INTERVIEW: Pedro Fiuza, Servtec
The Servtec director explains how to build a profitable wind business in Brazil and why the sector is vital to the country’s growth.
Why do you personally believe in wind power? I agree with [Nobel laureate] Muhammad Yunus who said that if you want to help people, you can only do it through economic development. Effective help doesn’t happen if you just hand out money.
Expanding that, I see the basis of economic development as being power generation, so if you don’t have abundant and cheap power, no nation will be able to develop itself. This fascinates me: I cannot see that the world will stop growing, neither in population and nor in power consumption.
In Brazil, there is the additional challenge that we are reaching the limit of hydroelectric power generation... because of several issues, including environmental. So we have to look for new sources for power that are abundant and cheap.
Why does Servtec invest in renewables? We believe in wind because we are aware of the potential of wind power in Brazil and of its quality. It’s the power [infra]structure that can be built fastest and Brazil has abundant land and regions to develop wind, with very low environmental impacts. It is an effective income-distribution mechanism at the base of the social pyramid — people have little idea of the changes promoted by wind power because of the payment of land leases in the poor regions.
So now wind power is firmly in our ten-year plan. But we are looking at other technologies: in solar we have no doubt that it will be developed to be as big as wind in the long term. We now have more than 300MW of solar projects in our portfolio which are located in Brazil’s northeastern region. We hope to be pioneers in this also, as we were in wind.
As a developer, how do you make money in a market with low energy prices and high government control? It’s a fact that the Brazilian power sector has tariffs below the international average and so it offers return rates that are smaller than other economic sectors. But the difference is that we have long-term stability for returns on investments. The sector is based on long-term power-purchase agreements with very small default levels and a system of power trading that dilutes risk between several off-takers at the auctions.
Evidently, the biggest challenge is to implement the project at the lowest possible cost, preserving the quality of each plant. If we manage to do this, we have no commercial risk, no variation in power prices, so we try to operate the plants in the most efficient way. The biggest challenges are in the first years of the contract.
What are you looking for when you negotiate with turbine suppliers? First we seek the best fit between the machine and the site of the wind plant. We are looking for best cost-benefit relation. This varies from machine to machine according to wind type, terrain and construction process. Nowadays, we are also taking more and more into account the solidity of the supplier, because we saw some suppliers in Brazil that weren’t able to fulfil contracts. Then, lastly, we look at the efficiency and credibility of the equipment.
In the case of WEG, our current supplier, it’s true that they don’t have a history of turbines operating in Brazil, but we took into account the credibility of Weg as a company. We carried out diligences in the machine that they licensed from Northern Power System in the US, we also carried out a diligence in WEG’s plants here in Brazil, so now we are secure about the equipment.
We look at our suppliers as our partners. We discuss projects with them, the contract details we leave to the lawyers, so it’s a simple discussion.
What are Servtec’s options for raising its financing capacity? We developed a model to attract partners for each project separately. We have recently decided to create two structural platforms: one for conventional power generation and one for renewables. We are now seeking partners who believe in this structure.
More important than the profile of the partner is the fact that we want someone who has a long-term vision of the market. We don’t want to develop projects to sell.
So Servtec wants to grow organically? Yes, but we will also consider acquisitions. Carrying out an initial public offering may be natural for a company that needs to raise capital or offer an exit option for a partner. But this is not our objective.
- Pedro Fiuza is the director of the wind division at Grupo Servtec, a Brazilian energy and engineering company founded by his father, Lauro Fiuza Jr, in 1969
- Pedro Fiuza has a degree in business administration from the University of Fortaleza and an MBA from the Massachusetts Institute of Technology
- He is one of two Brazilians selected for the Recharge4040 initiative