The growth of investment in Brazilian wind energy has delivered an important expansion of installed capacity.
Today, wind accounts for 2.8GW, equivalent to 2% of national
electricity generation capacity. It was expected to reach 8.8GW —
5.5% of the total — by the end of 2017. And that’s before you add
the result of the latest tender on 23 August.
These numbers are mainly the result of contracts negotiated
through energy auctions in the regulated market in the past four
years. Only 600MW involve contracts in the unregulated market.
Wind’s success is due to its competitiveness. Since the first
auction in 2009, prices have gone from R$180 ($79) per MWh to an
average of R$100/MWh in 2011 and 2012.
So why hasn’t wind grown at the same pace in the unregulated
market? It accounts for about 30% of the power market and has a
potential in the order of 13GW just for special consumers (those
with a power demand of 500kW-3MW, which can get tax breaks for
buying renewables) — and that’s without counting big “
self-producing” industrial groups and large-scale consumers.
One reason is the large obstacles to investment in generation in
the free market generally, regardless of the power source, because
of the reduced bankability of this market. Power-supply contracts
in the free market are short-term (five years on average) while the
financing agreements needed for new ventures are long-term (15
years on average).
The national development bank, BNDES, the principal source of
funding for the electricity sector, offers few alternatives for
this unregulated market, preferring to finance projects in which
part of the energy produced is sold in the regulated market.
In the case of wind, in particular, there is a second factor —
perhaps even more relevant — which is the risk of exposure to spot
The seller is obliged to supply the contracted energy in
accordance with the purchaser’s demand curve. To do this, operators
must look to the spot market. As wind’s generation curve can
diverge widely from the consumption curve, the risk of exposure is
too great, given the high level of volatility in the spot market,
and this discourages the selling of wind energy in the free
Another big challenge for the expansion of wind power in the
free market is transmission.
In the regulated market, when there are delays in building new
lines — a frequent occurrence — investors’ revenues are guaranteed.
Generators in the free market, however, have to cover such delays
by buying energy in the spot market at prices that are reaching
There is no doubt that wind could be sold at R$140/MWh in
periods of three to five years. However, the free market has had
only a marginal expansion, for the reasons outlined above.
It is really only generators belonging to big holding companies
that have managed to enter this market, as they are able to balance
their contracts with their production from other sources such as
hydropower, thus mitigating their exposure to the short-term
market. On top of that, these large companies can obtain bank loans
using corporate finance.
For all these reasons, breaking down the barriers to the
expansion of wind power in the unregulated market continues to pose
a big challenge.
Elbia Melo is executive president of the Brazilian
wind-energy association, ABEEólica
This piece was published as part of the Thought Leaders
series. Recharge’s Thought Leaders’ Club brings together leading
thinkers and participants from the renewable-energy sector to
examine the key challenges facing our industry