Brazil orders one thousand megawatt -- Instant industry response to government's wind power decree

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Brazil's government is calling for the implementation of 1050 MW of installed wind capacity by December 2003 as one of a multitude of measures aimed at reducing the effects of a severe power crisis that has led to electricity rationing throughout the country. A French renewable energy company has already risen to the wind challenge and announced it will be developing 1026 MW of wind plant, starting with 120 MW next year. It is looking to complete 2000 MW as long as the market holds.

The wind decree, Proeolica, establishes that either state owned power company Eletrobrás or one of its numerous subsidiaries must buy the output of 1050 MW of wind power for the next 15 years. The price to be paid for the power varies along a sliding scale rewarding those projects that start operations first. Projects operating by December will receive 20% above the "purchase value" as established by the electricity regulatory authority, Aneel, a bonus that gradually falls to 10% for projects that come on-line by December 31, 2002. For the remainder of this year the price set by regulator Aneel is BRA 11.2/kWh ($0.057/kWh). The purchase obligation can and may be passed on to private sector distributors under the terms of Proeolica.

Magnificent start

"The decree is a magnificent starting point for wind power in Brazil," says Manlio Caveiello of Eclac, the UN's economic commission for Latin America and the Caribbean. He is advising the Brazilian government on renewables.

Siif Energies, partly owned by French national utility Electricité de France (EDF), is one of the first to make public its plans for major wind development in Brazil following announcement of the decree. It will invest $1.12 billion in six wind power projects that will be operating by 2003, says Cesar Aguiar from Siif's Brazil office. The first project will be 120 MW at Arraial do Cabo on the coast of Rio de Janeiro state, and the remaining 906 MW of the first phase will be in the northeast of the country, with three in Ceara state and two in Rio Grande do Norte.

Aguiar says that Brazil's power shortages and the government's backing of wind give him confidence that the investment will pay off. Under the terms of the decree, Eletrobrás and its various subsidiaries, as well as local distributors, are obliged to buy specified amounts of wind power. This means there are guaranteed purchasers in the northeast. In Rio, the distributor Light will "probably" buy 100% of the generated power, Aguiar says. EDF owns 35% of Siif and over 90% of Light.

Regulator Aneel will authorise Siif's projects "very soon," probably this month, says Aguiar. Talks are also continuing with national development bank BNDES for the financing of up to 70% of the $1.12 billion project costs and the possibility that its shareholding arm, BNDESpar, will take part of the 30% equity portion of the financing. Siif plans to start construction by July 2002, and is open to offers from wind turbine and equipment suppliers. "We are not involved in the supply of machinery," Aguiar says. "We shop around." Implementation of projects will be offered on a turn-key basis, he adds.

Odd target

How the government arrived at 1050 MW is not known. It has issued rounded -- and much higher -- goals for sugar cane cogeneration and from power barges (4000 MW each), yet the wind potential in Brazil is far greater. Apart from this anomaly, the decree appears to be straightforward: costs incurred by Eletrobrás will be passed on to all distributors in the country in accordance with the size of their markets; and the Eletrobrás contracts can at any time be passed to the direct administration of the local distributor.

A problem pointed out by Jürgen Beigel, head of international projects at Germany's Renewable Energy Aktiengesellschaft, is that Proeolica, "Is only a decree, and it can be revoked at any time." This introduces uncertainty over whether banks will finance projects. "When I see a project, the first question I ask myself is: is it bankable?" he says. The lack of legal security adds to the already complicated financing in Brazil, where medium term loans are typically around eight years (ten-12 years maximum). The relatively short loan term creates a high payback load, the strain of which can wipe out the advantage of the favourable wind regime in many parts of the country.

Furthermore, generation values are neither expressed in US dollars nor linked to the dollar, and since the Brazilian real lost its dollar parity in January 1999 it has fallen considerably. Along with the Chilean peso it is the currency that is most feeling the contagion effects of Argentina's financial troubles. Lack of dollar remuneration has been one of the main problems facing the thermal electric plan. The wind plan could suffer in a similar way.

Given the financial difficulties, the way in which wind power will probably materialise in the short term, Beigel says, is through generators related to distributors, allowing for all technical and financial aspects to be managed "in-house," to the convenience of generator and utility alike. Distribution in Brazil -- unlike generation -- is largely in private hands, and European multinationals such as EDF and Spanish utilities Endesa and Iberdrola all have large distribution holdings.

Rio de Janeiro state is attracting a deal of attention from potential wind plant developers. Even before Siif's wind measuring started, Japan's Marubeni was studying the state's wind resource, while Spain's Gamesa is in the process of doing so. "This demonstrates the big potential that Rio de Janeiro has as a main centre for renewable energy in the country, which will be a big tendency in the future," state energy secretary Wagner Victer said recently.

Lots of interest

Third parties, too, are studying the market. Britain's Windforce Development, a relative newcomer on the wind scene (Windpower Monthly, July 2001), is building on the Latin America power sector experience of its senior executives and is studying markets in Brazil and a number of other South American countries, says the company's Simon Redman. "We would seek a local partner and offer to develop its project, and perhaps identify a larger project that it had not been aware of," Redman explains. Brazil "is looking pretty good right now" from the business opportunity perspective, he adds.

Apart from the benefits of strong winds in the northeast of the country, the complementary relation of wind and hydro has not gone unnoticed -- when there are rains there is low wind and when there is drought, such as now, there are strong winds for power generation.

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