Sawyer sees Brazil staying-power

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Most of the international turbine manufacturers that have moved into Brazil’s wind market in recent years will try to stay the course and comply with new local- content rules, says Steve Sawyer. 

“I think they will all try to make it work, even if the amount tendered is closer to 2GW or 2.5GW per year,” says the Global Wind Energy Council (GWEC) secretary-general.

Sawyer notes that Wobben, Impsa, Gamesa, Alstom and GE have already met the domestic-content criteria for preferential funding from the national development bank, BNDES, and other manufacturers, including Vestas, are close to doing so.

There is doubt as to whether some other companies, such as India’s Suzlon and Germany’s Siemens, are willing to make the investments needed to meet the rules.

Although the rules have been successful in creating local manufacturing capacity, they are creating challenges for Brazil’s wind sector. Sawyer estimates that turbine prices increased by up to 25% in the wind tender in August, compared with the previous auction, making wind less competitive.

However, he points out that average prices of around R$110 ($48) per MWh are still “very cheap”. “The R$87/MWh level was ridiculous; the question is whether R$110/MWh or thereabouts is going to be the new normal.”

In general terms, Sawyer describes local content as “a good thing”. However, he adds that the latest local-content rules for specific components are bound to drive up costs, creating the possibility of bottlenecks and price fixing in the supply chain.

“Interference at the level of components is unhelpful, but the sector can live with it,” he says. “The important thing is for it to be transparent, and not to make any more changes.”

The rules also exacerbate the overcapacity in the global turbine market, with GE, for example, building new capacity in Brazil when it already has too much capacity in the US.

Further on, Brazil’s policy might attract a challenge at the World Trade Organization, although the government may decide it has achieved what it wanted and decide to unwind it before this happens.

“This is not a national government policy, it is a policy of the BNDES, but that is a government bank and the possibilities of arranging finance independently of the BNDES [are] very limited,” says Sawyer. However, he adds: “Nobody will challenge it right now.”

Brazil’s “extraordinary and unique” wind resources — Sawyer points out that first-year operating data bears out average capacity factor estimates of 54% — mean the sector is in a strong position to become the country’s second generation source after hydropower.

However, the sector faces a number of challenges in the short and medium terms. One of the most important is grid constraints, which have already led to limitations in the type and number of projects that can compete in tenders.

Sawyer hopes that plans by the energy planning agency to tender for up to 6GW of transmission lines by the end of the year “will help a lot”.

In a more general sense, Sawyer says he can see evidence that “push-back” from incumbent energy players is growing. “The potential cloud is the same as what we are seeing in Europe. For years, wind was criticised as too expensive, and now it is being criticised for being too cheap,” he says.

“The big incumbents don’t mind some wind power, as long as it doesn’t affect their business, but now they are seeing that it is affecting their business.”

This kind of attitude, he maintains, is the real reason that wind was excluded from the recent A-5 tender. “There is all this talk about system stability, but I don’t buy it.”

The other big factor is whether Brazil’s economy will continue to grow, and along with it, electricity demand. Any major slowdown in economic growth could lead to “all bets being off” for the burgeoning wind sector, Sawyer points out.