On the surface, Brazil’s alternatives sector looks healthy. Project finance volumes and the number of deals went up substantially last year and wind is today a serious contender at Brazil’s competitive auctions, open to all energy sources. However, the once fast-growing small hydro sector is moribund and biomass from ethanol faces a series of challenges including subsidized gasoline prices from Petrobras. Wind is facing pressures from local content rules and aggressively priced auctions too.
Last year was a comeback for Brazilian renewable energy. Including large hydro, the volume raised in such deals hit $4.257 billion up from a trifling $63 million in 2011 and the highest in 10 years with the exception of 2009. Although last year’s numbers were skewed by the giant Jirau hydroelectric plant expansion, large alternative deals also swayed the numbers, such as wind farm deals including the Ventos Wind Power Project and ERB Aratinga Candeias Biomass Power Project. They raised $409 million and $127.88 million, respectively.
This year looks rosier for auctions of new capacity thanks to higher economic growth. The Empresa Pesquisa Energetica (EPE) maps Brazil’s centrally planned energy sector and provides 10 year plans which are adjusted according to GDP growth. After posting just less than 1% GDP growth in 2012, the Brazilian economy is expected to reach levels of 3.1% this year, according to the latest Central Bank poll of economists.
Lower energy prices thanks to government policies designed to reduce rates by 18% for consumers and 32% for industry will further stimulate demand while very low levels at Brazilian reservoirs means the government is keen to tap non-hydro power sources, points out Sergio Heumann managing partner at Rio Bravo Advisory. The government is particularly keen to avoid black-outs in the run-up to the 2014 World Cup and 2016 Olympic Games to avoid embarrassing headlines.
This is the start to an article on alternative energy in Brazil and is the version as submitted (pre-edited). If you would like to read the full article, please go to www.projectfinancemagazine.com.