Connection problems start to limit growth

BRAZIL: Latin America's biggest wind market is seeing its continuing quest for expansion frustrated by a serious lack of transmission capacity.

Trickle effect… Part of Brazil’s problem is that grid companies are used to building lines for hydro plants, not for quicker-to-complete wind farms (pic: Antonio Florencio)
Trickle effect… Part of Brazil’s problem is that grid companies are used to building lines for hydro plants, not for quicker-to-complete wind farms (pic: Antonio Florencio)

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Out of 16GW initially registered for this year's wind-power reserve auction in August, new grid rules rendered only 9GW eligible to participate. These rules limit the total amount of wind-power projects to be commissioned for 2015 to those that can guarantee a connection. "This will guarantee that all the new wind projects will be connected to the grid by 2015", says Mauricio Tolmasquim, president of the government's energy planning authority, EPE.

Last year, a lack of transmission lines left 600MW of wind projects offline, forcing the country to use standby oil, diesel and natural thermoelectric power generators. The government was then obliged to pay around $150 million to the contracted wind-power companies that had completed projects by 2012 but had no access to sell the power. This cost will be passed on to Brazilian electricity consumers. Earlier this year, national wind-power association Abeeolica estimated that, by the end of 2013, 1.3GW of generating wind projects will not be connected to the grid.

National grid operator ONS reviewed the country's 110,000-kilometre electricity grid to identify how much could in reality be connected, concluding that only around 7GW could be connected, most of it in the north-eastern region. Brazil's total wind power installed capacity stands at 2.7GW, with an estimated potential of more than 100GW.

Some wind companies are scaling back plans. Brazilian developer Bioenergy scrapped investments in the north-eastern state of Rio Grande do Norte because of a lack of connection to the grid. According to state government authorities, investment of some $157 million has been lost.

Although the auction limit addresses the lack of connection, it does not resolve the need for longer-term planning for the whole system. "The answers given by the government were lacking, but, perhaps, it couldn't have been different as we are still learning about wind power," says Jean-Paul Prates, president of Cerne, a regional renewable-energy think tank based in Rio Grande do Norte. The government must be stricter in punishing transmission companies that do not meet deadlines, believe Prates.

Missed deadline

State-controlled Chesf, which failed to deliver most of its lines in time for the commissioning of about 600MW of wind projects, was fined $4 million by national electricity regulator Aneel. The delay was calculated at 13 months, and Chesf is appealing, alleging that it was caused by environmental licensing issues. Chesf says there will be no further delays. Meanwhile, the amount of wind power awaiting connection has continued to grow.

Mathias Becker, CEO of Renova Energia, one of the wind-power developers affected by the Chesf delay, now believes that all its wind farms will be connected to the grid by January 2014. "We have worked with Chesf to guarantee the building of the lines," he says. "Changes in the sector are natural in the current process of consolidation."

Renova expects that by December its wind farms in the north-eastern state of Bahia will be fully operational, delivering some 700MW. The transmission link, Becker says, will also allow the company to add 1GW in installed capacity.

Despite this, the government faces a serious backlog of delays in recently auctioned transmission lines across the country, not just for connecting wind projects. According to the government's electricity monitoring committee, CMSE, about 67% of the 27,381 kilometres of lines under construction were behind schedule in June by an average of 12 months. In comparison, three months earlier, 47% of lines under construction were behind schedule by five months.

Speed of wind development

Some of this delay is because the country's long-term grid planning is based on a tradition of building for hydroelectric projects, which take twice as long to complete as a wind project, says EPC's Tolmasquim. "We are changing transmission line planning, which raises uncertainty about future demand, but we are now looking at planning for three years ahead instead of five years as we do now," he said.

New lines could be auctioned earlier to ensure they are completed before the wind projects are finished. For the government, this could mean higher transmission services prices as there would be little demand at the beginning of the 25-year concession for the lines, and investors would demand a premium for high risks.

Red tape

Slow, strict and bureaucratic environmental licensing processes are a key cause for delays in energy and infrastructure projects in Brazil, especially where transmission lines cross vast areas. Consultations involve environmental authorities at federal, state and municipal levels, as well as local communities and environmental agencies. And the more complex projects are more likely to end up in court.

In addition, the wind sector is experiencing growing problems when it comes to buying or leasing land as prices are skyrocketing, says Tolmasquim. This also affects installation of transmission lines. "Sometimes, land prices make the project unfeasible," he adds.

In the north-eastern state of Bahia, one of the most prominent in terms wind power capacity with 15GW of projects being developed, wind power companies pay landowners $2,000-3,000 a month per turbine,. This results a high cost for developers with no connection, said Rafael Souto, mining and industry superintendent at Bahia state government. Developers only receive government reimbursement for unsold generation if transmission lines are delayed, not for other costs such as land lease.

To further complicate the issue, much of Brazil's wind potential is in the north-east, a previously poor and underdeveloped region, with very little energy infrastructure. The region has only seen progress and investment in the last decade through government housing projects, new retail ventures and wind projects, including turbine manufacturing plants. Representatives of the wind power companies, often headquartered in cities such as Rio de Janeiro and Sao Paulo to the south, often do not fully understand the local business culture or how to deal with landowners and real-estate brokers in the regions where they want to develop projects.

To Renova's Becker, longer-term government planning for lines in regions with high wind potential would be very welcome. But like its competitor, Bioenergy, it will invest in construction of transmission if necessary. Bioenergy last year announced it is building a 240-kilometre transmission line to connect wind projects in the north-eastern state of Maranhao.

Government learning

It is planning that is lacking, but the government is giving signals that it has learned from the past,says Prates. Late last year, EPE completed a study for transmission lines to link regions with high wind-power potential, which it submitted to the energy ministry, proposing 1,765 kilometres of new transmission lines in the south and north-east.

The ministry has confirmed that it will act on this study, but has not said in what way. It now needs to carry out detailed technical and economic studies, obtain approval from the federal audit court and sent this to the regulators to write the tender rules.

"It will not be for the whole potential at this time, but will allow a significant portion of new projects to be built," says Cerne's Prates. "Hopefully these lines will be tendered before the end of the year.' Tolmasquim expects that more lines dedicated to wind projects will be tendered in the coming years.

Prates is confident that Brazil is going through a consolidation process with a steep learning curve. "Brazil has shown that it honours contracts," he says. "The companies that built the wind projects in time, even without a transmission line, were paid strictly according to the contract, even if the project was standing still. This means that, even with all the problems of learning, Brazil has shown that having the world's cheapest wind energy is not simple, but it is possible."

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