Brazil - From auctions to decentralized RE
by Marcelo Vasconcellos, Brazil (PPRE 2006-08)
Ever since Brazil launched the first auction-type Renewable Energy Programme (Proinfa) in the beginning of the 21st century, I had a feeling this was not the right approach to target solid and continuous internal industrial RE growth. The program may be understood as a response to the energy blackouts the country suffered in the years 2001 and 2002, due to severe droughts which led to and miserable take-or-pay Bolivian gas contracts on to cover shortages. The bill is still being paid by end consumers.
Brazil has a long-term history of success on RE, especially through its massive hydro-electricity production and the world’s most important case on the biofuel industry. During the second half of the 20th century, the country set huge infrastructure projects, constructed several big hydro power plants including transmission lines and put forward an extensive ethanol programme (Pró-Álcool) to face the world oil crisis during the 70’s.
At that time, non-democratic paternalistic regimes were main stream in Latin countries and Brazil was not an exception to it. The government was fuelled by propaganda and it would take part in all stages of energy programmes: conception, legislation, implementation and operation. Environmental impact was nothing but a hurdle to the desired progress, an empty word only spoken by dreamers and futurists like the Club of Rome.
Fortunately humans change, unfortunately in generations’ time frame, not years. The Rio 92 climate convention was a global breakthrough which eventually brought environmental protection and RE as a priority point into the main global agenda.
After one generation, the global balance is positive. Although most of the promises have not become actions, we have moved forward. The lack of environmental commitment of ephemeral governments should not shade the fact our children learn to recycle, speak of environmental protection and find it normal to harvest wind for energy. We certainly live in a different world today.
During the last generation of world change, Brazil missed the opportunity to reshape its renewable energy industry. Instead of focusing on steady internal growth with a proactive legislation towards renewable energies for small and medium sized companies, mixing public incentives and private money, the country chose to follow the path of unsteady RE auctions under the wings of the Brazilian National Development Bank – BNDS.
I must admit that small-hydro is a reality in Brazil and the vast majority of the sugar and ethanol plants export energy to the grid. Wind energy has become a reality and it is competitive, after long delays especially in the first five years of programme. Biogas found its own niche, although still not playing an important role in the electricity grid and solar PV is on the rise for the last five years.
Supporters of the auction models defend it is the best and fairest way to get competitive energy. That is only half of the truth as not everything that glitters is gold. After fifteen years of auctions, the internal industry development is far from what it could have been. Unlike China and India, not a single Brazilian big wind or solar manufacturer has emerged to compete internationally. The industry struggles to understand the unsteady rhythm of auctions. Due to the economic and political turmoil in Brazil in the past few years, BNDS was less eager to finance, electricity consumption decreased in 2014 and 2015 as with a devaluated currency, projects were called back and two PV auctions were cancelled in 2016 killing hundreds of developers and small companies who once hoped to take part in a clean energy production auction. A couple of international solar panel manufacturers which went to Brazil, are struggling with a low and more important unsteady demand. I was one of those whose hope was torn apart after one-year dedication in the auction model. Only those companies which have enough muscles can withstand oscillating politics and an uncertain auction model.
As a response to the market needs and to the RE industry, a law has been passed in 2015 to support decentralized generation in Brazil for projects up to 5 MW. The law contemplates self-produced electricity which can be generated in a single geographic location and consumed in multiple points distributed under the same utility grid. Credits are generated with electricity surplus, which can be used in future years without taxation, which was a big burden for decentralized generation. Finally Brazil found a model which can benefit small and medium enterprises and drive a steady natural RE growth with less governmental moody interventions.
Along with two friends of mine, the company Solarcon () was born, which focus on bringing cheap decentralized energy produced PV electricity to end consumers. A PV project in a location with high solar radiation is selected. Land use, permits and basic engineering are set in place. A financer is found and as soon as a pool of consumers is formed, the EPC is contracted. The energy is produced in places with optimum climate conditions and consumed in different locations off-setting a high electricity price, making the model very attractive for all sides. Solarcon manages all parts, the financer, the EPC contractor, the end-consumers, the utility company and the contracts. We are open to work with international investors keen to own RE assets in Brazil.