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Market Status: Latin America - Brazil and Mexico take off leading the region

Last year was the strongest yet for wind power in Latin America, with Brazil easily holding the lead over Mexico and Chile.

It now has over 600MW online, with more than 260MW contributed in 2009. In addition to capacity expansions, foreign manufacturers like GE and Alstom made manufacturing commitments to Brazil while a new government programme has set the stage to keep the momentum going strong.

Brazil's significant installation numbers up to now are based on the legacy of a wind energy support plan called Proinfa. Only around 57MW is in the pipeline for this year, but 2009 was the year Brazil laid the foundations for its future wind industry by shifting to a new system based on the auctioning of power purchase agreements (PPAs). Under the system, project developers bid for PPAs. Those bidding lower prices are more likely to win contracts.

The first auction last December resulted in 71 projects totalling 1.8GW securing 20-year PPAs to deliver energy from July 2012 onwards. Pedro Perrelli, executive director of Brazil's wind energy association, ABE Eolica, says the moment means Brazil is now a serious global player for wind energy with guaranteed wind projects in the pipeline. "This shows a great commitment from the government and international and Brazilian companies," he says.

Brazil's north-eastern states account for the bulk of the megawatts contracted in the auction. Rio Grande do Norte mustered 23 projects for a combined 657MW, while Ceara followed with 21 projects totalling 542MW. Bahia secured 390MW and Sergipe 30MW. In the south, Rio Grande do Sul landed eight projects for a combined total of 186MW.

 

 

Perrelli is also confident that the contracted wind energy will come online because it is in the bidders' financial interest to do so. "If developers don't deliver, they will face heavy penalties," he says. For instance, wind companies need to sign guarantees by March to commit to delivering at least 5% of the energy contracted. If the developer is not able to deliver the power by the beginning of July 2012 because of financing, construction delays or other reasons, the company must pay a sum equivalent to 5% of the power contracted.

Perrelli believes that the auction establishes a new landscape for Brazilian wind power. Major groups, such as state energy company Petrobras and Florianopolis-based energy utility Eletrosul Centrais Eletricas SA, as well as local renewable energy company Renova Energia SA, scooped up large contracts. Renova, for instance, secured 270MW of projects in Bahia state.

New alliances

Meanwhile, Perrelli says renewable energy companies are continuing to make alliances with manufacturers and banks, allowing them to drive down the price of equipment to a level that made bidding in the auction feasible. Renova formed an agreement with US manufacturer GE Energy and Spanish bank Santander. As the financial advisor, Perelli says: "With economies of scale through partnerships, these groups can reach the (auction) price."

Lauro Fiuza Jr, president of local wind company Servtec, says deals are being done between developers and manufacturers to increase the financial strength of the bids. "The risk of projects not being built is small because these companies are big, well-capitalised groups," he says.

Fiuza, who is also president of ABE Eolica, says that the auction helped to pave the way for new suppliers such as GE, which plans to set up manufacturing operations in Brazil (Windpower Monthly, December 2009). This is helping to trim equipment prices further, Fiuza says.

There are some concerns over the average price achieved during the auction that plunged 21% to BRL 148.39/MWh (US $80.4/MWh) from the ceiling price of BRL 189/MWh (US $102.3/MWh) during the six-hour bidding process. This compared to wind industry players' earlier hopes of prices around BRL 190/MWh to 200/MWh (US $103-108/MWh).

As a result, 268 out of 339 projects qualified to take part in the auction were left on the sidelines. Experienced wind companies such as Servtec and Siif, which have been active in the current Proinfa programme, opted to stay out of the auction. Fiuza says that Servtec's projects were on the small side compared to project packages ranging from 200-300MW that provide economies of scale. For future auctions, Servtec plans to woo partners to establish a bigger bidding portfolio.

Siif Energies do Brasil, which has 412MW of projects, also declined to bid in the auction given the average price and the high risk. Marcelo Picchi, director of Siif's Brazilian operations, says that the auction price was "very tight".

But Vasco Barcellos, president of Renova, which won contracts for 14 projects in Guanambi, Igapora and Caetite municipalities in Bahia, is optimistic. The company secured investment of BRL 1 billion ($541.7 million) from Brazilian development banks such as BNDES. Barcellos says 180 1.5MW turbines have been ordered from GE and building is set to start in the first half of this year. Barcellos adds that Renova is pleased to have secured contracts at an average price of BRL 147/MWh (US $79.6/MWh). "This price is without doubt good enough," he says.

Indeed, whether or not the price is tight, Brazilian wind industry representatives are smiling, for they see the industry as having taken a vital step. Perrelli expects further annual wind auctions to take place in 2010 and beyond. "The government has given clear signals that new wind auction will take place," he says.

While the auctions chart the way forward, wind projects funded through Proinfa continue to be installed and represent all 261MW that came online last year to push the total beyond 600MW. There were 15 separate wind projects or phases using three turbine brands. Suzlon was the big winner, bringing 187MW online in four projects. Wobben Enercon came second with ten small projects totalling 45MW and Impsa had one 29MW project. A 57MW project is currently under construction from the Proinfa programme and expected online in 2010.

Runners up

Mexico still remains firmly in second place but it outpaced Brazil in new capacity in 2009, adding 327MW. This shot Mexico's 2008 cumulative capacity of 85MW up to 415MW at the end of 2009, a nearly fivefold increase. All four 2009 projects were located near Oaxaca in the Isthmus of Tehuantepec, an exceptionally windy area in the narrow mountain range separating the Pacific Ocean and the Gulf of Mexico. The projects are arranged under so-called self-supply power contracts, which enable wind developers to circumvent rules prohibiting private investment in power generation for general supply to the national grid and are proving to be a novel way to bring new wind online (Windpower Monthly, October 2009).

The largest of the projects was the 250.5MW Eurus wind plant, a partnership between Spanish developer and turbine manufacturer Acciona and Mexican cement company Cemex. This was followed by a 80MW project owned by Iberdrola, a 68MW project owned by France's EDF Energias Nouvelles and a 26MW wind plant owned by Cisa Gamesa. Mexico will soon challenge Brazil for total installed capacity with a further 252MW under construction in Oaxaca.

Growth in Chile

Meanwhile, Chile saw its greatest growth in one year, jumping eightfold from 20MW at the end of 2008 to 164MW at the end of 2009. The second phase of an Endesa project using Acciona wind turbines brought 60MW online and the Totoral wind project by Norway's SN Power added 64MW of Vestas machines, followed by the 38MW Monte Redondo wind plant by GDF Suez, also with Vestas turbines. A 35MW wind plant developed by a partnership between local developer Andes Energy and Mainstream Renewable Power is currently under construction.

Chile's wind market is expected to continue growing strongly because of good wind resources and an urgent need to find new sources of energy as natural gas imports have been squeezed. Prices in Chile's spot market in 2009 reached highs of CLP $127/kWh (US dollars .25/kWh).

The electricity industry is closely watching to see what policies the country's new president Sebastian Pinera will introduce. Pinera is a supporter of renewables electricity, and during the elections, announced he would bring in measures to stimulate the industry. He has also committed to the target that Chile will produce 20% of its electricity from new renewables projects by 2020.

Across Latin America, some countries' total vary slightly from figures published earlier in the year by Windpower Monthly due to updates from reporting bodies in those markets.

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