Brazil: Conference Report - Buzz in Brazil as wind power takes off

Brazil's renewable energy auctions in August cemented the country as the hot spot for wind development in Latin America.

Manufacturers are now gearing up to supply equipment for a steady stream of wind projects, reports Tony Danby.

Brazil, Latin America's largest country and a regional economic powerhouse, experienced a buzz of excitement from manufacturers and developers in August during the country's alternative energy and reserve energy auctions. The auctions, which allow generators to acquire 20-year power purchase agreements, secured 70 projects - 2GW of new capacity - due to come online in 2013.

The average power price for wind per megawatt hour at the two auctions was BRL 130.86 ($75.21), down almost 12% compared with the country's previous wind energy auction in December 2009. This average was also lower than competing renewable energies such as biomass, which contracted energy at BRL 144.20 ($84.28), and small-hydroelectric projects at BRL 141.93 ($82.95).

"Wind proved that it can compete against other energy sources and that it has a role in the country's energy matrix," says Mauricio Tolmasquim, president of Empresa de Pesquisa Energetica, the energy research institute responsible for organising the auctions. He told delegates at the Brazil Wind Conference, held over two days in late August, that few wind projects came online between 2006 and 2008 because the fledgling Brazilian wind industry was busy preparing the groundwork for growth. Since 2009, almost 800MW of wind projects have been agreed.

This has, in part, been as a result of Proinfa, the country's programme of incentives for alternative electricity sources. Proinfa has been viewed by industry and government officials as helping to set the groundwork for the auctions by getting a large number of wind plants built. It sought to accomplish this by ironing out initial teething problems such as tight financing, ineffective penalties for non-performance and equipment shortages. Although any wind farms currently being constructed under Proinfa need to be built before the programme ends in December, an extension is likely to be granted for justifiable delays.

Tolmasquim refuses to give an exact timetable for future auctions or details of the amount of energy to be contracted, but he is positive about further deals: "This (the August auction) opens the door for future auctions because we know there is enormous potential for future wind energy development here."

He adds that further energy auctions might take place sometime in 2011 and that wind is likely to compete head-to-head with other energy sources, such as biomass. The market will, therefore, determine the volume of energy commissioned via auctions, he says. Some 10GW of wind projects unsuccessful in the August auctions will enter the 2011 auctions.

Luring manufacturers

Latin America boasts a number of windswept regions that are attractive to developers. For instance, the Oaxaca region in southern Mexico has lured major manufacturers such as Spain's Gamesa and Acciona. Brazil's windy north-eastern and southern coasts have already seen dozens of wind farms constructed by local players such as Servtec and Siif, as well as international companies including Australia's Pacific Hydro and Argentina's Impsa.

In Brazil, wind complements hydroelectricity, the country's main source of power. Wind is most abundant in the country at times of the year when rainfall is lowest. Jamie Fergusson, investment officer at the International Finance Corporation, a member of the World Bank Group, said Brazil and Mexico continue to be the engines for growth in Latin America, but that Brazil's excellent wind energy resources and large energy demand gives it the greatest potential.

Timothy Stephure, an analyst at US-based Emerging Energy Research, was similarly optimistic, telling delegates that Brazil has a large wind energy potential, an open investment climate, huge energy demand, and a growing national supply chain, which will help reduce costs. "As more manufacturers enter Brazil, prices should fall and may allow the country to eventually export equipment to other countries," he said.

Although industry insiders are positive about the auction due to the large volume of projects and megawatts commissioned, they stress that more auctions are needed.

According to Ricardo Sim0es, president of Abeeolica, the Brazilian wind energy association, auctions for 20-year power purchase agreements set the stage for global manufacturers to establish operations in the country. "Future auctions for the wind industry are essential for the industry to develop further," Sim0es said. "About 2GW a year is needed from 2011 onward."

Market rivals

The recent auctions have already encouraged global manufacturers to invest in plants to build equipment. Manufacturers such as Impsa and Germany's Enercon, which have been at the forefront of setting up manufacturing operations in Brazil, will soon see rivals enter the market. France's Alstom and General Electric of the US have committed to setting up manufacturing operations, while other players such as India's Suzlon and Germany's Siemens are also making plans.

Per Sorensen, commercial director of Indian manufacturer Suzlon's Brazilian unit, said the August auctions cemented the wind industry's position as a key energy generator in the country. "The auctions show that the government is committed to wind," he said.

As a result, the company is investing $30 million to build a factory in the north-eastern state of Ceara to initially manufacture 500 turbine blades per year. The company may increase this number as the market develops and demand changes, said Sorensen.

He added that the company may rent a warehouse in Ceara so it can start manufacturing wind turbine blades by April 2011. By doing so, it would ensure that its customers can benefit from national development bank BNDES's rules: the bank offers long-term loans at attractive, single-digit interest rates repayable over 16 years, but requires that 60% of project budgets are spent on Brazilian-made equipment or services.

Suzlon will open a permanent manufacturing facility six months later, creating 200-300 jobs in what is a poor region. Sorensen said the company plans to build nacelles at a later stage. The company will also open an administrative and sales office this year in the industrial hub of Sao Paulo, he says.

Siemens is also to manufacture turbines and electrical equipment such as transformers and switches in Brazil. Although it is finalising location of the factory, it will be making equipment so developers can meet BNDES's requirement for local production.

Eduardo Angelo, Siemens's business development director in Latin America, said the auctions demonstrated a need for more locally made equipment. "The auctions provided a good volume of projects and this should continue in the future," he said. That confidence is further evidence that Brazilian wind is on the verge of a breakthrough.