Brazil

Brazil

Brazilian firms use local edge to gain ground

BRAZIL: Amid the international luminaries operating or investing in wind turbine projects in Brazil, there are some local stars fighting to prove they can also light up the industry.

Joint venture: Spanish firm MTOI owns technolgoy rights to the nacelles that Weg produces in its factory in Brazil
Joint venture: Spanish firm MTOI owns technolgoy rights to the nacelles that Weg produces in its factory in Brazil

Brazilian manufacturing firm Weg is attracting analysts' attention. The 50-year old electric motor, equipment and paints global conglomerate set its sights on the local wind sector in 2011 when it signed a technology-licensing agreement with MTorres Olvega Industrial (MTOI), an Egyptian-owned turbine manufacturer based in Spain.

The joint venture with MTOI, in which Weg initially invested BRL33 million ($15.5 million), gives it responsibility for facilities and projects in Brazil, while MTOI handles technology transfer.

Its prospects have been boosted further since last summer when Brazilian development bank BNDES delisted several of its biggest competitors, including Vestas and Suzlon, for failing to meet its strict local content rules that give access to cheap finance. Under the rules, at least 60% of content - in terms of weight and price - needs to be made in Brazil.

Weg, it seems, was ready to take advantage of its local presence and new international relationship with MTOI. According to a Weg sales representative, the BNDES delisting resulted in a surge in requests from wind-farm developers and, in September, Weg landed its first turbine sales contract for 90MW for a wind farm in north-eastern Brazil. No more details about the deal were released, except that delivery would be made by 2015, with the wind farm due to start operating in 2016.

Parts supply

Weg is not new to the energy sector; it already supplies transmission, distribution and small-scale hydro and biomass generation equipment. It has facilities in Mexico, Argentina, the US, Portugal, China, Austria and India. But in wind energy, it saw the growth opportunity in a fast-developing and prosperous market that fitted into its diversification strategy.

Weg offers turbines of 1.65MW, 2.3MW and 2.5MW. It moved its transmission equipment production facilities to Sao Paulo state to make room for the production of nacelles at its factory in Jaragua do Sul. This can produce 65 nacelles a year, built using MTOI technology - the company aims to double this by 2015.

Weg is tight-lipped about its first deal. "This first contract shows that we managed to develop an interesting portfolio of products that will give us the conditions to increase - gradually and methodically - our presence in the market," Luis Francisco Oliveira, the company's investor relations officer, said in November.

And that was all that was said about the new contract. Neither Oliveira nor any of the other company official was prepared to discuss further the company's plans for the wind sector. Weg's press office turned down interview requests, saying the silence is part of the company's strategy.

Strategy is vital for a new entrant in a big market, especially when burdened by licensing royalty payments of at least 5% for each sale in a market where price is crucial to compete for the 8GW of wind power - almost 90 times Weg's maiden contract - that is expected to be commissioned in the next decade.

Local advantages

Weg is up against powerful competition: GE, Vestas, Alstom, Suzlon, Gamesa, Enercon (with Wobben Wind power), Acciona, Impsa and Fuhrlander. These companies together are investing about $200 million in new factories in Brazil.

However, Weg has several competitive advantages. Although it does not own the more specialised wind technology such as blades, towers and nacelles, it can make electric motors, electronics and control parts locally. This makes it possible to source up to 80% of content locally, according to Mauricio Aredes, wind power and technology transfer researcher at the Federal University of Rio de Janeiro 's Coppe Engineering Research Center.

Additionally, a licensing agreement gives local firms access to patents and allows equipment to be adapted to local conditions, another competitive advantage that other players are concerned about in Brazil.

"All licensing agreements result in local innovations because you have access to the 'blueprints'", says Mauro Luz, co-ordinator of the technology transfer department at the Brazilian National Industrial Property Institute.

According to Aredes, the model adopted by Weg is similar to the approach taken in China in the early 2000s, albeit under tougher market-access control.

