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Description
Brazil has the largest economy in Latin America, with a GDP of $1.73bn in 2014, and has the largest power market in the region, with a total installed capacity of 139GW. The country’s size, resources and conducive policies for clean energy have made Brazil the main renewable energy market in Latin America and one of the top 10 in the world. In the country, wind projects have reached grid parity with conventional sources and have become one of the main sources of new capacity. Brazil is also the second largest ethanol producer worldwide, although the sector has struggled in recent years due to gasoline price controls and weak sugar-cane crops.
As the country battles through a macroeconomic crisis, the clean energy sector has started to feel the impact. Demand for clean energy projects will continue to be strong, but costs are increasing and financing a project is more difficult.
Drought Forces Diversification
Brazil’s matrix is very much reliant on hydropower. In the past five years, roughly 75-80% of the country’s generation came from hydro plants. This overreliance on one source, albeit renewable, came at a high cost for the country in the last year. A prolonged drought put Brazil’s water supply and energy matrix into stress, exposing the market to costly generation from fossil-fueled thermal plants. In the regulated market, utilities struggled to meet power demand and accumulated losses that were later passed to consumers in the form of higher electricity bills. In the wholesale market, where the impact of the energy crisis was felt more immediately, prices increased. Average spot prices in 2014 reached BRL 642/MWh ($273/MWh), up 146% compared to the average in 2013.
Two lessons came out from the hydro crisis: the need for diversification and the importance of distributed generation. Auctions and net metering will continue to be crucial policies to develop Brazil’s power sector. Further incentives to encourage small-scale renewable systems are expected, as high costs and constrained access to finance slow mass-deployment of PV systems, in spite of higher electricity prices.
A Renewable Matrix
While the overall energy grid struggled, Brazil’s clean energy sector thrived. The year 2014 saw a record number renewable energy installations and contracts, and levels of investment bounced back compared to 2013.
In 2014, a total of 5.2GW of new clean energy (excluding large hydro) capacity came online. Out of this, 2.9GW came from wind projects, including 1GW of projects that were delayed due to transmission issues.
By the end of 2014, wind had a total of 5GW installed capacity, and biomass and small hydro had 13.2GW and 6.1GW, respectively. When adding large hydro to the mix, 80% of the country’s generation capacity came from renewables. Given the drought, and the necessity to add new capacity, the government contracted a total of 4GW of biomass, solar, small hydro and wind projects through auctions. This was particularly important for the solar sector, which was included for the first time in the country’s federal-level tenders. Solar took 1GW of contracts in 2014, at average prices of $87/MWh, at the time of the auction. The recent devaluation of the Brazilian real has pushed this price down to $56/MWh as of October 2015, putting them among the cheapest contracts for solar power in the world.
Brazil has established an ethanol blending mandate of 27.5% of the fuel with gasoline. There also is a 7% mandatory blend of biodiesel with diesel. Brazil’s biofuel market has struggled in the past years, and it will be difficult for it to revive the glory that it experienced in the early 2000s.
Investment Scenario
After low investment levels in 2013, when the country only attracted $3.1bn of asset finance for new renewable energy projects, a total of $6.4bn in equivalent investment was committed in Brazil in 2014. The bulk of it $5bn, went to wind projects. Brazil’s national development bank, Banco Nacional de Desenvolvimento Econômico e Social (BNDES), continues to be the main source of financing. New financing structures have started to emerge, driven by Brazil’s macroeconomic crisis and opportunities in the clean energy space. Debentures, a type of bond, have been more commonly included in clean energy project financings. The yieldco phenomenon has also reached the country, through acquisitions in early 2015. However, opportunities for financing from foreign banks continue to be limited, as contracts firmed in local currency and the real devaluation do not favor loans in dollars.
Clean Energy Manufacturing
Overall, Brazil has broad manufacturing capacity for clean energy sources, with the exception of geothermal. Brazil’s local-content rules have driven a manufacturing buildup of the wind sector in the country. Today, it counts seven wind manufacturers producing towers to blades locally. The sector struggled in 2014 with a shortage of equipment, as local producers of secondary components such as bearings did not keep pace with demand. Moving forward, Brazil is applying a local content road map for solar equipment, which aims to have in-country cell manufacturing by 2020.
Carbon policy
Given the development level of Brazil’s economy and the presence of multinational corporations, the country hosts at least 100 companies that have adopted either energy efficiency or emission reduction measures. It added 14 carbon offset projects, taking its total to 423, the majority of which are in the power sector. Brazil’s government has announced a target of a 37% CO2 emissions reductions by 2025.
Score Summary
Brazil in 2015 once again scored second place overall in Global Climatescope and was tops among all Americas nations in the survey. Brazil’s overall 2015 score of 2.12 compares with its 2014 score of 2.17. Brazil maintained its second-place finish despite falling from first to third on Parameter I. It showed notable improvement on the Growth Rate of Clean Energy Investments indicator of Parameter II.
On Enabling Framework Parameter I, Brazil’s two-position slide was quantified by a 1.98 2015 score versus 2.14 in 2014. On Clean Energy Investment and Climate Financing Parameter II, Brazil advanced 10 levels in 2015 to 17th. Its Parameter II scores were 0.69 in 2015 and 0.57 in 2014.
On Low-Carbon Business & Clean Energy Value Chains Parameter III, Brazil in 2015 matched its second-place finish of 2014. Its scores were 4.35 and 4.41 in 2015 and 2014, respectively.
The Americas standard-bearer also stayed even with its second-position finish on Greenhouse Gas Management Activities Parameter IV. Its 2015 score of 3.13 was little changed from 2014’s 3.24.
Performance
- Overall Rank
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- Regional Rank
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- Score
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