WEBINAR: Selling Renewable Energy Projects and Licensing for International Investors. (portuguese language)
July 18, 11:00 Brazil / 16:00 CET Daria Langenberger will lead the webinar: Selling Renewable Energy Projects and Licensing for International Investors. The event will take place on the MWx Energy platform, presenting the types of potential buyers, the criteria of investors and buyers for choosing projects and partners, and what aspects to consider when presenting and negotiating projects. Sign up by clicking here!
Contact us to arrange a meeting at Intersolar in Munich on the 31st of May or 1st of June!
ABOUT INTERSOLAR EUROPE
Intersolar Europe is the world’s leading exhibition for the solar industry and its partners. It takes place annually at the Messe München exhibition center in Munich, Germany and focuses on the areas of photovoltaics, energy storage and renewable heating, as well as on products and solutions for smart renewable energy. The accompanying Intersolar Europe Conference consolidates selected exhibition topics and showcases large-scale power stations, financing and intelligent networks. Since being founded 26 years ago, Intersolar Europe has become the most important industry platform for manufacturers, suppliers, distributors, service providers and partners in the global solar industry.
This is a billion dollar market in Brazil
April, 27th 2016, by Bruno Belfort
The Distributed Generation policy will create a billion dollar market for solar PV in Brazil. The decentralized photovoltaic installations provide a unique opportunity for Brazilian families and businesses to significantly reduce their energy bill. A study1 by Brazilian energy authorities foresees an installed capacity of 0,8-1,3 GW in 2023 for the net-metering market. Considering current international average prices for PV installation, this translates into an investment of U$1,04 -1,56 billion in the coming years. This article evaluates three factors that reassure the study’s prediction.
High Electricity Prices
Brazilian residential customers are restricted to purchase electricity from the local distributor. One of the main characteristics of an electricity market is that consumers’ behaviour is almost completely insensitive to price changes. As there is no competition within retail electricity market like in Germany or UK, solar provides a distinctive prospect for consumers to save money on the electricity bill. According to a last year research project2, Brazilians paid a relatively intermediary energy price in international comparison in 2013. However, the same study estimated that in 2015, average residential prices of 26,7U$/KWh and industrial prices of 20,8U$/KWh would make Brazilian electricity one of the most expensive in international comparison. High electricity prices play in favour of solar PV.
The Resolução 482 and its update REN 687 establish the possibility for end consumers to save money on the electricity bill by investing in photovoltaic, wind or hydropower. Since the regulation was published, more than 1200 photovoltaic systems have been installed across the country and a local industry began to be developed. Additionally, the utility-scale projects are another strong driver to the creation of the local solar industry by enabling the construction of 2,6 GW of solar projects to be constructed until 2018. International component suppliers are entering the market and Brazilian developers and engineers are learning the solar trade. This nurtures the local knowhow of installing, operating and maintaining PV systems. It supports more competitive pricing. Also current fiscal incentives contribute to a shorter return of the investment.
The Community Solar
A recent update of the regulation (REN 687) enables the establishment of consortium. This generates another exceptional opportunity for consumers to drastically reduce the energy bill. Prior to the update, it would have been difficult for someone living in an apartment to take advantage of photovoltaic energy, but with the consortium regulation, people living in an apartment can jointly invest in a consortium owned system to reduce their electricity bill. Although it requires more administrative work, such a system has the advantage of higher system performance as it can be installed in an area with optimal conditions, i.e.: inclination of modules or even tracking, usage of areas with better solar radiation and lower shadowing risk. This might be an opportunity for international solar community entrepreneurs to globalise their operations.
I believe that these three factors will move the current solar market from early adopters to the masses, at least on social classes A & B. Naturally there are barriers and pitfalls, with expensive financing being a major one. But these are topics for another article. The current framework enables a bit more competition in the electricity retail market and consumers can only benefit from it.
1 MME/EPE, 2014. Nota Técnica DEA 19/14– Inserção da Geração Fotovoltaica Distribuída no Brasil – Condicionantes e Impactos. Brasília: MME/EPE.
2 DE CASTRO, N et al., 2015. As Tarifas de Energia Elétrica no Brasil: O Porque das diferenças?_Campinas: CPFL
Financing Solar in Brazil - The chicken and egg problem of domestic module manufacturing
March 17th 2016, by Daria Langenberger
Brazilian utility scale solar projects that secured their PPAs in the first and second reserve energy tender (COD November and August 2017 respectively) are currently facing significant challenges. The November projects auctioned in 2014 have PPA prices around 215R$/MWh + annual inflation indexation. This aggressive rate was feasible when the Brazilian Real exchange rate was a bit above 2R$ per US$, but achieving attractive returns these days has become extremely difficult.
On top of that, financing in connection with equipment availability is a major concern for all 2017 projects.
