Wind developers under-bid their natural gas rivals in Brazil's recent power contract auctions, but serious tests lie ahead
Brazil could become one of the world's great growth markets for wind power, but only if the industry dramatically cuts its costs below current levels or substantially improves equipment performance, Bloomberg New Energy Finance finds in a new research report.
The country could add as much as 1.4GW in 2012 and 1.5GW in 2013, up from 392MW in 2010, the market research firm found. But it will take exceptional wind turbine performance, dramatically lower prices for such equipment, access to lower-cost capital, or some combination of these for the sector to grow in Brazil at the rate the industry and regulators anticipate. Those are the findings of a new research note from Bloomberg New Energy Finance entitled "Brazil's 2011 tenders: low prices, high risks".
Brazil recently held two tenders (reverse price auctions) for wind power and agreed to sign contracts with wind developers totaling just over 1.9GW. The contracts were awarded on the basis of the projects that could supply power at least cost. Wind made headlines by, for the first time, under-pricing developers of natural gas-fired power projects. The average price for wind was $62/MWh while for natural gas it was $65/MWh. These are the lowest tariffs being offered to wind generators on a market-wide basis globally, and below wholesale electricity prices in Latin American markets.
For this reason, the results were hailed by local energy officials and international wind energy advocates alike as demonstrating the economic viability of this zero-emission energy resource. But now that developers have been tapped for such contracts, the onus falls on them to sell their power at the low rates on which they agreed. That means generating power at an even lower cost that allows their investors to earn the necessary returns.
To achieve those returns, nearly half of these new projects will have to operate at considerably higher efficiently or lower cost than has been seen in other parts of the world, according to Eduardo Tabbush, wind analyst at Bloomberg New Energy Finance.
"In many ways, the real challenge lies ahead for Brazil's project developers and equipment suppliers," said Tabbush. "These remarkably low bids have set the bar very high, now they must clear it by either getting exceptional performance from their wind turbines, or by sourcing equipment and capital much more inexpensively than we've seen to date."
Bloomberg New Energy Finance found that up to 40% of the potential new megawatt capacity contracted under the auctions would result in equity returns of below 10% for backers of those projects. This raises the possibility of that capacity not being financed or built.
For these projects to become viable by current standards, turbine costs must fall 15% in Brazil to $1.2m/MW, or 10% below the current global average. This raises the prospect of lower-priced Chinese wind turbines finding a market in Brazil for the first time, though none of the projects that were awarded contracts have announced plans to buy Chinese equipment.
Brazil has held reverse auctions that have allowed clean energy projects to participate, for the last several years. While some of those projects have been commissioned already the fate of many others remains to be determined.
ABOUT BLOOMBERG NEW ENERGY FINANCE
Bloomberg New Energy Finance (BNEF) is the world's leading independent provider of news, data, research and analysis to decision-makers in renewable energy, energy smart technologies, carbon markets, carbon capture and storage, and nuclear power. BNEF has staff of more than 200, based in London, Washington D.C., New York, Beijing, New Delhi, Hyderabad, Cape Town, São Paulo, Singapore, and Sydney.
BNEF Insight Services provide deep market analysis to investors in wind, solar, bioenergy, geothermal, carbon capture and storage, energy efficiency, and nuclear power. The group offers Insight Services for each of the major emerging carbon markets: European, Global Kyoto, Australia, and the US, where it covers the planned regional markets as well as potential federal initiatives and the voluntary carbon market. Bloomberg New Energy Finance's Industry Intelligence Service provides access to the world's most comprehensive database of investors and investments in clean energy and carbon. The News and Briefing Service is the leading global news service focusing on clean energy investment. The group also undertakes applied research on behalf of clients and runs senior-level networking events.
New Energy Finance Limited was acquired by Bloomberg L.P. in December 2009, and its services and products are now owned and distributed by Bloomberg Finance L.P., except that Bloomberg L.P. and its subsidiaries (BLP) distribute these products in Argentina, Bermuda, China, India, Japan, and Korea. For more information on Bloomberg New Energy Finance: http://www.newenergyfinance.com
ABOUT BLOOMBERG
Bloomberg, the global business and financial information and news leader, gives influential decision makers a critical edge by connecting them to a dynamic network of information, people and ideas. The company's strength—delivering data, news and analytics through innovative technology, quickly and accurately—is at the core of the Bloomberg Professional service, which provides real time financial information to more than 300,000 subscribers globally. Bloomberg's enterprise solutions build on the company's core strength, leveraging technology to allow customers to access, integrate, distribute and manage data and information across organizations more efficiently and effectively. Through Bloomberg Law, Bloomberg Government and Bloomberg New Energy Finance, the company provides data, news and analytics to decision makers in industries beyond finance. And Bloomberg News, delivered through the Bloomberg Professional service, television, radio, mobile, the Internet and two magazines, Bloomberg Businessweek and Bloomberg Markets, covers the world with more than 2,300 news and multimedia professionals at 146 bureaus in 72 countries. Headquartered in New York, Bloomberg employs more than 13,000 people in 185 locations around the world.
Contacts:
Bloomberg New Energy Finance
Gabriela da Rocha Oliveira, +55 11
8416 7444
mgrocha@bloomberg.net
