Brazil's renewables sector places trust in team Coelho Filho

DISPATCHES | Alexandre Spatuzza explains how Brazil's renewables industry has come to see its pro-reform energy minister as a beacon of stability in a storm of political uncertainty

Nothing is certain in Brazil at the moment – especially the continuation of President Michel Temer’s administration – but weary of changes in direction, Brazil’s renewable energy sector is rallying behind the mines and energy minister Fernando Coelho Filho in a bid to cement pro-market changes.

At stake are what informed commentators say are necessary reforms to the country’s 13-year-old sector that promise to protect and improve investment returns, open up the non-regulated market, remove subsidies and reorganise tenders, particularly in the wake of changes in financing from the Brazilian Development Bank (BNDES).

But things are still uncertain for the Temer administration, even after Brazil’s top electoral court last week cleared him and his predecessor Dilma Rousseff – who were respectively vice-presidential and presidential candidates in the 2014 elections – of using illegal campaign funds.

The problem is that Temer’s multi-party coalition base is barely held together with promises of disbursement of budget funds for Congressmen’s pet projects, nominations to mid- to high government ranks and other political machinations, after the latest flurry of corruption allegations from whistle-blowers pointed the finger directly at Temer.

As another two of Temer’s closest allies are now behind bars on corruption charges, the centre-right Brazilian Social Democratic Party (SPDB), Temer’s stalwart party in Congress and champion of pro-market reforms, could abandon what most analysts think is a sinking ship. Calls for early direct elections in 2017 are growing in Congress and on the streets, with nearly 80% wanting Temer to resign or be ousted, according to recent polls.

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But sidestepping the political scandals, Coelho Filho is standing his ground on the 8th floor of the modernist energy ministry building in Brasília, even after his centre-right Brazilian Socialist Party (PSB) abandoned the coalition last month.

Support for the 32-year-old minister is solid, mainly because of the team of experts that he astutely put together to develop the reform agenda negotiated with power sector players and trade groups in the past 12 months.

Coelho’s experts are highly regarded for their track record in the private sector – which differentiates them from the more academic and political profile of Rousseff’s energy team, which was equally respected.

Running the show nowadays are people like energy planning authority (EPE) president Luiz Barroso – a former partner at PSR consultants – and executive secretary Paulo Pedrosa, a former president of the Brazilian Large Consumers Association (Abrace). They are channelling new ideas to stabilise the sector and make it more profitable for investors, as well as solving urgent structural problems that arose during the past decade.

"The power sector wants to guarantee that reforms are made independent of politics"

Despite the havoc caused to the wind and solar industries due to the last minute cancellation of tenders last year, there is ample support for the long-term changes that Coelho Filho’s dream-team is proposing.

The first pro-market signal came with the revision of transmission tender rules earlier this year, which raised investment returns and attracted strong bidding for the first time in several years of mostly poorly-contested and abandoned auctions.

This indicated to market players that the government would no longer prioritise the lowest possible power prices at tenders and would, instead, seek to support investments.

Although slow at restarting the country’s successful renewable energy auction schedule – partly due to uncertainties about Brazil’s economic recovery – proposals for the removal of subsidies, revising physical guarantees of hydro-dams, revisiting the auctions rules to make them more flexible, and boosting the non-regulated market are seen as opportunities for all technologies, especially for wind, the second most competitive power technology in Brazil behind large hydropower.

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The sale of assets of federal power group Eletrobras – including several wind assets – is another welcome initiative. Even discussions about dollar-denominated PPAs – a taboo in Brazil – are openly promoted by private banks and wind sector investors, who would be able to tap cheaper financing abroad as BNDES loans dwindle.

The expression most widely used by industry players in recent weeks is that Brazil is facing “a window of opportunity” for improving sector rules, and Coelho Filho seems to have won their confidence that he and his team will take it.

As the political storm shows no sign of calming down, the power sector wants to guarantee that these changes are made independent of politics, and especially before elections in 2018 – if they are not brought forward by the momentum on the streets.

Coelho Filho said he will try to bring them to a head before then, and the word is that a ministerial decree is nearly ready to implement the first part of the reforms.

But with the rogue minister on trial by his own party’s ethics committee for not resigning, and as congressional appetite for technical debates dwindles, uncertainty continues to be the norm in Brazil.

Renewable energy investors are holding on, looking at Brazil’s huge long-term potential, knowing that Coelho Filho’s reforms could make things move faster and more profitably. They are betting their Brazilian chips on the minister’s political future and that of a more market-oriented wind sector.

  • Elbia Gannoum, CEO of Brazilian Wind Association ABEEolica and Steve Sawyer, secretary general of the Global Wind Energy Council will take part in GWEC’s ‘Doing Business In … Brazil’ webcast on Tuesday 13 June at 1500 CEST. During the webcast, Sawyer will provide an update on the global wind markets. Gannoum will provide an overview of the status of the Brazilian market and will talk about what challenges are ahead for the wind sector. Areas to be discussed include challenges in demand and the upcoming auctions, the financing landscape, and transmission development. Full details and registration are available here.