to name the companies involved but confirmed that firms from Germany and Spain are among her firm's clients.
The talks follow the decision in June by Brazil's state-owned national development bank (BNDES) to de-list five wind turbine manufacturers from its cheap financing programme, Finame. Registration to Finame depends on manufacturers meeting a requirement to source a certain proportion of equipment within Brazil. All manufacturers must reach 60% within five years of entering the programme. Some have a mid-term agreement to reach 40% within three years.
In exchange, the cash flow from sales financed by Finame is being used to fund the construction of plants in Brazil.
BNDES conducted an audit at the beginning of the year and found that Spain's Acciona, Denmark's Vestas, India's Suzlon, Germany's Fuhrländer and US firm Clipper were not meeting the local content requirements.
Providing finance for companies with little local content would be unfair to companies that had already made investments and efforts to meet the requirements, the bank said. GE, Impsa, Wobben, Alstom, Gamesa and Weg all passed the audit. BNDES added that it was in constant contact with the five delisted companies to help them meet the requirements.
All the nine companies originally in Finame have announced plans to build or expand plants in the country with a combined total investment of more than BRL 200 million ($98 million) in the coming years to supply the over 6GW of wind projects that should come online by 2015.
"It makes sense for the bank to make sure local resources are tapped, since the money comes from the government," said Filipe Acioly, an energy sector analyst at Ágora Corretora, a local brokerage firm that is controlled by Brazil's largest private-sector bank, Bradesco.
BNDES is the main source of financing
for wind power projects and has supplied finance of BRL 6.4 billion for 107 projects since 2005. Delays would reduce the profitability of these projects and raise the lender's risk.
"The bank has high investments in the wind power sector and I don't think it would jeopardise these investments," said Fabio Alves, another partner at FHCunha. "What is happening is that the local content requirements are complex and in many cases are open to interpretation."
It is not fully clear how measurements of national content are made because they can be made according to weight or value, said Alves. This is what companies de-listed from Finame are trying to align in talks with BNDES.
Suzlon and Vestas issued statements saying they are committed to investing in Brazil and finding a way to meet BNDES' requirements and guarantee that the projects relying on their wind turbines are not delayed.
One of the biggest contracts was signed by Vestas and Brazil's CPFL Renováveis to supply around 254MW in turbines for several projects that are due to start commercial operations in 2014. About 63% of CPFL's investment is being financed by BNDES. A delay in the start of operations results in heavy fines by power regulator Aneel. Vestas has 940MW of orders in Brazil.
Access to cheap financing is particularly important in Brazil because the auction system has resulted in power prices as low as $64/MWh. Return margins have been squeezed to single-digit figures from around 13% a few years ago, said Ágora's Acioly.
"With these margins scale is important for the whole sector," he said. "And this is what investors and equipment suppliers are looking at."
Acioly added he believes suppliers will eventually meet local content requirements because they are looking at the long term.
FHCunha's Alves agreed. "There is a big potential in Brazil's market. The government is giving clear signs that will continue to offer opportunities and has invested in new wind maps at over 100 metres high and now starting to look at offshore," he said. "Acquisition and partnerships with local companies make sense because, although Brazil does not have the technology, it has the science and scientific capacity in its very well prepared engineers."
"The cost of equipment is very important in the wind-power industry," said Élbia Melo, executive president of trade association Abeelolica. "All the contracts are intricately knitted together, and it's not realistic to say that wind-project developers can change suppliers. We have met with BNDES to make sure it understands this."
Seeking financing from abroad is also not feasible, she said, because it would raise foreign exchange risk.