Is Brazil game for wind?

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Richard Heap
August 1, 2016
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This content is from our archive. Some formatting or links may be broken.
Is Brazil game for wind?

Troubled economy. Political turmoil. Regional instability.

No, we are not talking about Brexit and ongoing uncertainty about the type of relationship that the UK will seek with other countries in Europe. We are talking about Brazil, which is set to gain the world’s attention this month as the Olympic Games start in Rio de Janeiro. This is with a backdrop of deepening recession, political crisis and the Zika outbreak.

And amid all of these problems the wind sector is suffering too. Brazil has been grappling with the problem of too much electricity in the system following five quarters of economic contraction and high electricity prices, both of which have hit demand from businesses and consumers. It is a big change for a country whose system nearly collapsed after droughts. Now power companies are producing about 10% more electricity than Brazil needs.

The upshot of this electricity oversupply is that there is little desire from the government to build new wind farms. The Brazilian government has not awarded tenders for any projects in the first half of 2016, and it is only planning to hold one wind and solar auction this year. The prospects for investors, developers and others to get into the market are limited.

This is not simply a problem with oversupply. In April, the country’s pro-wind energy minister Eduardo Braga quit as it became obvious that president Dilma Rousseff would be forced to fight impeachment proceedings. Braga’s interim replacement Fernando Filho has said that Brazil is only going to hold one auction for new wind and solar capacity in 2016, which is one fewer than expected.

The combination of political uncertainty and electricity oversupply does not bode well for those in the wind energy supply chain. In fact, it bears out something we wrote — and got a little bit of flak for — in the run-up to last September’s Brazil Windpower conference. The country had just entered recession and we warned that it could force the country to turn its back on wind. ‘Nonsense,’ we were told, but now the prospect seems all too real.

Companies are clearly worried. Jérôme Pécresse, president and chief executive of GE Renewable Energy, does not seem like a man given to brash overstatement, but he has warned that the slowdown in Brazil’s economy means that the supply chain is at risk of collapsing because of the lack of new projects. He also told Bloomberg that some firms have been defaulting on their electricity bills and that financing for the sector is drying up.

“We are very worried about the prospects for the wind market in Brazil,” he said. If there are no new projects tendered then that means no work for developers, manufacturers or those throughout the supply chain. It is a particular problem for manufacturers, who face being saddled with factories that are either being under-used or not used at all.

Developers and investors in the wind sector are pinning their hopes on a 500MW wind and solar auction. It was due in October and last week was put back until December 16. But there is still a place for wind. The government’s response to the hydro sector’s drought crisis was to invest in very expensive thermal power plants to fill the supply gap that existed then, and wind farms can still play a role in cutting the cost of energy for businesses and individuals.

There is an argument there for the government extending support for wind, though we wonder whether it will want to do this when it has many other problems to tackle. If it does then companies in the supply chain in Brazil can relax a little for now.

And if it doesn’t? Best jump on a flight to Argentina or Mexico.

Troubled economy. Political turmoil. Regional instability.

No, we are not talking about Brexit and ongoing uncertainty about the type of relationship that the UK will seek with other countries in Europe. We are talking about Brazil, which is set to gain the world’s attention this month as the Olympic Games start in Rio de Janeiro. This is with a backdrop of deepening recession, political crisis and the Zika outbreak.

And amid all of these problems the wind sector is suffering too. Brazil has been grappling with the problem of too much electricity in the system following five quarters of economic contraction and high electricity prices, both of which have hit demand from businesses and consumers. It is a big change for a country whose system nearly collapsed after droughts. Now power companies are producing about 10% more electricity than Brazil needs.

The upshot of this electricity oversupply is that there is little desire from the government to build new wind farms. The Brazilian government has not awarded tenders for any projects in the first half of 2016, and it is only planning to hold one wind and solar auction this year. The prospects for investors, developers and others to get into the market are limited.

This is not simply a problem with oversupply. In April, the country’s pro-wind energy minister Eduardo Braga quit as it became obvious that president Dilma Rousseff would be forced to fight impeachment proceedings. Braga’s interim replacement Fernando Filho has said that Brazil is only going to hold one auction for new wind and solar capacity in 2016, which is one fewer than expected.

The combination of political uncertainty and electricity oversupply does not bode well for those in the wind energy supply chain. In fact, it bears out something we wrote — and got a little bit of flak for — in the run-up to last September’s Brazil Windpower conference. The country had just entered recession and we warned that it could force the country to turn its back on wind. ‘Nonsense,’ we were told, but now the prospect seems all too real.

