Independents back in the running -- Brazil's Proinfa contracts

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After a rocky start, Brazil's renewable energy program, Proinfa, is ramping up with the government completing the third revision of the project list after the original selection was altered by legal challenges, companies dropping out and others failing to secure the necessary documentation to get projects underway (Windpower Monthly, August 2004).

The state-run power company, Eletrobrás, selected 47 wind power projects totalling 1100 MW of power, one-third of the total capacity being supported under the Proinfa program. Small-scale hydroelectric power plants and biomass plants each get a third of the total. too. Eletrobrás and its subsidiaries will sign 20 year power purchase contracts with more than 130 projects across the country, which are expected to invest some BRL 8 billion ($2.8 billion) and must start commercial operations by the end of 2006.

Independent wind power producers with no links to existing power companies won a total of 32 projects under Proinfa, with an average project capacity of 17.2 MW. The largest, the 64.7 MW Alegria 2 project in Rio Grande do Norte state, is proposed by New Energy Options. The various revisions to the project list replaced several larger plants with a number of smaller plants. Bioenergy Geradora de Energia, which had objected to the original selection, won 11 projects in Paraíba state, most of which were around 4.5 MW in size.

The average size of wind plants to be built by firms with links to power companies is 36.7 MW, double that of projects by independent power producers. The largest wind project -- the 135 MW Quintanilha Machado 1 plant in Rio de Janeiro state -- is proposed by Énergies Nouvelles (formerly Siif Energies), and is part owned by the French national utility Electricité de France. Under the first round of project selections it was awarded just 6.7 MW and had threatened legal action over Eletrobrás' criteria.

More states

The revisions upped the number of states included in Proinfa's wind power allocation from seven to nine, with Rio de Janeiro and Piauí joining Bahia, Ceará, Pernambuco, Rio Grande do Norte, Rio Grande do Sul, Santa Catarina and Paraíba. As expected, all these states are located along Brazil's extensive coastline with wind resources that have been well mapped.

Attention will now turn to negotiations with equipment vendors. The government has placed a heavy emphasis on local production: at least 63% of the equipment must be made in Brazil. Germany's Wobben Windpower, which already has manufacturing plants in São Paulo and Ceará states, is well placed. Spanish firms Gamesa and Ecotècnia, and Denmark's Vestas have indicated they may build local manufacturing facilities, but so far appear to have taken no firm decisions.

General Electric, the US industrial group, has locally said it may expand its Brazil manufacturing operations for wind power. GE's wind division already has a partner in Brazil that manufactures rotor blades, some of which are exported, and may extend this operation to include turbine manufacturing.

Finding the money

Gaining financing for the projects may be a struggle. Wind power investors have criticised the selection criteria that favour less efficient projects by paying higher prices for power from plants with lower wind capacity factors. According to prices published in March, Eletrobrás will pay BRL 204.35/MWh ($71.2/kWh) for projects with a capacity factor of up to 34.2%, with the price falling gradually to BRL 180.18/MWh ($62.8/MWh) for projects with high capacity factors greater than or equal to 41.9%.

Wind plants should be able to tap the BRL1.2 ($418.1 million) line of credit set aside by Brazil's national development bank, known as the BNDES, to cover up to 70% of the Proinfa project costs at lower interest rates than most Brazilian alternatives. There is a heavy emphasis on local purchases for gaining access to the money.

The remaining 30% of project costs must be covered separately, although BNDES has joined forces with Brazil's pension funds to create an investment fund for raising the needed equity. Brazil's largest bank, Banco do Brasil, has also expressed an interest in lending to Proinfa projects while some private-sector funds are also emerging. Eco Energia, managed by local consulting firm EcoInvest Assessoria, is aims to raise BRL 120 million ($41.8 million) of equity for Proinfa projects. "The fund is aimed at foreign and Brazilian investment and pension funds, private investors, strategic investors and even power sector players," the fund's David Zylbersztajn told reporters recently. "For the developers, it is a way to mitigate risk."

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