Brazil strides ahead as regional wind leader

BRAZIL: Brazil reached a milestone of 1GW installed capacity last year. This prompted the government to double its forecasts for future capacity - it now expects 11.53GW by 2019, compared with its projection last year that just 5.3GW would be installed by then.

The country currently has an annual wind-turbine production capacity of at least 1.8GW, blade production capacity of 2GW and tower manufacturing capacity of around 1.6GW. Manufacturing capacity is expected to increase significantly given recent auction results, with 2.89GW of wind permitted and 1.55GW commissioned, of which 1.46GW has secured financing, according to Bloomberg New Energy Finance.

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As recently as 2010, only Enercon's Brazilian subsidiary Wobben and Argentinian wind-energy firm Impsa had a manufacturing presence in Brazil, but 2011 saw a flood of announcements. Manufacturing is focused in the north-east and south of the country, close to the bulk of wind projects (see map). French power-generation company Alstom is the latest turbine manufacturer to open a plant, in Bahia last November. At its inauguration, Alstom CEO Patrick Kron said this was "just the beginning" of the company's plans for Brazil and Latin America. The $27 million plant will produce 300MW of turbines per year.

GE has announced plans for a wind-turbine assembly plant in Bahia, while Aeris Tecnologia opened a factory in December manufacturing blades for Suzlon. As Windpower Monthly went to press, Vestas was on track to open a factory, while in July Spanish wind-turbine manufacturer Gamesa opened a factory capable of producing 300MW nacelles a year.

Proliferation of domestic wind manufacturing capacity has been driven by a stipulation from Brazil's national development bank, BNDES, for at least 60% of wind-turbine equipment to be sourced within the country for projects qualifying for its financing. In theory, companies can compete in Brazil's auctions even if they import equipment, but since BNDES finance is the cheapest available its policy effectively means that companies cannot take part in an auction without it.

Brazil is keen to avoid difficulties that previously beset its wind sector. Under the Proinfa renewable-energy programme, which began in 2002, supply-chain problems were significant. The programme's first quota, for 1.4GW of wind, should have been met by December 2008 but remains on the horizon.

Exceptionally low auction prices have led some to question whether Brazil's wind ambitions are realistic. August 2011's auction saw the average price contracted for wind projects fall to $62/MWh. Such prices will squeeze the supply chain just as it is gearing up.

Vestas has been operating in Brazil for more than a decade, with a sales office in Sao Paulo and more than 670MW of firm and unconditional orders on its books. An assembly facility and operations cluster in Fortaleza, in the north-eastern state of Ceara, was due to open at the end of 2011. Morten Albaek, senior vice-president, says it is thrilling that wind has become cheaper than gas in Brazil. However, he admits it will be difficult to maintain profitability at such low prices. "We can't make any mistakes in the value chain," he says.

Transport costs have been flagged as a particular risk, especially since geographic concentration of new wind developments could result in bottlenecks.

"Infrastructure will not be created overnight. It will take many years for Brazil to be able to count on its highways and railways. People will have to take this into account and seek creative alternatives," says Emilio Javier Guinazu Fader, wind equipment and services director at Impsa.

This view is echoed by Bryan Gaylord, business analyst at global strategic adviser Make Consulting, who points out that the north-east is much less developed than the south, where most wind development has taken place until now. "As development shifts to the north-east, there will be areas where there are problems with the roads. Companies might realise that they've banked on certain road dimensions or have not made proper calculations and they'll lose money on transportation," he says.

Edgard Carrochano, manager for South America at Gamesa, confirms that transport is the company's greatest concern. "We are considering coastal navigation," he says.

Indeed, many wind manufacturing facilities are being built by ports to enable easy shipment. "The distance between project sites in the north-east and the extreme south means it makes sense to ship components by boat," says Carrochano. Transporting components by sea would be a better option than by road, agrees Tim Stephure, a senior analyst at global consultancy IHS Emerging Energy Research.

Skills development

Another key concern of manufacturers is a lack of skills in what remains a young market. Arthur Lavieri, CEO of Suzlon in Brazil, says the skills shortage is its biggest challenge: "We're having to fight for talent. There is even competition at the lowest levels." Lavieri adds that the problem is so severe that competitors need to co-operate with each other to overcome it.

Vestas is building a training centre at its operations cluster to educate technicians in all turbines the company intends to install across South America. Vestas' Albaek agrees with Suzlon's Lavieri that collaboration on skills is needed. "We need to work together and reach out to suppliers to help them," he says.

One impact of Brazil's low prices on the supply chain could be to bring Chinese manufacturers into the market. Bloomberg New Energy Finance has predicted that wind developers are giving this serious consideration, since Chinese turbines could theoretically reach the market for as little as $1.12 million/MW, compared with a current average price in Brazil of $1.4 million/MW.

In September, Chinese wind-turbine manufacturer Sinovel signed a contract with Brazilian power generator Desenvix to supply 23 SL1500/82 1.5MW wind turbines for a 34.5MW wind farm in Sergipe in the north-east of the country. It is planning to build a manufacturing facility nearby. Sinovel senior vice-president Lecheng Li said it would open the door to the Latin American market for the company. Goldwind has also established a sales presence, although it has yet to announce any Brazilian supply contracts.

Regional hub

Companies in the supply chain potentially have much more to benefit from opening operations in Brazil than simply serving the national market. Over time, the country could develop as a manufacturing hub for the wider Latin American market, where installed wind capacity grew by 50% last year. Enercon and Impsa have already exported nacelles manufactured in Brazil across the continent, while Gamesa and Alstom have announced plans to export nacelles produced at Brazilian facilities to markets as far away as Mexico.

The fact that BNDES can fund projects beyond Brazilian borders, provided projects comply with the 60% minimum Brazilian content, supports the notion that the country will emerge as a regional wind manufacturing hub. This has had a particularly strong effect in Uruguay, where prices at its auction in October 2011 were as low as $63/MWh. Uruguay's second renewable-energy tender was completed in four months, as opposed to 14 for its first. Its government now expects 594MW to be installed by 2015, representing 16% of domestic electricity generation.

Other Latin American markets are warming up. Chile's parliament is considering a bill to boost the country's wind industry tenfold by raising the percentage of renewable-energy producers are obliged to supply to 20% by 2020. As a result, wind capacity could rise to 1.5-2GW from around 200MW at present.

Argentina has just 54MW installed, but 754MW contracted from the first round of its Genren renewable-energy auction. A second round launched in May 2011 attracted just over 1.2GW in offers, but the government halted the process because so many first-round projects have been held up due to lack of financing.

With 7GW to install by 2014 in Brazil alone, the supply chain will have its work cut out simply meeting the needs of the continent's largest market, let alone smaller ones. Export to other Latin American destinations is likely to be a medium-term ambition, says Ramon Fiestas, chair of the Latin American Committee at the Global Wind Energy Council.

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