'Brazil PV is in a moment of agitation and vitality, positive but uncertain'

5 MINUTES with Rodrigo Sauaia, president of the Brazilian Solar Power Association, Absolar

Sauaia, a Recharge Thought Leader, says Brazil's interim government needs to clarify plans for the PV industry after cancelling the 29 July tender, one of two auctions that he hoped would contract up to 2GW this year.

Sauaia talked to Recharge during the Brasil Solar Power show in Rio de Janeiro last week, where the interim energy minister, Fernando Coelho Filho, spoke for the first time in public about renewables.

Coelho Filho indicated his support for solar, and said that one more tender including PV will be held in 2016, but he gave no details.

Are you satisfied that there will be only one tender left this year?

For now, there is a real scenario of uncertainty because the cancellation of July's reserve tender, which was not expected, forces us to realign our expectations. But, above all, the ministry needs to position itself quickly, in a clearer way, showing the next steps to continue the insertion of solar in Brazil's power mix.

The sector really wants [tenders] to continue, since they are fundamental to allow module makers to invest in plants in Brazil. Also, tenders are fundamental for investors — who have already spent money in measuring solar irradiation and in the development of projects — to avoid financial losses, because the government had signalled continuity [of tenders earlier].

But it's important to note that the energy ministry, represented by Eduardo Azevedo, signalled clearly that solar will be included in tenders this year. This partially calms the industry, but we need to know when, under which conditions and how big the tender will be.

We mentioned an expectation of 2GW a year in solar contracts. We also expect cap prices to reflect Brazil's new situation, after the country lost its investment rating. This means financiers are indicating higher rates because risk is now considered to be higher, so obtaining financing for projects is all the more challenging.

So the cap price needs to be higher to accommodate these more negative outlooks compared with previous tenders?

Not necessarily, because there are other factors affecting the cap price. While the risk perception is higher, at the same time, the local currency, the real, has strengthened again after weakening last year. EPE [the energy planning authority] has been very successful in setting cap prices.

Now that we will have only one solar tender this year, I believe that the interest in the tender will be very high and there will be a significant number of projects registered for the tender, including those that will be able to conclude solar irradiation measurements.

Will Absolar seek a later starting date for winning projects?

A change in the schedule will need to also result in the change to the deadline for concluding the projects. This is very important. In the solar sector, the government needs to consider this: for 2017, 2GW have been contracted. For 2018, another 1GW. The tender that will be held this year will aim to supply 2018 or 2019. We need to understand whether the new contracts will complement what has already been contracted for 2018, or will it aim to cover one whole year of power demand in 2019?

Power regulator Aneel has denied a two-year extension for the winners of the 2014 tender. What is Absolar's position?

Absolar is not involved in this, I just want to make it clear. Some of its associated members decided to [seek an extension] because they face a challenging situation. In fact, the scenario is challenging because of the devaluation of the real. At the time [of the tender] the foreign exchange rate was very different.

But Aneel was very clear in its position [and said the ministry will have the final say]. The ministry looks at this through other perspectives: energy and industrial policies... We believe that the government needs to appraise the request from the developers because they are a significant number of projects, so the decision will have an important impact on how these players may position themselves in future tenders.

BNDES [national development bank] financing seems harder to come by and the solar local-content programme seems to be late. What is your view?

Financing is very strategic for solar and other technologies in Brazil. BNDES's support is important for solar because it is only just starting to be inserted in the country's power mix. At the same time, the government has created an alternative to financing by allowing regional and regional development funds to finance large projects, which can complement financing from the BNDES.

But it's important that the sector seeks new types of financing, either through local currency bonds or through foreign financing.

Brazil has more than 3,600 rooftop arrays, up from 1,000 at the beginning of 2016. How do you see this market at the end of the year?

Aneel expects 10,000 arrays to be operational by the end of the year [under the net-metering rules]. We are now halfway into the year with 3,600 arrays. But there is still a large number of developers who are working to implement shared power generation systems, distance self-power production and solar condominiums. Still, they have doubts, some in relation to regulations, but others are related to taxes.

After changes were made in the net-metering rules, we need to adjust the value added tax legislation on several accounts, including for new wire-fee charges. On the federal tax level we need to make sure that the PIS and Cofins tax exemptions can be used in these new models I mentioned.

How would you describe the current moment for solar in Brazil?

A moment of agitation and vitality. The sector is advancing in a positive way. This year, the expectations with the new business models for rooftop are very high. We need to see whether these new business models take off, but the traditional rooftop market will continuing to grow.

In the utility-scale sector, the industry is facing a moment of uncertainty, and we reiterate that the ministry needs to quickly signal more clearly what the plans are, showing the way forward this year and for coming years, because it will be with this that Brazil's industry will continue the process of attracting investments, manufacturers, structuring the supply chain, of creating quality jobs and make all the changes that we want to make in the power sector.

I would say it's a positive moment, but there several uncertainties that need to be cleared up quickly.

Realistically, how do you see the industry at the end of 2016?

We have taken care not to make a projection for rooftop solar because of all the recent changes. Last year our expectation of 300% growth was met. But we expect this year that the interest in solar continues to grow, including from the public sector.

But, realistically speaking, we are at the beginning of a growth curve that has enormous long-term potential. We are taking the second step, because the first step has already been taken, since we broke our inertia and started advancing towards the insertion of solar technology in the power mix.

Setbacks can always occur, but the signals we received from the new government are that solar is not a technology for the future, solar is not a new entrant in the market, and it is being thought of as mainstream.