Brazil - Lack of grid connections keeps wind farms offline

BRAZIL: If 2012 was an exceptional year for Brazil's nascent wind-power industry with record low prices for new projects and a 67% growth in installed capacity, 2013 holds many uncertainties.

Grid lock: Problems with the transmission system caused many power cuts last year (photo:Denise Mayum)i
Grid lock: Problems with the transmission system caused many power cuts last year (photo:Denise Mayum)i

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This is due to the local electricity market facing new rules for concessions and again being haunted by the spectre of power rationing because of errors in the planning of transmission lines.

Brazil capacity pieInstalled wind-power capacity has surged from 600MW in 2009 to 2.5GW in 2012, representing 2% of total energy capacity. It is expected to reach 4GW by the end of 2013, according to Brazilian wind energy association Abeeolica. Contracts already signed mean that by 2016, a further 4.4GW should come online.

Brazil's total installed electricity capacity has grown by 75% since 2001 while the grid grew 68%, according to government figures. Connection to the grid is one of the biggest problems facing the Brazilian industry this year, says Abeeolica's executive secretary elbia Melo.

In 2012 alone, the country faced over 30 localised power cuts because of a badly maintained and out-of-date transmission system. Some 600MW of wind farms completed last year could not deliver power for lack of connections in the north-eastern region, which has the best wind resource in the country but also an under-developed grid.

This year, at least another 600MW of the 1.6GW that will be built will likely have no connection to the grid and may not be switched on.

Going it alone

Although wind developers are not penalised by the lack of delivery if it is not their fault, absent connections reduce the possibility to sell power in the unregulated market and cause operational problems. This has led some wind-power companies to consider building their own connections to the grid.

One of these is Bioenergy, a renewables company that won contracts for 202MW at the latest auction in December 2012. In January, the firm announced a BRL 110 million ($54 million) investment in 240 kilometres of transmission lines to connect the new wind farms in the north-eastern state of Maranhao to the grid and sell power in the unregulated market before the start of contracts in 2017.

Despite the growing interest by companies to buy partially subsidised clean power such as wind directly from generators, the government auctions are still the anchor for new projects because of the 20-year contracts they offer. These guarantee enough revenue to finance the construction of new parks. But uncertainties still abound even at the auctions, the latest of which has been scheduled for the first quarter of 2013.

Renewables developer Desa is looking closely at the non-regulated market, where prices are higher since the availability of transmission links will be a key factor in the decision to participate in the auctions, says Desa CEO Carlos Augusto Brandao.

Desa has a wind portfolio of 1.3GW. It has another 145MW awaiting grid connection. This year, it will complete construction of 60MW and has another 29MW in the pipeline for 2016. However, Desa withdrew from the December auction as prices plunged.

Rising demand

The general consensus is that the low prices in December's auction were predatory because of low demand for electricity. The cost of production of wind power rose from 2011 levels due to a devaluation of the local currency of over 20% since January 2012 and an inflation rate of 5% a year. Yet the price wind power is sold at has dropped from an average of BRL 105/MWh to BRL 87.5/MWh.

Prices are expected to rebound this year as demand will be higher. Power regulator Aneel is expected to cancel contracts for several thermal generation plants that local firm Bertin failed to build, leaving a power generation gap of 2GW. The economy is forecast to rebound and grow at least 3% in 2013, compared with around 1% last year.

But financing remains in the hands of national development bank BNDES, which has financed 62% of wind projects since 2009. Brazil still lacks regulation to allow wind companies to loosen the girdle created by the coupling of long-term power purchase agreements (PPAs) and government auctions. Long-term PPAs are needed as guarantees for financing from BNDES and for project financing.

In 2012, BNDES approved BRL 3.4 billion ($1.7 billion) in financing for the wind sector, and is expected to increase this by 15% this year, say bank officials.

Developers are talking about new ways to finance projects beside BNDES and this could include the shorter non-regulated contracts. However, capital markets will remain shut to wind because of regulatory uncertainties in the whole electricity sector.

Meanwhile, several major manufacturers are still trying to gain re-listing in the BNDES financing programme, Finame, which gives them access to cheap loans if they meet strict local-content rules. Last year, firms including Vestas and Suzlon were deemed to have not met the BNDES' criteria. The bank published clarification of the rules at the end of 2012 and said it might increase the requirements in future.

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