Brazil’s Solar Industry is Making a Big Bet
The solar industry is making a big push for Brazil to be the next big market but it’s still not clear if they can pull it off. In early 2015 the company I work for, Vaisala, opened a local office in Brazil to support the growing renewable energy market with measurement equipment and consulting services crucial for accurate wind and solar energy assessment and forecasting. At the end of August I travelled to Brazil to see first hand how the market is developing and to meet local developers trying to get their projects off the ground. I also had the opportunity to attend Intersolar South America, which included many of the international players as well.
The market is moving fast and shows a lot of promise, but does face some big macroeconomic challenges. In the last two years the solar industry in Brazil has gone from almost no installations to 2,000MW of PV projects that have successfully navigated the Brazil energy auction process. The process gives a company the ability to connect to the grid, a secure power purchase agreement and access to state-backed financing. This last item is critical at this time due to the effects of inflation on the cost of debt.
The last round of auctions saw over 20GW of solar projects bidding to be included from a variety of local and international players. For color, the established wind industry only put forward 18GW of projects for consideration in the same auction – a fairly modest number given their much larger average size. Vaisala’s role in the auctions is supporting our clients with the solar and wind energy estimates that they must submit with their projects and we can confirm from our own experience a recent and significant uptick in the number of solar submittals.
Two-thirds of the projects registered for auction were located in the northeast portion of the country. The Vaisala solar resource dataset suggests this area has an available solar resource that rivals the Southwest United States. This also happens to be where many wind farms are located and local developers are familiar with building in the area. In fact many of the companies I spoke to while in Brazil were looking into hybrid solar and wind facilities in the near future, which I think is an exciting area of development.
The first projects, awarded in 2014, need to be online by the end of 2017 and the projects awarded on 7 September need to be online by the end of 2018. The sites and equipment have been chosen, financing sourced and a lot of the pre-construction work is completed. However, delays are happening in sourcing said equipment. In a country with an established supply chain and work force these deadlines would be ambitious but feasible. In Brazil neither exists at this time.
Local content rules make it difficult for developers to import panels and receive state financing and increasing inflation makes it difficult to do so at a competitive price. On 1 September the first local solar panel manufacturer opened, Globo Brazil, but with a 180MW annual capacity it clearly won’t be the only player in the market. Some auction winners, like Enel, have said they will source a mix of local and imported content for their winning projects.
SunEdison, with its local arm, Renova, and Canadian Solar were both big winners in the auctions and both made announcements at Intersolar South America that they would be building local manufacturing facilities. It feels ambitious to say the least to build a manufacturing facility and have equipment from said facility operational between now and 2017, but if anyone can do it these companies can.
Who will be doing the installation is a different question. At one of the educational sessions at Intersolar South America it was suggested that the industry would need 6,000 trained solar workers just to install the projects awarded in 2014 in time and more will be needed when you include the projects just awarded. There are no shortages of smart people looking for work locally, but there is certainly a shortage of trainers as there is with any new industry entering a market. Most of the companies I spoke with intended to bring in experienced employees from outside to train a local workforce.
The Brazil market has a lot going for it: knowledgeable project developers, a politically favorable environment, available financing and a great resource. The locals have some cynicism when it comes to politics, but they are as enthusiastic about the solar market as anyone I’ve encountered. I believe they can create the conditions for success around equipment availability and a trained workforce, but it is going to come down to the wire on whether they can do it in time to meet their aggressive project deadlines.
I imagine this sounds quite familiar to those trying to beat the looming investment tax credit deadline in the United States or those who have experienced the same in various European countries over the years. Given the successful track record against similar circumstances in other markets, I imagine we’ll be looking back three years from now and wondering what all the worry was about. For those of you thinking about entering the Brazilian market, I say, do it!