IN DEPTH: Brazil's year of solar
Twelve months ago, renewables developers in Brazil were claiming the government was biased against solar energy.
About 2GW of PV projects were entered into national power tenders but won nothing, while calls for solar-only tenders were dismissed out of hand, with officials saying the technology was far too expensive. Faced with these obstacles, only 9.3MW of solar has so far been installed in the world’s fifth-largest country — one of the sunniest on Earth.
However, everything is about to change.
“This is the year of large-scale solar,” Brazil’s top energy official, Maurício Tolmasquim, declared in April, adding that he expected 2GW to be installed over the next five years.
The country’s first solar-only tender will take place in the third quarter of this year, prompting hundreds of visits by panel companies, developers, utilities and real-estate firms to government offices in Brasília and the national development bank, BNDES, in Rio de Janeiro, hoping to win finance and approval for their projects.
The solar industry is very serious about its prospects in the country. There are at least 6GW of PV projects in the pipeline across Brazil — 2GW of which have already been through the government’s red-tape grinder in order to be listed in last year’s auctions — an expensive process involving lawyers, letters of intent, accountants, environmental licensing and the deposit of guarantees.
So what caused President Dilma Rousseff’s centre-left administration to have a sudden change of heart?
Like many government decisions, the answer is partly political and partly due to external forces.
Brazil has long been reliant on its hydropower plants. They supply more than three quarters of the country’s electricity, with back-up during periods of low rainfall provided by standby gas- and diesel-fired thermoelectric plants.
Since the end of last year, a prolonged drought has reduced water levels in the country’s hydro reservoirs to less than 40% of their capacity. This has raised the spectre of electricity rationing, which helped bring down a previous government in 2002, and higher energy bills as the back-up power is more expensive — hardly good news in an election year for a government that promised to keep electricity prices under control.
On top of this, power consumption is rising at an average of 5% a year. Additional capacity has to be built, but hydro projects face huge hurdles, with deep-rooted resistance to new dams in the Amazon region from Indian tribes, environmental groups and public prosecutors prepared to paralyse construction in the courts. About 3GW of hydro projects are awaiting approval from environmental and regulatory authorities.
In recent years, wind power has picked up the strain of new capacity, but has also faced lengthy delays — 1GW of wind farms were completed before grid connections were ready, forcing the government to pay for energy produced but not delivered — while a further 1.5GW of projects are facing delays due to environmental licensing and bureaucratic problems.
Solar projects, however, due to their size and ease of installation, can be brought on line faster and in locations that already have grid access.
“The government needs to diversify the power matrix, and solar is one the fastest ways since they can be built very quickly,” says Thais Prandini, executive director at consultancy Thymos Energia, which is advising large power consumers on solar and helping the government to prepare tender rules.
The basis of the government’s new thinking is that, despite solar prices currently being twice those of wind power (around R$250 ($113) per MWh, compared to R$120/MWh), it will only marginally affect end-consumer prices because of its small share in the energy mix.
The 2GW of solar forecast by Tolmasquim for 2019, would represent about 1.25% of Brazil’s projected installed capacity for that year.
So, voters will see the government taking action to tackle the energy shortfall in an environmentally friendly way, while the local solar industry gets ample time to take off, guaranteed by high initial prices, allowing companies to import cells and invest in local module assembly facilities.
“What we see happening in solar is similar to what happened in the wind sector,” says Tolmasquim, president of the national energy planning body, EPE. “We started in Proinfa [Brazil’s subsidised renewable-energy programme in the 1990s] with higher prices but they declined as turbine makers adapted to local-content rules and set up shop here.”
The 2GW will be achieved without government subsidies or feed-in tariffs, points out Tolmasquim, aside from the existing 50% grid-transmission discounts for renewable energy and relatively cheap BNDES loans.
The fact that the government has not decided on the rules for the forthcoming solar tender — which could involve local-content issues, financing conditions and tax incentives — means that the success of the sector is by no means guaranteed. Taxes are levied on imports, “industrialised” products and power distribution services by federal and state governments. Studies by Abinee, the Brazilian association of electric and electronic equipment makers, shows that these taxes raise the cost of solar in Brazil by 25%, on top of equipment and import costs.
Financing is also expensive in Brazil, with typical interest rates of more than 40% a year.
“The cost of solar power in Brazil cannot be higher than in other countries,” says Leonidas Andrade, head of Abinee’s solar working group. “We have to find a way to break the vicious circle here that is blocking the development of the solar industry, and the only way to do this is to generate demand, and this is done by implementing long-term planning and, at the same time, organising local-content rules.”
Andrade suggests that the BNDES — which is obligated by law to set local-content rules — should start with a 20-30% requirement, with an eye on an eventual 60-70% many years down the line. Tolmasquim agrees, and says he is holding talks with BNDES officials on the issue.
“We have ten years’ experience in solar, and I see it as the energy of the future. But the government needs to calibrate prices and conditions before we invest,” says Ronaldo Custódio, engineering director at government-controlled power company Eletrosul.
Scepticism about the solar market still exists within government, Alexandre Comin, head of industrial competitiveness at the Trade and Industry Ministry, tells Recharge. His attempts to push through tax breaks for solar have faced resistance from federal and state governments — with the latter benefiting from VAT on electricity sales and equipment.
“Things are moving very slowly,” he says. “I will only believe in solar power in Brazil when I see the final tender rules.”
Comin says that the number of meetings his department has had with solar companies has increased. “All companies that came to talk to us before 2011 gave up, now we are seeing a new surge in interest.”
Several small companies have expressed an interest in building module factories in Brazil, including Pure Energy, a Brazilian-Italian joint-venture, Spain’s TechnoCells and local company Solair, which was due to complete a facility assembling 300,000 panels a year in the northeastern state of Paraíba by the end of May. The company has orders to install 10MW by the end of the year, which will anchor the investment, says Solair chief executive Nelson Cortes da Silveira.
But Andrade believes it will be a while before large-scale cell production comes to Brazil. For that to happen, there will need to be a demand of more than 1GW a year, he says.
But given the country’s demand for power, the plentiful sunshine and the growing political will, it may not be long before annual solar demand exceeds such levels.