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15 September 2022

Brazil courts investors to tap vast renewables potential

Brazil is aiming to boost its clean electricity generation. ApexBrasil explains how the government is going about it.

By Oliver Gordon

Brazil is seeking major new investments in its renewable energy sector in 2022 as it looks to massively scale up its wind and solar infrastructure. Energy Monitor caught up with João Daniel Ruettimann, investment coordinator of the Brazilian trade and investment promotion agency, ApexBrasil, to find out what is on offer to attract FDI.

João Daniel Ruettimann, investment coordinator at ApexBrasil. (Photo courtesy of ApexBrasil)

Brazil aims to boost clean electricity generation further in the country. How does the government intend to achieve that goal?

In terms of total installed capacity in megawatts, renewables already account for 77% of the electrical grid. That breaks down into 116.2GW of hydropower (from 936 power stations), 22.7GW of wind power (from 827 wind farms) and 5.7GW of solar photovoltaic (from 205 solar parks), as of June 2022. If we factor in reserves and current output, the share of each source [in actual electricity generation] fluctuates due to seasonal effects. Nonetheless, power plants across the country have managed to contribute 65% for hydropower, 12% for wind power and 1% for solar. The remaining demand is covered by fossil fuel and nuclear power plants.

Private entrepreneurship has allowed us to discover new opportunities. The distributed generation free market and the regulated market have both witnessed a strong rate of growth. In terms of capacity, we observed a 33% increase in the supply of electricity from renewable sources from 2015–20. If we take hydropower out of the equation, the growth rate is even higher. Why? Because the majority of small-scale distributed generation projects – those under 5MW – opt for solar photovoltaic (PV) technology due to its lower capital expenditures.

Because we have been investing in solar photovoltaic technology for some time, the production [cost] of equipment, infrastructure and distribution is greatly reduced, and this cost saving can be passed onto consumers directly.

Growth is best achieved if business and legal rules are sound, transparent, universal and predictable. Government reforms have allowed for the country to advance energy production in a way that fosters entrepreneurship – the Distributed Generation Act, which defines how energy leaves the generator and reaches consumers across the country, has enabled greater national energy transmission, and the Eletrobrás Privatization Act ratified the transfer of one of Brazil’s largest utility organisations into private ownership.

Which renewable energy sources offer the most potential in Brazil and where are they located?

The potential depends on the market you are aiming at. Investors and entrepreneurs have found their specific niches and based their respective rate of return on the scale and market they have opted to invest in.

Wind power has fared the best on the regulated market due to its economies of scale. We recently reached 22GW of installed onshore wind power capacity, which cemented Brazil as the seventh-leading country in the world for wind power in 2021. The unique geography of Brazil means that wind tends to be far more intense from June –December, which coincides with the months of lower rainfall. This makes it the perfect companion to hydroelectricity, creating a harmonious partnership of renewable energy sources. Offshore wind potential will be a hotspot, particularly in the north-east of the country. Conservative estimates suggest it could have 48,000km2 of potential with a maximum of 181GW.

Can you outline what the government has been doing to attract foreign direct investment (FDI) into renewables in Brazil?

The Brazilian government is welcoming FDI through a variety of channels and mediums, such as the Investment Partnership Programme (PPI), which aims to strengthen the interaction between the state and the private sector. Through this, we have reinvented ourselves as an investment destination for large-scale infrastructure projects. Created at the end of 2016, the PPI is now in its sixth year and remains the primary vehicle through which Brazil attracts FDI for private and PPP [public-private partnership] projects. After a hiatus in 2020 caused by the Covid-19 pandemic, the programme picked up again in 2021, and is expected to attract 78bn reais ($15.2bn) of investment in 2022. Of that expected investment, we predict that 80–90% of the FDI will go to renewable energy projects in Brazil. It is hard to know this for sure; it depends on how the government conducts auctions.

What auctions for renewable energy infrastructure projects are lined up for the near future? What kind of prices have been seen in Brazilian renewables in recent auctions?

The Brazilian Mines and Energy Ministry has outlined the schedule for auctions during 2022–24. They include electric power purchase auctions from new-generation projects, power purchase auctions from existing generation projects, and backup energy tenders. In September 2022, auctions will contract for hydro, wind, solar photovoltaic power, energy from solid urban waste, biomass, biogas, coal and natural gas capacity. These tenders will award power purchase agreements with terms of 15 years for wind and solar, and 20 years for the other sources.

We had an auction in May 2022, which rewarded 1,984 power plants, or 75GW of new supply, to provide electricity within four years using solar photovoltaic, hydroelectric, wind, thermal and biomass power. Another successful auction in June added 5,289km of new power lines across 13 Brazilian states, with added transmission capacity of 6,180MVA (megavolt-amperes).

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Another example of a recent auction in the energy space pertains to Empresa de Pesquisa (EPE), which is a Brazilian government-run energy think tank responsible for providing the technical documents and requirements for electricity auctions in Brazil. It allocated 116MW of PV capacity in the recent 'A-4' energy auction (meaning new power plants that will be commissioned within four years). Overall, the EPE assigned around 950MW of renewable energy capacity in the auction. This included 183MW of wind power, 400MW of thermal capacity and 189.5MW of small-sized hydroelectric power. For the regulated market their average final price was 178.24 reais ($37.6)/MWh.

The World Bank estimates Brazil has a staggering 1.2TW of offshore wind potential. What’s being done to tap that potential resource?

Our country took a big step forward earlier this year by setting legal guidelines, in the form of a decree, for the designation of key areas for offshore wind projects, including parameters to assign the use of physical space and the best use of natural resources. The decree outlines that the installation of offshore wind projects should seek to promote activities such as sustainable development, as well as the generation of employment and rational use of natural resources. Offshore wind generation is still in its infancy and we are only just beginning to map out how we can fully pursue this. The positive change in legislation will greatly help us in unlocking this untapped potential.

Our capacity to produce wind and solar power on a large scale at low cost has led the International Renewable Energy Agency to include Brazil in a group of nations expected to produce and export green hydrogen products in the not-too-distant future. A recent BloombergNEF study estimated Brazil could provide hydrogen electrolysis at low cost by using onshore wind farms. Green hydrogen technology is still in its infancy, but we believe that we will gain a competitive edge over other global competitors in the coming years.

What are the main challenges facing Brazil’s renewables sector?

Brazil already has one of the cleanest energy environments in the world. However, to make the sector more attractive for FDI, and guarantee reliability, the main challenges are regulatory and legal stability. Separately, continual investment is needed if both we and the rest of the world are to maximise the benefits renewables can bring. Investors need to know their capital is having an effect, socially and environmentally, and that’s why tangible differences to communities need to be seen. Only by seeing this change will there be the impetus for developing renewable technologies at the rate at which we need them.

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