"China's local content rules were much stricter than Brazil's, and in two years they were able to launch innovation in new turbines and, later on, to open up the market. Of course nobody was able to compete internally with Chinese companies," says Aredes.

Weg is already an expert in licensing agreements in other sectors and has strong capacity for research and development, allocating 2.5% of its revenue to its development laboratories. It can use this to adapt MTOI's turbines to local conditions.

During the Brazil Windpower conference in August 2012, Weg stated that its TWT-2.3MW turbine was more efficient for local winds, claiming it can reach a higher generating capacity at lower wind speeds. "It's a small percentage increase from the previous model but, over the thousands of hours, it makes all the difference," a Weg sales representative told Windpower Monthly.

Weg's efforts so far have drawn mixed views from industry commentators. "The strategy adopted by Weg seems to be aimed at capturing specialties and to become an important player in the all sectors," says Mario Bernardes, industrial sector analyst at Banco do Brasil. "I already had a positive view about Weg, but with the decision to enter the wind sector, this view has become even more positive."

Convince the market

Bernardes expects Weg shares to outperform, predicting that by the end of 2013 they will have risen 34% from 2010 prices. Looking at the company's overall capacity and revenues, he notes that the foreign currency royalties due on MTOI's wind turbines will be compensated for by Weg's 45% foreign-currency sales revenues.

Daniel Gewehr, a Sao Paulo-based analyst at Spanish banking group Santander. is more conservative - he suggests Weg's shares will hold their value, saying that the revenue of the first turbine deal is still small in comparison to the group's overall earnings.

To guarantee margins for wind-turbine manufacturers, Aredes says that prices need to be around BRL 120/MWh. Yet, strong interest and competition is one reason for the sharp power price decline across Brazil, from BRL 300/MWh in the contracts of early 2000, to around BRL 100/MWh at the last auction in 2011.

Although the first contract shows that Weg can play the market, the company now needs to build on this convincingly, increasing sales significantly, and at a fast pace, to gain scale production and counteract the low wind power prices in Brazil.

According to Gewehr, Weg's annual sales revenue was expected to have risen by 16% in 2012 from 2011's BRL5.2 billion and to BRL20 billion by 2020.

"I guess 90MW is better than nothing, but Weg has to do much better than that to pay off the royalties," Aredes concludes.

 

OUTLOOK EXPRESS - THE GOVERNMENT'S CONSUMPTION FORECAST ENTAILS GROWTH IN WIND

Brazil's wind-power sector woke up in 2009 when the government abandoned its incentivised clean-energy programme, Profina, and decided to introduce wind in competitive auctions - where firms that offer the lowest prices win 20-year power sale contracts.

This move was perfectly timed to coincide with a slowdown in the world economy that affected wind-turbine demand, and Brazil now boasts 2GW of installed capacity, more than a tenfold increase in seven years.

International players

One of the world's fastest-growing wind markets, Brazil now has a manufacturing capacity for 4GW of turbines a year from 11 international players producing locally.

The country's wind-power market is driven by significant economic growth and the government is projecting a 4.7% average increase in yearly power consumption by 2021 according to its ten-year energy plan.

To supply this demand, Brazil's overall installed capacity needs to reach 182GW, a 65GW increase in ten years. The government has signaled its intention to see that the extra wattage comes from clean energy sources: 15MW, or 24% will come from wind and 50% will come from hydroelectric plants.

 

CONTENT CONTROL LOCAL-LEANING FINANCE

  • Tough line In June, national development bank BNDES delisted Vestas, Suzlon, Acciona, Fuhrlander and Clipper from its Finame cheap finance programme. It said that these companies had failed to meet its local content rules, which state that all manufacturers must produce 60% of content locally within five years of entering the programme
  • Restoration The manufacturers are now working with BNDES to be reinstated to the programme. There has been speculation that some will buy local companies in order to meet the rule
  • More restrictions The bank has indicated that it will regularly review and tighten these rules

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Windpower Monthly Events

Search more than 4,500 companies in the Windpower Directory

Latest Jobs