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The Current State of Storage Markets & Industry in Brazil2017.01.18

Brazil is also a sunny country: Brazil’s solar resource is exceptional, with annual mean of daily horizontal global solar irradiation in any region of the country higher than 1,500 kWh/m2, i.e. much greater than in most of Europe, and with a maximum solar irradiation of 2,372 kWh/m2. At a total of 8,516 million km², the country’s territory is vast, and it presents a large market opportunity, with a population of over 202 million and an installed power capacity of 140 GW. In the past, power demand has been growing at an annual rate of 3 to 4% per year, and most of the country’s power has been contracted via auctions or tenders, organized by the government where developers bid for 20-year PPAs with utilities.

Insertion of PV in Brazil

Solar PV is a nascent and fast-growing market and industry in Brazil. Although the country’s PV installed capacity is small, with just over 40 MW operational, over 3 GW of PV projects have been contracted and should be under construction to be operational by 2017. However, recent changes in the macroeconomic and political situation in the country could potentially impact the growth of this promising technology in Brazil in the short term, something an “infant” industry cannot or at least should not experience in its early days.

CELA, ees Mag 03/2016

Camila Ramos, Managing Director, Clean Energy Latin America (CELA)

Insertion of storage in Brazil

The storage industry, on the other hand, is not yet a nascent one in Brazil. However, storage should play an essential part in the Brazilian power mix in the future, especially due to its ability to integrate increasing participation of wind and solar PV in the grid. The Brazilian power matrix is hydro-dominated. Today, these large reservoirs are used as baseload power in Brazil, but should be seen as a huge battery, due to their storage potential. Furthermore, the new hydro potential in the country is located in the Amazon region. This means that it is increasingly difficult to build new large hydro plants in the country, due to the high social and environmental costs new hydro projects could incur. Together with the recent experience and impact of droughts on power supply and prices in the country, diversification of the matrix toward more wind and PV has already become a reality today. And these reservoirs should be increasingly used as storage systems.

Another impact on the increasingly diversified Brazilian power matrix towards wind (already a full-fledged reality in the country) and PV will be the insertion of other storage technologies in the Brazilian grid to balance the system. Bloomberg New Energy Finance’s New Energy Outlook 2016 expects storage, or “flexible capacity”, to account for 11% (or approximately 44 GW) of Brazil’s installed capacity by 2040. This means storage could become the fourth power source in Brazil in the long term. This is an enormous potential. Furthermore, Brazil’s nationally integrated grid, known as SIN, location of power generation is far away from the place of power consumption, resulting in significant power losses. Currently, Brazil’s power losses are in the region of 18% of all power generated, with estimated losses of more than US $2 billion every year. This means that distributed generation and storage have the opportunity of significantly decreasing these losses.

Recently, namely in late July this year, ANEEL (the power regulator) announced it would start a government-organized storage R&D program to insert storage in Brazil’s power system. The R&D program has the objective of attracting companies interested in presenting collaborated projects to develop the technological base and infrastructure for storage in the country, focused on local industry (supply chain and industry). The program will be funded by the Brazilian consumer, and will involve partnerships between the private sector and institutions such as the Ministry of Mines and Energy, the EPE, Ministry of Science and Technology, Ministry of Industry, the BNDES, GIZ, as well as 5 universities. This R&D program is very similar to the initiative it conducted for PV in 2011, and this is the current state of the storage industry in the country.

Obstacles for PV and storage in Brazil

However, some obstacles still need to be overcome, and political changes regarding the Brazilian power sector have been or are still to be announced. In terms of financing – a real and limiting bottleneck for the PV industry in both distributed generation and in utility-scale and storage. PV projects need access to competitive and viable financing lines. PV industry financing today is limited to the BNDES (Brazilian Development Bank) and thus dependent on local content rules. The storage industry does not even have a BNDES dedicated financing line in place. And most recently, the BNDES has announced it plans to start decreasing its participation in projects, reducing total leverage from 70% to 50% for all infrastructure projects in the country. This should impact and change the profile of investors in these projects, due to the higher equity participation required in projects. The recent publication of ordinances by the Ministry of National Integration, which included the renewable energy sector (including solar) in the list of projects that can receive funding from regional development funds that are located in the North, Northeast and Midwest regions of the country, is excellent news, and, according to the Ministry of Integration, should generate funding of around US $450 million for the renewable energy sector in 2016. Nonetheless,
the BNB will present the same limitations of the BNDES in terms of total projects leverage (up to 50%) and local content rules requirements.

However, an unforeseen conjectural change in Brazil involves the regularity and size of power auctions in the country, not only for PV, but for all energy sources. The political and economic crisis the country is going through has been reducing power demand, mostly from industry, and this has already resulted in utilities being over-contracted for power in 2016. The July 2016 PV auction was postponed by the government to December 2016, and the amount of PPAs to be awarded is still uncertain. For storage, there have never been any auctions organized in the country.

Brazil managed to create strong hydro, biomass and wind industries in the country through regular auctions, subsidized or competitive financing and tax breaks. The promising storage industry should start its development in the next couple of years, in the context of decreasing technology costs globally. And the PV industry will continue to grow in the short, medium and long term in the DG segment, but the utilityscale segment may suffer in the short term due to these recent uncertainties. But again, these are obstacles to be overcome by two industries that, although still nascent in the country, will have a growth trajectory as certain, fast and long-term as this energy source is experiencing in the rest of a world not as sunny as Brazil.

Camila Ramos,
Managing Director,
Clean Energy Latin America (CELA)

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