Brazilian states' vital green role

The importance of state governments in Brazil’s energy sector has grown tremendously since it was opened up to private investment.

Before, investing in and operating energy generation was subject to a legal monopoly and state governments’ role was limited to lobbying for a place in state companies’ investment plans through their elected representatives in the National Congress.

From the end of the 1990s, Brazil has opened — and kept open — opportunities to invest in the energy sector.

In the model of federal power auctions, introduced by the Luiz Inácio Lula da Silva and Dilma Roussef administrations, private participation grew substantially due to the attractiveness, competitiveness and transparency of the rules that were adopted.

The proof of this is the record registration of more than 1,000 enterprises for the next auction in November.

Despite the fact that the regulatory framework is for the most part federal, state governments have played an increasingly relevant role in attracting and maintaining energy investment in Brazil.

It is at the state level that most of the effective support necessary for a good investment climate must be provided, with actions in areas such as logistics, infrastructure, security, land management and licensing. The states also have to liaise at a high level with national government and sectoral entities to ensure they play their role in the important conquests that are being made for the energy industry.

One example of this was the strategy that I was able to lead when when I was secretary of state for energy between 2008 and 2010 in Rio Grande do Norte — a small state in the Northeast region that has historically faced multiple social and economic challenges.

Rio Grande do Norte was basically an importer of energy, located at the end of Brazil’s system of transmission lines. It didn’t generate any electrical power of its own until 2002, despite its enormous wind and solar potential and the fact that it was one of the country’s major producers of oil and gas.

From 2008, it went from having 50MW of generation capacity to 1GW, mainly of wind power.

This performance was due to a clear state policy of supporting wind power, its developers, suppliers and workforce.

With specific actions, designed in co-operation with the industry, we managed to bring agility, efficiency and security to all the stages of design, development and implementation of the wind farms installed in the state. This allowed the deployment of over R$10bn ($4.5bn) in investment in the wind sector.

Today, after being the first state to go beyond 1GW in wind power in May, Rio Grande do Norte is on track to reach 1.6GW of capacity by the end of the year, acting as a reference for everything that is being done in the sector in Brazil.

Setbacks such as the delays in new transmission lines that occurred between 2011 and 2013 are unlikely to be repeated and Rio Grande do Norte already has, backed by federal auctions, another 2.3GW contracted — or in other words, at least another R$12bn in investments in the state between 2015 and 2017 that will need support and attention in the critical phase of execution.

Equally important is the action of Brazilian states to develop other sources of renewable energy, building on the excellent base already conquered by the wind sector.

State government support and participation will be relevant in technology research and development and in training and repositioning of professionals and local companies, in order to ensure a positive multiplying effect for investments in the local economy.

JEAN-PAUL PRATES is a Brazilian lawyer and economist, who was energy secretary in the state of Rio Grande do Norte from 2008-10. He currently heads CERNE, the Center for Strategies in Energy and Natural Resources, a think-tank dedicated to formulate and help government and companies to implement public and private strategies for investment in those sectors.

He has more than 20 years of experience in the conception and execution of hundreds of ventures in oil, gas, biofuels and renewable energy in Brazil as head of the main Brazilian consulting group in this area, Expetro.

As adviser to the federal government, he was one of the authors of the current royalty and regulatory framework for Brazil’s petroleum industry.

This piece was published as part of the Thought Leaders series. Recharge’s Thought Leaders Club brings together leading thinkers and participants from the renewable-energy sector to examine the key challenges facing our industry