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Supplier monopoly challenged -- Competition arrives in Brazil

With the better part of the first 200 MW of wind power under Brazil's Proinfa support program set to be online by the end of the year, a second turbine manufacturer has entered the market to break the current monopoly held by Wobben Windpower, the local offshoot of Germany's leading turbine manufacturer, Enercon. The Danish unit of Suzlon has signed its first deal in South America to supply 225 MW of wind turbines for the local unit of French wind power company Siif, a subsidiary of Portugal's HLC Group. The deal is estimated at $283 million and will double installed wind power capacity in Brazil.

Proinfa, short for Programa de Incentivo às Fontes Alternativas de Energia Elétrica, is the Brazilian government's renewable energy support program. Under Proinfa, selected renewable energy projects are granted 20 year power purchase contracts at prices ranging from EUR 68.74/MWh to EUR 77.96/MWh depending on capacity factor. The law came into force in March 2004 with a target of promoting the development of 3300 MW of renewables capacity.

Monopoly problem

With wind projects for 1423 MW selected for completion by 2008, Proinfa is a strong and immediate enabler for wind development. But its strict requirements have constrained competition. Among its core provisions is a mandate requiring foreign manufacturers to invest at least 60% of the overall value of the project in the country. So far, only Wobben Windpower partially assembles wind turbines in Brazil. "This dominance is a problem as they already have enough orders and there is still a need for more equipment," says Ricardo Pigatto, president of Brazil's association of small and medium-sized energy producers.

Even Wobben's potential competitors admit that the manufacturer has established a strong foothold in the market. "They have been here for a long time and set up production ahead of anyone else," says Newton Carneiro, chief engineer at the smaller, rival German manufacturer Fuhrländer, which is investing BRL 12 million ($5.4 million) in a manufacturing facility near Fortaleza, in Brazil's windy northeast (Windpower Monthly, January 2006). The German family firm is planning to start construction of its factory in January next year, for completion in six months. The company remains flexible about the exact dates but aims to produce 1 MW and 1.5 MW turbines in 2007 and 2.5 MW turbines in 2008 in Brazil, says Carneiro.

Changed dynamic

Through those plans, Fuhrländer was poised to fill the second place manufacturer slot behind Wobben. But now Suzlon's entry via its 225 MW order changes the manufacturer dynamic in Brazil. In its case, Suzlon intends to build only its own towers in Brazil, while the blades and nacelles will be imported. Only in the case of a long term market in Brazil would Suzlon consider setting up manufacture in the country, says CEO Per Hornung Pedersen. In that case it would be a blade factory.

Whether Enercon, Suzlon or Fuhrländer are actually meeting the 60% requirement remains an open question, even though the Brazilian authorities point out that it includes an entire project's infrastructure, including roads, cabling and site preparation, a point also made by Hornung Pedersen. But as a rule-of-thumb, such "balance of plant costs," even when wind plant are built in highly complex terrain, do not make up more than 30% of the total project cost. Towers alone are unlikely to represent more than about 20% of total project cost.

Professor Everaldo Feitosa, director of the Brazilian wind energy centre is encouraged by the arrival of Suzlon and the added manufacturer options it brings for project development. He also believes Brazil is increasingly seen on the map as a destination for manufacturers to build wind power equipment for the domestic market or to export. Already rumours suggest that Argentinean energy company IMPSA Energy plans to set up a factory in the northeast of Brazil, while other international players such as GE Energy are waiting in the wings.

Most of the big companies want to see when -- and if -- the government's second round of renewable energy contracts, Proinfa 2, will begin as this will guarantee a large flow of projects beyond 2008, says Feitosa. He is confident, however, that Brazil will reach its target under the current Proinfa contract.

Out of the 1423 MW selected, Brazil boasts three flagship projects in the southern state of Rio Grande do Sul state, one in Santa Catarina on the southern coast and another in the north-eastern state of Rio Grande do Norte.

Progress so far

The largest wind farm is the 150 MW Parque Eólica de Osório in Rio Grande do Sul state built by Ventos do Sul, for around BRL 220 million ($101.3 million). The company is a joint venture between Spanish company power company Elecnor, through its wind power unit Enerfin, Wobben, and Brazilian engineering firm Cip Brasil. Within the complex, two 50 MW wind plan, Osório and Sangradouro started to commercially operate 25 turbines a piece this year for a combined total of 100 MW. The third development, Dois Índios, also in the Parque Eólica de Osório complex, expects to start commercially operating 25 turbines for another 50 MW at the end of 2006.

Another project is being built in Santa Catarina along Brazil's southern coast and one in the north-eastern state of Rio do Fogo, due for completion in June, also using Wobben turbines. A further 49 projects with a combined capacity of 1137.26 MW, are waiting in the wings, according to Brazil's power regulator Aneel.

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