Companies are clearly worried. Jérôme Pécresse, president and chief executive of GE Renewable Energy, does not seem like a man given to brash overstatement, but he has warned that the slowdown in Brazil’s economy means that the supply chain is at risk of collapsing because of the lack of new projects. He also told Bloomberg that some firms have been defaulting on their electricity bills and that financing for the sector is drying up.

“We are very worried about the prospects for the wind market in Brazil,” he said. If there are no new projects tendered then that means no work for developers, manufacturers or those throughout the supply chain. It is a particular problem for manufacturers, who face being saddled with factories that are either being under-used or not used at all.

Developers and investors in the wind sector are pinning their hopes on a 500MW wind and solar auction. It was due in October and last week was put back until December 16. But there is still a place for wind. The government’s response to the hydro sector’s drought crisis was to invest in very expensive thermal power plants to fill the supply gap that existed then, and wind farms can still play a role in cutting the cost of energy for businesses and individuals.

There is an argument there for the government extending support for wind, though we wonder whether it will want to do this when it has many other problems to tackle. If it does then companies in the supply chain in Brazil can relax a little for now.

And if it doesn’t? Best jump on a flight to Argentina or Mexico.

Troubled economy. Political turmoil. Regional instability.

No, we are not talking about Brexit and ongoing uncertainty about the type of relationship that the UK will seek with other countries in Europe. We are talking about Brazil, which is set to gain the world’s attention this month as the Olympic Games start in Rio de Janeiro. This is with a backdrop of deepening recession, political crisis and the Zika outbreak.

And amid all of these problems the wind sector is suffering too. Brazil has been grappling with the problem of too much electricity in the system following five quarters of economic contraction and high electricity prices, both of which have hit demand from businesses and consumers. It is a big change for a country whose system nearly collapsed after droughts. Now power companies are producing about 10% more electricity than Brazil needs.

The upshot of this electricity oversupply is that there is little desire from the government to build new wind farms. The Brazilian government has not awarded tenders for any projects in the first half of 2016, and it is only planning to hold one wind and solar auction this year. The prospects for investors, developers and others to get into the market are limited.

This is not simply a problem with oversupply. In April, the country’s pro-wind energy minister Eduardo Braga quit as it became obvious that president Dilma Rousseff would be forced to fight impeachment proceedings. Braga’s interim replacement Fernando Filho has said that Brazil is only going to hold one auction for new wind and solar capacity in 2016, which is one fewer than expected.

The combination of political uncertainty and electricity oversupply does not bode well for those in the wind energy supply chain. In fact, it bears out something we wrote — and got a little bit of flak for — in the run-up to last September’s Brazil Windpower conference. The country had just entered recession and we warned that it could force the country to turn its back on wind. ‘Nonsense,’ we were told, but now the prospect seems all too real.

Companies are clearly worried. Jérôme Pécresse, president and chief executive of GE Renewable Energy, does not seem like a man given to brash overstatement, but he has warned that the slowdown in Brazil’s economy means that the supply chain is at risk of collapsing because of the lack of new projects. He also told Bloomberg that some firms have been defaulting on their electricity bills and that financing for the sector is drying up.

“We are very worried about the prospects for the wind market in Brazil,” he said. If there are no new projects tendered then that means no work for developers, manufacturers or those throughout the supply chain. It is a particular problem for manufacturers, who face being saddled with factories that are either being under-used or not used at all.

Developers and investors in the wind sector are pinning their hopes on a 500MW wind and solar auction. It was due in October and last week was put back until December 16. But there is still a place for wind. The government’s response to the hydro sector’s drought crisis was to invest in very expensive thermal power plants to fill the supply gap that existed then, and wind farms can still play a role in cutting the cost of energy for businesses and individuals.

There is an argument there for the government extending support for wind, though we wonder whether it will want to do this when it has many other problems to tackle. If it does then companies in the supply chain in Brazil can relax a little for now.

And if it doesn’t? Best jump on a flight to Argentina or Mexico.

Troubled economy. Political turmoil. Regional instability.

No, we are not talking about Brexit and ongoing uncertainty about the type of relationship that the UK will seek with other countries in Europe. We are talking about Brazil, which is set to gain the world’s attention this month as the Olympic Games start in Rio de Janeiro. This is with a backdrop of deepening recession, political crisis and the Zika outbreak.

And amid all of these problems the wind sector is suffering too. Brazil has been grappling with the problem of too much electricity in the system following five quarters of economic contraction and high electricity prices, both of which have hit demand from businesses and consumers. It is a big change for a country whose system nearly collapsed after droughts. Now power companies are producing about 10% more electricity than Brazil needs.

The upshot of this electricity oversupply is that there is little desire from the government to build new wind farms. The Brazilian government has not awarded tenders for any projects in the first half of 2016, and it is only planning to hold one wind and solar auction this year. The prospects for investors, developers and others to get into the market are limited.

