Brazil's wind chief says 'no going back' despite short-term fears

Until last month, Brazil beckoned to investors with an economy on the rise and an increasing number of wind projects being contracted.

But the euphoria appears to have hit a roadblock, as the country faces an oversupply of power, albeit one that hopefully will prove short-lived.

The long-term view remains optimistic, as wind energy offers some of the cheapest electricity rates in the local market and projects can be built quickly — unlike large hydro schemes.

“This will be a year of great caution, but not pessimism,” says Elbia Melo, president of the Brazilian wind association, ABEEólica. “I see no going back.”

She tells Recharge that power demand will not evaporate entirely, with modest requirements emerging this year and next through the unregulated market and long-term tenders.

The short-term scenario, however, is not looking good, with the A-3 tender — the primary vehicle for contracts — being delayed and possibly cancelled this year and next because distributors say they have an excess of power.

“This is generating some worry; the fact that the A-3 was delayed distresses us and is causing anxiety in the market,” says Melo, although “the delay of the A-5 was very good for us”. The A-5 tender, originally open only to big hydro, was rescheduled from April to August and opened to wind, biomass and natural gas.

About 7GW of contracted wind-energy capacity is being developed in Brazil, with a number of projects under construction. The country has an estimated wind potential of 300GW, with 1.5GW in operation today.

Major global turbine makers have set up shop locally with equipment-assembly factories.

“They saw the market and they saw that it was sustainable in the long term,” says Melo. “No-one builds a factory to stay five years.”

Manufacturers were pushed into building capacity on the ground because of requirements that call for at least 60% of goods and services to be sourced locally in order to receive financing from the national development bank, BNDES. And through its regulated tender system, Brazil offers 20-year contracts corrected for inflation, another bonus.

“You really have no risk [in Brazil],” Melo says. The main issue is accepting a lower return, thanks to recent tender rates of about R$100 ($54.60) per MWh. Another possible concern for investors is that GDP growth dropped from 7.5% in 2010 to 2.7% last year. “As an economist, I think it’s a short-term concern,” says Melo. “The elasticity of energy demand in Brazil is high.”

And even if Brazil does not pick up soon, “then where do they [manufacturers] go?” asks Melo. “The moon?”