BNDES is the one and only viable option for financing solar projects in domestic currency. BNDES generally released the funds with significant delay, requiring bridge or extended construction finance. It also entails local content requirements. However, so far, the required local content for achieving a reasonable leverage is not available. This is mainly because there is still not enough local module manufacturing capacity able to deliver utility scale quantities. Manufacturers are waiting for signed contracts in order to start ramping up assembly lines. On the other hand, IPPs and EPCs expect seeing evidence that factories are set up to assure timely delivery before committing. From each individual standpoint, the behaviour makes sense, but the industry seems to be trapped in a situation similar to the chicken and egg problem.
Debt financing in a foreign currency (mainly US$) is the alternative to circumvent the local content restrictions. Nevertheless, the hedging of currency risks adds significant cost. On top of that, timing is most likely going to be extremely tight for the very first solar project finance transactions in Brazil managed by foreign lenders.
Can COD dates be postponed for the projects? Shall BNDES ease local content requirements in the first year (and is there even a slight chance they would)?
What is your opinion? Let us know what you think!
Solar Energy in Brazil- Poised to stay
February 25th 2016, by Daria Langenberger
For several years now, Brazil has been one of the “promising global PV markets” expected to take off, but little actually happened. In Latin America, small countries like Honduras installed significantly more MWs than Brazil during recent years. Finally, the way is paved and growth of the Brazilian PV market is on the horizon.
In this article, we will provide a general introduction to the Brazilian solar market and in consecutive posts we will focus on specific segments and topics, including utility scale market (tenders), distributed generation, local manufacturing initiatives, and many others.
The Brazilian energy sector has given green light for solar energy. Diversification of the energy matrix is needed to decrease dependency on hydropower in the shortest possible timeframe. In combination with decreasing LCOE for photovoltaic energy, the diversification opened the door for the Reserve Energy Tenders (Leilão de Energia de Reserva), which assign specific capacities for Photovoltaic Energy. The government targets 7GW of installed capacity by 2024 for the regulated utility scale sector, excluding freely negotiated bilateral agreements and distributed generation. This is an average of 1GW per year starting in 2017, when the projects of the first two auctions connect to the grid. The numbers translate to one tender of around 1GW per year. Nevertheless, the solar association ABSOLAR is optimistic that two tenders, similar to the year 2015, will be executed to encourage continuous investment in local manufacturing. Residential, commercial and also industrial consumers can take advantage of net metering for projects up to 5MW. Additionally, the “free market” allows bilateral agreements between IPPs and private offtakers. For distributed generation, the government launched the Development Program for Distributed Generation (ProDG) with the objective to add around 23.5GW of distributed energy systems in the residential, commercial, industrial and agricultural segment until 2030.
The high cost of capital in Brazil, the current political crisis causing significant economic impact, high interest rates and the devaluation of the local currency (Brazilian Real) are the main challenges for market players interested in investing and participating in this long-term growth market.
Brazil is among the top 10 largest global economies, and the fifth largest country in the world, by land mass and population. Its offshore oil reserves include the Western Hemisphere’s biggest discovery since 1976. It has the second-largest iron ore reserves, is the second-largest producer of soybeans and third largest of corn. With a very large middle class base, it is one of the world’s most important markets for global industries. The country has shown a high resilience to global economic turbulences in the last two decades, such as the Mexican crisis (1994-1995), East Asia crisis (1997-1998), Russia crisis (1998-1999), the crisis of the "dot-com" since the early 2000s and, finally, the global recession since 2008.
As the current economic situation is mostly of political nature - the sector is optimistic that within a medium term perspective, the difficulties can be overcome, and solar energy will continue to be one of the must-haves of Brazil's energetic portfolio, representing/constituting a reliable long-term investment.
To Go or Not to Go, That Is the Question
A closer look at the Brazilian PV market
December 15th 2014, by Daria Langenberger
Throughout the past months, the Brazilian photovoltaic market has made the news after executing a Utility Scale Energy Tender (Leilão de Energía de Reserva, LER), for the first time with special conditions for photovoltaic energy. Around 900MW of PV plants have been awarded with long term PPAs at very competitive prices between 200 - 220RR$/MWh. The interconnection deadline is October 2017.
The “kick-off” of the Brazilian PV market has been expected since 2011 when rumors of a special PV tender started to attract the attention among companies of the industry. At the same time ANEEL (Brazilian Electricity Regulatory Agency) was developing guidelines to determine the distributed generation scheme, which was published in 2012 (REN 482/2012). However, up to this day, the installed capacity ranges at approximately 50MW - very moderate for a country with an attractive legal framework and excellent natural conditions for solar energy.
Solar companies, who have not made the decision yet whether to enter the Brazilian market, are facing the following questions:
What can we expect from this market in upcoming years? Is Brazil an interesting market for my company? How could we structure a market entry?
