Brazil 'needs' industry policy for wind

Brazil urgently needs to implement an industry policy in order to continue developing its wind turbine supply chain around the 9 or so manufacturers that are active in the market, according to a study by the Brazilian Industrial Development Agency (ABDI).

The study, called Panorama of the supply chain for goods and serves of the wind industry in Brazil, mapped around 100 industrial producers and 136 service providers in order to identify opportunities and bottlenecks. The study was presented during the Brazil Windpower 2014 in Rio de Janeiro.

“Brazil does not have an industrial policy for the sector. The only measure is the application of the local content rules of the BNDES,” says Eduardo Tostas, a specialist in sectoral competitiveness projects at the ABDI, who co-ordinated the study.

With the final price of turbines produced in Brazil ending up being at least 30% more expensive than those produced in Europe or China, turbine manufacturers have little hesitation in importing components and parts from their global suppliers, many of which have spare capacity due to the slow down in growth in more mature markets.

“The risk is that, when cheaper international sources of financing appear in the market to acquire parts and components, these manufacturers will transfer employment to other countries,” says Tostas.

The major factors behind steep manufacturing costs are high steel prices, inadequate logistics, and - ironically - the high cost of energy. Local component suppliers have also seen their ability to invest affected negatively by the tendency of manufacturers to place orders in a piecemeal fashion, rather than making big, long term orders.

“We have heard of turbine manufacturers that have asked for prices for 200 pieces, and then end up ordering 40,” says Tostas. “There is no long term planning for orders, and this way, local component manufacturers cannot invest the large amounts necessary for tooling and training personnel,” he adds.

According to Tostas, wind turbine manufacturers have not explained why they follow the current practices, but part of the explanation is that, as they are international companies with global relationships, they have purchasing strategies based on finding the lowest possible price across their global supply chains.

On a more positive note, aggressive investment promotion policies pursued by states like Pernambuco, Bahia e Rio Grande do Sul, have helped to guarantee investments in the supply chain.

The ABDI’s map shows that wind industry hubs have been created in the areas of greatest potential, such as the northeast and in Rio Grande do Sul, and this has helped to reduce logistic costs. However, there is also and important industrial cluster in São Paulo, far from the wind farms and from where large parts are transported on inadequate roads.

Tostas says that the federal government needs to implement tax incentive policies and make investments in logistics to complement the policies of state government. He describes the wind industry as robust, despite it’s relatively young age, but in need of investment.

“National industry has capacity, but not competitiveness,” he concludes.