Why doesn’t Brazil have a solar industry?
- This is the first in a special two-part series examining Brazil's solar sector
- The second part looks at the lessons Brazil can learn from the successes of China's solar industry
Vested interests, protectionism and a lack of entrepreneurism have stifled the development of a national solar industry in Brazil, a country with huge potential to generate energy from sources other than oil and large hydropower.
Brazil is way behind fellow emerging economies China and India in developing alternatives such as wind and solar. The uncompetitive award of big hydroelectric contracts by state-owned energy company Petrobras, as exposed by the vast anti-corruption investigation lava jato (operation car wash), has revealed an energy sector that is vulnerable to corruption, captured by incumbent interests, and reluctant to invest in new technologies.
Brazil’s strict laws on using locally manufactured content do not help either. In areas such as solar technology its products are uncompetitive globally, meaning weak sales abroad and limited deployment of imported solar technology at home.
There are two distinct approaches to generating solar energy in Brazil. In the first, known as centralised generation, utility-scale solar competes with other types of generation to win government capacity auctions. In the other approach, known as distributed generation, companies negotiate directly with consumers to install panels on their properties, which they essentially lease. Any surplus energy is sold to the grid. However, Brazil’s crippling recession has made this option less viable since it has stunted demand.
Renewable energy prices are falling rapidly across the world, bringing them ever closer to the cost of fossil technologies. If demand recovers in Brazil, cheap solar energy could attract consumers looking to avoid high prices, and micro-generation is starting to be adopted on a larger scale, albeit from a lower base. Such schemes also reduce the logistical and environmental challenges of transmitting electricity across a country as large as Brazil.
A major factor holding Brazil back from alternative energy sources is state-owned company Petrobas, according to Carlos Rittl, director of Brazil’s Observatorio do Clima (Climate Observatory). Since its foundation in 1953, the company has promoted the extraction of fossil fuels and has been unwilling to change course and promote renewables, despite being an energy company rather than an oil and gas company, according to its statute. The discovery of vast, deep-lying oil deposits off the coast of Rio de Janeiro in 2008, referred to as ‘pre-salt’, only reinforced this approach, Rittl told Diálogo Chino.
However, Brazilians are slowly waking up to the fact that the solar energy potential in any given region in their country is around double that of a country such as Germany, which has deployed significant amounts of solar, and that it will need to reform its hydro and oil-heavy energy matrix in order to meet emissions reductions commitments under the Paris Agreement on climate change.
Despite its impacts on rivers, rural communities, and susceptibility to droughts, hydropower is widely publicly perceived as a vital, reliable energy source in Brazil. In recent years, Brazil has managed to generate up to 80% of its energy from hydropower, but it faces an uncertain future. Not only has lava jato paralysed projects, but also unreliable rainfall, conflict over environmental impacts and forced displacement of indigenous communities, has left major projects such as Belo Monte and São Luis do Tapajós hanging in the balance. Estimates suggest 230GW of energy from an estimated potential 300GW remain unexploited in Brazil.
But Brazil’s hydro crisis could be a new dawn for the photovoltaic industry. As with wind power, estimates from IRENA (the International Renewable Energy Agency) indicate that the cost of solar energy should drop by half in the space of eight years, from the current value of US$130 per megawatt hour (MWh) to US$ 60/MWh in 2025. Some contracts have been negotiated on the basis of a rate of US$ 50/MWh – or even less.
According to climate analyst Délcio Rodrigues, solar energy has only recently received a push because of the combination of low prices for solar panels and high consumer prices for energy. "Solar panels have become a commodity," he says. During the 1990s, the price per MWh of solar energy was equal to the price of energy generated by nuclear power plants, and represented an unattractive option for potential investors.
"Today, the price of solar is a fifth of what it was then [in the 1990s]. This is the result of large-scale investments by several countries such as Germany, the US, and Japan and China,” says Rodrigues, adding that world is taking a “hard turn” towards generating energy from the wind and sun. Rodrigues attributes the lack of investment in solar energy to a “culture” of dam-building, and a tendency among large engineering companies to build smaller and less productive hydroelectric dams.
Rittl agrees that the situation could be about to change, as more recent communications from Petrobras acknowledge the future is one of renewable energy. But there is a long way to go. Currently there are fewer than 10,000 solar panels on the roofs of homes, office blocks and public buildings in Brazil. Bangladesh, a country with a smaller population whose land area would fit in to Brazil over 50 times, has around 1.5 million.
Rodrigues argues that national companies have shown an inability to innovate. In Brazil, the solar energy industry is comparable to the automotive industry, which does not count on a wholly Brazilian company to manufacture vehicles and instead hosts international manufacturers.
