Move on Brazilian local content

The Brazilian wind association, ABEEólica, could ask the national development bank, BNDES, to ease local-content rules for some subcomponents if turbine makers and their suppliers don't come to an agreement by the end of the year.

“We have to opt between supplying power and leaving some subcomponent suppliers idle for a while, we will opt for guaranteeing supply,” Márcio Severi, chairman of ABEEólica's board tells Recharge.

He says subcomponent manufacturers and turbine makers operating in Brazil are disagreeing on prices and supply deals, especially in cases where there are only one or few suppliers for some parts.

ABEEólica is currently mapping out the supply chain and trying to broker a long term deal between the two sides.

Severi says that Brazil doesn't face production capacity problems in the supply chain, but the troubles arise from different expectation of profit margins by each side, which is eroding trust and delaying the placement of orders.

“Subcomponent suppliers have a lot of power, since they know prices that the power was sold at and the expected return of each project”, he explains.

Brazil's wind power has been growing exponentially from virtually zero in 2009 to 5GW in August this year, and should reach an installed capacity of more than 14GW by 2018, which will require the installation of about 4,000 turbines, most in 2015.

The whole sector, however, is pressure by low prices resulting from competitive auctions, which currently stand at around R$130 ($58) per MWh.

To reach competitive prices, turbine manufacturers need to put in place a local-content programme to obtain below market financing lines known as Finame from the BNDES.

Yves Rannou, Alstom's senior vice-president for global renewable power, Brazil's largest turbine maker, labels some of the Brazilian suppliers “opportunists”, but says he is willing to reach agreement to guarantee timely supply.

“Some suppliers are thinking in the short term to make profits, but we have to think in the long term,” he tells Recharge, guaranteeing that Alstom is moving forward to comply with local-content rules or reaching 60-70% local content by early 2016.

He says both sides know each other's strengths and weaknesses, which creates the possibility of putting in place a “plan to overcome the problem”. He also cites “adjustments” in BNDES's requirements.

Alstom has a 2.5GW pipeline in Brazil for the coming four years and is already in talks to close supply deals for upcoming auctions this year.

João Paulo Gualberto da Silva, wind-power director at Brazilian turbine maker WEG, tells Recharge that he is against easing local-content rules, which would allow imports of parts and components.

“I am absolutely against using Brazilian taxpayers' money to create jobs elsewhere”, he adds.

WEG is a large electrical motor and equipment maker and has an reasonably integrated supply chain, since many of subcomponents can be supplied by the other industrial divisions within the group. WEG has a pipeline of 100 turbines for delivery in coming years and expects to close new deals in upcoming auctions.