This is not simply a problem with oversupply. In April, the country’s pro-wind energy minister Eduardo Braga quit as it became obvious that president Dilma Rousseff would be forced to fight impeachment proceedings. Braga’s interim replacement Fernando Filho has said that Brazil is only going to hold one auction for new wind and solar capacity in 2016, which is one fewer than expected.

The combination of political uncertainty and electricity oversupply does not bode well for those in the wind energy supply chain. In fact, it bears out something we wrote — and got a little bit of flak for — in the run-up to last September’s Brazil Windpower conference. The country had just entered recession and we warned that it could force the country to turn its back on wind. ‘Nonsense,’ we were told, but now the prospect seems all too real.

Companies are clearly worried. Jérôme Pécresse, president and chief executive of GE Renewable Energy, does not seem like a man given to brash overstatement, but he has warned that the slowdown in Brazil’s economy means that the supply chain is at risk of collapsing because of the lack of new projects. He also told Bloomberg that some firms have been defaulting on their electricity bills and that financing for the sector is drying up.

“We are very worried about the prospects for the wind market in Brazil,” he said. If there are no new projects tendered then that means no work for developers, manufacturers or those throughout the supply chain. It is a particular problem for manufacturers, who face being saddled with factories that are either being under-used or not used at all.

Developers and investors in the wind sector are pinning their hopes on a 500MW wind and solar auction. It was due in October and last week was put back until December 16. But there is still a place for wind. The government’s response to the hydro sector’s drought crisis was to invest in very expensive thermal power plants to fill the supply gap that existed then, and wind farms can still play a role in cutting the cost of energy for businesses and individuals.

There is an argument there for the government extending support for wind, though we wonder whether it will want to do this when it has many other problems to tackle. If it does then companies in the supply chain in Brazil can relax a little for now.

And if it doesn’t? Best jump on a flight to Argentina or Mexico.

Troubled economy. Political turmoil. Regional instability.

No, we are not talking about Brexit and ongoing uncertainty about the type of relationship that the UK will seek with other countries in Europe. We are talking about Brazil, which is set to gain the world’s attention this month as the Olympic Games start in Rio de Janeiro. This is with a backdrop of deepening recession, political crisis and the Zika outbreak.

And amid all of these problems the wind sector is suffering too. Brazil has been grappling with the problem of too much electricity in the system following five quarters of economic contraction and high electricity prices, both of which have hit demand from businesses and consumers. It is a big change for a country whose system nearly collapsed after droughts. Now power companies are producing about 10% more electricity than Brazil needs.

The upshot of this electricity oversupply is that there is little desire from the government to build new wind farms. The Brazilian government has not awarded tenders for any projects in the first half of 2016, and it is only planning to hold one wind and solar auction this year. The prospects for investors, developers and others to get into the market are limited.

This is not simply a problem with oversupply. In April, the country’s pro-wind energy minister Eduardo Braga quit as it became obvious that president Dilma Rousseff would be forced to fight impeachment proceedings. Braga’s interim replacement Fernando Filho has said that Brazil is only going to hold one auction for new wind and solar capacity in 2016, which is one fewer than expected.

The combination of political uncertainty and electricity oversupply does not bode well for those in the wind energy supply chain. In fact, it bears out something we wrote — and got a little bit of flak for — in the run-up to last September’s Brazil Windpower conference. The country had just entered recession and we warned that it could force the country to turn its back on wind. ‘Nonsense,’ we were told, but now the prospect seems all too real.

Companies are clearly worried. Jérôme Pécresse, president and chief executive of GE Renewable Energy, does not seem like a man given to brash overstatement, but he has warned that the slowdown in Brazil’s economy means that the supply chain is at risk of collapsing because of the lack of new projects. He also told Bloomberg that some firms have been defaulting on their electricity bills and that financing for the sector is drying up.

“We are very worried about the prospects for the wind market in Brazil,” he said. If there are no new projects tendered then that means no work for developers, manufacturers or those throughout the supply chain. It is a particular problem for manufacturers, who face being saddled with factories that are either being under-used or not used at all.

Developers and investors in the wind sector are pinning their hopes on a 500MW wind and solar auction. It was due in October and last week was put back until December 16. But there is still a place for wind. The government’s response to the hydro sector’s drought crisis was to invest in very expensive thermal power plants to fill the supply gap that existed then, and wind farms can still play a role in cutting the cost of energy for businesses and individuals.

There is an argument there for the government extending support for wind, though we wonder whether it will want to do this when it has many other problems to tackle. If it does then companies in the supply chain in Brazil can relax a little for now.

And if it doesn’t? Best jump on a flight to Argentina or Mexico.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.