Brazil – Renewable energies – General overview and perspectives

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In a nutshell:
With its territory spanning several climate zones and the associated exceptional natural features, Brazil is considered a hydrothermal system and thus unique in the world. This offers not only optimal conditions for hydroelectric power plants but also great potential and suitable areas for very diverse renewable energy projects.

 

According to the information from the Secretariat of Energy Planning and Development of the Ministry of Mines and Energy (MME), about 80% of Brazil‘s electricity demand was covered by renewable energies in 2016. Thus, the share of renewable energies increased by five percent compared to the previous year (2015: 75.5%). The share of different energy sources is as follows: 65.0% hydro power; 8.7% biomass; 6.5% wind power and 0.01% solar power.1

 

In 2003, the Brazilian federal laws no. 10.847/2004 und 10.848/2004 introduced a relatively stable regulatory framework for the energy sector. The framework is based on a number of basic principles and intends to bring the state planning into line with the market-oriented competition and to create a friendly environment for private investment. All this is because the sector was entirely controlled by the state until the end of the 20th century.

Investments, whether made as part of auctions or in form of independent power generation, are open to national and international legal entities and investment fund companies, either individually or jointly through consortium agreements. In order to obtain a power plant authorisation and sign the Power Purchase Agreement, foreign entities (as well as investment fund companies, if awarded a contract) must establish a special purpose vehicle (SPV).


In order to be allowed to generate electricity in Brazil, certain financial and technical requirements must be met. Bidders and companies must prove that they have the capacity required for carrying out the planned project. Legal entities must reach certain thresholds, including without limitation

 

  • liquidity ratios and minimum net equity requirements;
  • bid bonds in order to participate in the bidding procedure;
  • a guarantee that the obligations will be fulfilled at the time the authorisation is granted and
  • a presentation of all main features of the power plant during the registration phase, and indication of a professional in charge of the project implementation and the operational and construction planning in line with requirements arising from the bid.

 

According to the 10-year plan for energy expansion for the period 2014–20242, prepared by the Brazilian Renewable Energy Research Agency (EPE), renewable energy sources, such as wind, solar, small hydro, and biomass, are expected to increase at an average rate of 10% p.a. This would result in an estimated 35 GW of added capacity, in addition to the already installed capacity.

 

In addition, according to the plan, the percentage share of biomass, small hydro, wind and solar power is expected to grow between 2018 and 2024 from approx. 20% to approx. 30% of the power generation capacity in the wide area synchronous grid.


In addition to hydro power, wind and solar are the two main renewable energy sources in Brazil. Till 2024, the Brazilian government expects that an installed capacity of up to 24 GW will be added from wind power and 7 GW from solar power. Considering not only the last auction in 2015 in which 1.5 GW of solar power generation contracts were awarded but also the solar radiation potential, the solar industry has considerable
growth potential. Currently, over one thousand enterprises from
different sectors and countries are operating on the Brazilian solar energy market.


As far as the wind power sector is concerned, Brazil has the greatest installed wind power capacity in Latin America and the world’s best conditions for the use of wind power. Thanks to an additional 9GW in wind power generation contracts to be concluded in the near future and more than one thousand market players operating in a very fragmented market, opportunities in new business fields will arise and it can be also assumed that demand in the M&A market will increase.


The third largest energy source in Brazil is biomass. Due to large
resources of sugar cane and forest residues, Brazil boasts an installed
capacity of 14GW in biomass power plants, with currently 500 power plants being in operation.

 

Despite the recent economic downturn and the political crisis in Brazil, the country is – with the GDP of about $2 trillion and a population of over 200 million – Latin America‘s largest economy and by far the most important trading partner and investment location in the region for Germany. Given its competitive and stable regulatory environment and the increasing power capacities to be added in the future, Brazil offers excellent business opportunities for renewable energies and for investments in wind, solar, small hydro and biomass.


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