"In general, Brazil has never had an innovative [industrial] foundation," he says, naming small aircraft manufacturer Embraer as one of few exceptions.
This situation is reinforced, according to Rodrigues, by statements from public officials claiming solar cannot replace large-scale generation, or that it is not possible to transition away from current energy sources. "They never took a chance on solar [energy] the way they took a chance on Embraer,” he says.
According to the Brazilian government’s latest 10-year plan for energy (PDE 2024), installed solar capacity will reach 11.5 GW by 2024 thanks to projected investments of around R$62 billion (around US$20 billion). Yet some 70% of investment is still destined for the oil and gas sectors. Currently, total installed solar capacity in Brazil is 850 MW per year.
Local content credit
The administration of impeached former president Dilma Rousseff established a policy at Brazilian National Development Bank (BNDES) to provide low-interest financing for infrastructure projects. According to the policy, which remains in place, utility-scale solar will only receive financing from BNDES if projects adhere to rules on using a minimum percentage of components manufactured in Brazil.
According to IRENA, requirements for local content are changing - from a quantitative approach (requiring 60% local content) to a quantitative one – with access to finance dependent on which elements are local and which must be imported.
BNDES’ measure replicates a recently adopted policy on wind power projects, which permitted the establishment of a more solid supply chain. The local component policy requires companies to be registered with BNDES, which evaluates whether its manufacturers meet the criteria for local content. Currently 19 companies producing inverters and photovoltaic panels have been endorsed by BNDES. Their output can produce 300 MW/year. This figure is around a third of the total installed in the country. Therefore, it’s highly likely not every company that produces components in Brazil has obtained BNDES certification.
One of the main players in Brazil is Canadian Solar, which also operates solar generation facilities. The company is expected to inaugurate a factory this year in the municipality of Sorocaba, São Paulo state, in a partnership with the US-owned Flextronics to supply its own projects. Another notable company is SunEdison, which has almost 200 MW worth of projects. The purchase of this company by the Canadian Brookfield Asset Management, which owns some 217 hydropower sites around the world, is expected to increase production capacity. Then there is Chinese company BYD, better known in Brazil for its electric buses, which has also opened a Brazilian plant to produce photovoltaic units.
The regulations on local content mean it is often cheaper for energy distribution companies to import components from abroad, even if it means missing out on credit from BNDES. With no guarantees of support for the solar market from the Brazilian government, Italian energy distribution company Enel, for example, turned to Chinese firms JA Solar and Jinko to provide panels for power plants commissioned in Brazil in 2014 and 2015.
At the local level, governments are searching for investments in new solar facilities to stimulate job creation and economic activity. Rio Grande do Norte, for example, sent a delegation to China in February to attract Chinese companies, namely Chint Eletric, to build a factory in the state.
In the northern state of Amazonas, companies receive tax incentives to produce within its borders. The Free Trade Zone (FTZ) in Manaus has received inquiries from Chinese companies, whose names were not disclosed. Piaui, one of Brazil’s poorest states, is also trying to attract more investments, especially to the region it is marketing as the “Silicon Valley of Piauí", owing to its embrace of technology and innovation.
Brazil’s recession has also significantly slowed the development of the photovoltaic industry. The drop in industrial activity, increased unemployment and, consequently, reduced electricity consumption means companies’ plans to build factories in the country are on hold until demand recovers.
An electricity surplus, combined with negative changes in macroeconomic conditions and financing, led the government to promote what is being called the “decontracting auction” – where companies pay a fee to break solar and wind generation contracts and cancel projects.
At the same time, between 2014 and 2015 the government auctioned 1,722 MW of solar energy. Rodrigo Sauaia, president of Absolar (Brazil’s solar industry association), believes that despite the decontracting, there will be new auctions. This is because the government will have to sign contracts for new reserve power plants, that supply energy in the event of shortages.
Rodrigues says solar power is leading a revolution in the energy market through distributed generation. In March, the country had 8,931 micro-generation systems connected to the grid. These account for the first 100 MW of installed capacity of mini and micro-generation systems. The vast majority, 8,832 systems, were photovoltaics, according to data from regulator the National Electric Energy Agency (Aneel). Plants with installed capacity up to 75 kW are considered micro-generation in Brazil. Mini-generation stations have capacity between 75 kW and 5 MW, and small hydroelectric units, SHU, are classified as those generating 3 MW.
Taking only panels on residential properties into account, research by the Energy Research Company (Empresa de Pesquisa Energética, EPE), which is responsible for energy planning in Brazil, distributed generation has the potential to provide 164 GW.
While there is potential for strong growth in this sector as costs fall and Brazilians look to lower their energy bills, the troubled government seems less enthusiastic about backing utility-scale solar.