Brazil's booming wind sector faces auction test
Aug 17, 2011, 9:42 a.m.
By Brian Ellsworth
RIO DE JANEIRO (Reuters) - Brazil's blustery coastlines and booming electricity demand have spurred a wind-power gold rush as investors flock to build turbines and set up wind farms.
Yet, as wind projects slowly shed government protection to compete head-to-head with traditionally cheaper fossil fuel energy, government power auctions this week may reveal whether the wind-power investment euphoria is overblown.
Developers of natural gas power plants, biomass thermoelectric plants and wind farms will compete in an auction on Wednesday to offer the lowest prices for the electricity their facilities will sell in the coming years. A second auction on Thursday will not include natural gas projects.
The results will show whether Brazil's wind industry can continue lowering generation costs, a trend that has spurred investment in wind farms and equipment factories -- and could help diversify Brazil's hydro-dependent energy system.
A strong showing by natural gas projects may validate some skeptics' claims that the wind boom has gotten ahead of itself, possibly cooling investor interest or requiring new government efforts to support the industry.
Government leaders, excited to promote an alternative to hydro-power, say tumbling wind costs are a sign Brazil has helped the industry evolve from an environmentalist dream into a competitive money-maker.
"Before you had a situation in which wind power always needed someone holding its hand, or to have the government behind it -- now wind power is strong enough that it can scare the big players," said Mauricio Tolmasquim, head of the government-run energy research group EPE.
Wind power accounts for 240 of the 321 projects participating in the auctions and more than 40 percent of the 14,083 megawatts in generating capacity on offer.
Brazil's current 1,400 megawatts of installed wind power represents only around 1 percent of its total capacity.
Wind power is still roughly double the cost of power produced by the large hydroelectric dams that provide most of the country's electricity.
Nonetheless, it is slated to grow almost eight-fold between 2010 and 2014 to reach 4.2 percent, according to wind energy association ABEeolica.
EPE expects Brazil's total power consumption to rise 60 percent between 2010 and 2020, reflecting Brazil's brisk economic growth and expansion of its middle class.
ABEeolica expects 25 billion reais ($15.7 billion) in wind investments between 2009 and the end of 2013.
Wind power has gained traction around the world in the past decade as concerns about greenhouse gas emissions spur greater interest in alternative energy. Brazil created an incentive program in 2004 that offered to buy wind power at higher rates than other types of generation.
By 2010, thanks to new technology, tax breaks, and more local manufacturing of turbines, wind farms were offering to sell power at prices 50 percent lower than the average price during the period of government incentives.
Spain's Gamesa and France's Alstom have invested in manufacturing facilities to build wind equipment in Brazil, while General Electric and India's Suzlon Energy are studying similar projects.
Brazil has natural advantages for wind energy, including windy coasts in the northeast and the south. Its many dams can make up for the variability of wind generation -- a major problem for wind projects in the United States and elsewhere.
But Adriano Pires, an energy expert with the Brazilian Center for Infrastructure said the government has spurred excessive optimism about wind power, leading project developers to promise power rates that they may not be able to deliver.
"Brazil has a history of euphoria when it comes to power generation," he said. "Right now wind power is the darling of the government, but that doesn't mean it's going to be sustainable in the long run."
(Editing by Alden Bentley)