Clearing the barriers in Brazil -- Deadline extended and finance deal

After months of waiting, Brazil's wind power developers have been told that the December 2006 deadline for completion of all wind projects picked for power purchase contracts under the national renewables program, the Programa de Incentivo às Fontes Alternativas de Energia Elétrica (Proinfa), will be extended to December 2008. In total, 53 wind projects have been selected for Proinfa contracts, amounting to 1400 MW of potential generating capacity, according to the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the national economic and social development bank, which is offering financing at preferential rates under the program.

"This gives us two more years to develop our projects," says Ricardo Pigatto of the Association of Small and Medium Electric Power Producers, or APMPE. "This gives us enough time to finish them." To date Brazil has 28.6 MW of installed wind power capacity in 11 projects that account for 0.03% of the generation capacity of the country.

The extension of the deadline was one of two major barriers preventing projects moving forward under Proinfa. The other has been lack of the promised financing of project costs by BNDES. But at a ceremony last month attended by Brazil's president, Luiz Inacio Lula da Silva, BNDES signed a financing contract for BRL 465 million ($202 million) for what it called Latin America's biggest wind power project -- a 150 MW development in Osório in Rio Grande do Sul, Brazil's most southern state. The project will be made up of three wind stations of 50 MW each.

Ventos do Sul Energia, a joint venture formed by Spanish firm Enerfin Enervento, will carry out the construction and operation. Other stakeholders in Ventos do Sul are the Brazilian division of German wind turbine manufacturer Enercon, Wobben Windpower, and Brazilian company CIP.

BNDES will loan 69% of the total cost, or BRL 105 million ($43.5 million) with the remaining BRL 360 million ($159 million) to be raised by a consortium of financial institutions: Banco do Brasil, ABN Amro Real, BRDE Caixa do Rio Grande do Sul, and Banrisul.

The Osório project is expected to start commercial operation in December 2006, when it will sell power to Brazil's federal power company Eletrobrás for 20 years under the Proinfa incentive program. The construction of the wind station is earmarked to create some 500 jobs.


The project is the first in the wind sector to be lent money by BNDES, which has since improved its terms. It is now prepared to lend as much as 80% of a project's cost, up from 70%, at its basic long term interest rate, plus a spread of about 3.5% a year. But BNDES provides the credit through private sector banks, adding an extra 2-2.5% to financing costs. "On average we are paying BNDES's basic rate, plus five per cent," says APMPE's Pigatto. "Part of the reason is that BNDES views small power companies as high risk and spreads the risk by dividing its loans by 50% for BNDES and 50% for the other banks," he adds.

The bank is currently studying BRL 1.4 billion in wind projects, of which it could finance as much as BRL 821 million, says BNDES. It may not happen, however. "Local project developers are facing difficulties in meeting guarantees to obtain financing from BNDES and Banco do Norteste, which are new to wind power financing," says Everaldo Feitosa, director of the Brazilian wind energy centre.

Pigatto says BNDES is also moving far too slowly. "We have to start our projects in 24 months and the process is very slow...we need the money now," he urges. Small energy producers are facing corporate finance conditions, says Pigatto, whereas they need project finance attitudes. "The mentality of BNDES needs to change," he adds. "We may look at other ways, such as via the capital markets in the coming months." Under the project finance model, loans are secured in the project's future income and not in the financial strength of the project sponsors.