To go or not to go?
Let’s have a closer look!
Utility Scale Tenders- Regulated Market Environment
Even though the capacity of 900MW (AC) is the maximum we could have expected from this tender, it only represents an annual market size of 300MW for the upcoming three years on average. Subsequent reverse auctions of this kind will be happening in the future, increasing the size of the market and representing opportunities for companies who were not successful in the first auction. The next one has been announced for the first semester of 2015.
Until 2023, we can expect the regulated market to offer PPAs for at least 3.5GW, the official target for solar energy, equating to an average annual market size of 500MW between 2017 and 2023. These are fairly low capacities compared to other emerging “solar economies”. But with a proven business model from other energy sources and long term PPAs, it still represents a very interesting opportunity for investors, EPC companies and component suppliers.
The utility scale projects on the regulated market are intended to be the trigger for the development of a local PV industry, including modules and BOS, since the financing criteria from Brazil’s National Development Bank BNDES define national content requirements of a minimum of 60%. Surely, this adds some complexity to entering the market as a supplier, since simple export may not be a viable option for projects financed with BNDES credit lines.
Nevertheless, there are other market segments which may represent even more attractive business opportunities.
Net metering regulation for decentralized generation (projects up to 1MW) is in force since 2012. While growth has been moderate in the past, companies active in this segment have noticed an increase in demand over the last few months. The high and constantly rising levels of energy prices combined with decreasing system costs are enhancing economic viability of the investments. Fiscal issues related to the net metering, and reduced economic profitability due to high interest financing options are some of the remaining hurdles that need to be tackled.
So far this market segment consists of residential and commercial customers, regulated by the net-metering framework. Anyhow, industry and other large energy consumers are starting to consider PV as a real option for complementary electricity supply in combination with free market contracts and other energy sources.
Once the financing challenge is overcome, for example through innovative sales strategies and business models, the growth potential of this market segment is unlimited.
Entering the Brazilian market
To be realistic, it can’t be ignored that Brazil is not the easiest market to work in. Its geographical dimensions are vast and the complexity of regulations are intimidating. Complex bureaucracy may result in delays and increase in cost for establishing and maintaining local operations.
On the other hand, we are looking at one of the world’s largest economies with a strong industry base and highly qualified professionals. Its solar potential is tremendous. Energy price levels are high and the need for significant increase of electricity generation capacity supports the growth of the market for PV systems. Altogether, great conditions to become one of the biggest solar markets worldwide in the medium term.
In a market as complex as the Brazilian, collaboration is key. Identifying the right partner can be challenging, but once in place, partnerships of any kind (Mergers, JV, Representation, OEM production, etc.) offer a wide range of advantages for both sides. Companies from abroad benefit from the shorter local business implementation time, local know-how, experience and networks, and can avoid intercultural hurdles. Local companies in return take advantage of long lasting international PV experience and references, international funding, as well as potential price reductions through economies of scale.
Each company is a case of its own, but for most players, being it manufacturers of components, system providers for distributed generation, EPC companies, companies focused on O&M products and services or IPPs, it’s worthwhile considering Brazil for the medium and long-term growth strategy.
“To go” might be the right answer for your company!
Nota Técnica DEA 19/14– Inserção da Geração Fotovoltaica Distribuída no Brasil
Câmara de Comércia de Energia Elétrica CCEE
ANEEL REN 482/2012
Plano Decenal de Expansão de Energia 2023 (PDE 2023), MME, www.mme.gov.br
Successful First Utility Scale Solar Tender in Brazil
November 6th 2014, by Daria Langenberger
Last Friday, São Paulo hosted the first Brazilian solar energy auction within the framework of the sixth reserve energy tender of the regulated electricity market. Power plants with a combined AC capacity of 890MW have been awarded with 20-year power purchase agreements. The tender was set up with the goal to kick-off the utility scale development of solar power plants in the Brazilian market. There is a strong focus on attracting industry investments, supported by the financing rules of BNDES, requiring a minimum of national content equipment for FINAME financing.
The tender has been highly competitive. Over 10GW of projects had registered for the auction, the bidding process took over 8 hours and the initial cap of 262R$/MWh has been reduced by 17.89%, on average. The lowest bid of 200,82R$/MWh was submitted by the Spanish IPP Fotowatio.
Nine different groups have been awarded with Power Purchase Contracts. The biggest share was secured by the Spanish construction group ACS (Cobra, Dragados), securing 270MW in the state of São Paulo in consortium with the developer Solatio.
Overall the 890MW have been awarded as follows:
According to the published tender results, the investment per MWAC varies between 4.179.067R$/MW and 5.221.200 R$/MW and the capacity factors of the plants range between 18% and 28%, an indication for plans to use tracking systems in some of the plants.