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Brazil attracts investment interest -- Australian firm weighs options

Australian energy company Pacific Hydro is looking at moving ahead with three wind projects in the windy northeast of Brazil for a combined total of 80 MW. The company, which has its Latin American operations based in Chile, has also identified up to 300 MW of wind energy for potential investment in the country, earmarking some $600 million, or $2 million per installed megawatt.

The investment attraction is created by Brazil's Programa de Incentivo as Fontes Alternativas de Energia Eletrica, the government's renewable energy support plan more commonly known as Proinfa. "With a potential of 1400 MW allocated for wind power and only 200 MW of projects developed, the opportunities are there," says Pacific Hydro's general manager for Latin America, Janine Hoey. Under Proinfa, selected renewable energy projects are granted 20 year power purchase contracts at prices ranging from EUR 68.74/MWh to EUR 77.96/MWh depending on capacity factor.

"If we can finalise the acquisition of a Proinfa 1 project, we will enter," says Hoey, noting that the company is in the process of working on several transactions. But with the deadline for building projects granted Proinfa power purchase agreements (PPAs) set at the end of 2008 and some PPAs scheduled for 2007, the timeframe will be challenging, she notes.

The high cost of projects is also a barrier. Hoey says this is mainly due to the monopolistic position of the only turbine manufacturer based in Brazil, an offshoot of Germany's Enercon, owned by Alloys Wobben. Among Proinfa's core provisions is a requirement that at least 60% of total project cost be incurred in Brazil. So far, only Wobben Windpower has operations established in Brazil for meeting this requirement.

"Until the other manufacturers are in Brazil, if we want to enter the market we may have to go with Wobben in the short term, which means higher prices," says Hoey. She gives no details of how much higher.

Wobben's monopoly may be broken. Indian turbine manufacturer Suzlon and Germany's Fuhrländer both have designs on the market. "We see enough signals that others are entering the market to see that it is worth entering as well," Hoey says.

In Chile, Pacific Hydro is also identifying promising locations for wind projects in the south, but there is no regulatory framework in place for renewable energy, says Hoey. Pacific Hydro has been in Chile since 2002, where it primarily runs hydropower projects.

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