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Brazil has all it takes to become a global clean energy powerhouse.
It has the world’s most cost-effective and largest biofuel industry (ethanol). The National Development Bank has just approved the first project finance deal for a second generation ethanol mill. Wind power production is growing very fast, productivity is up, prices coming way down. Photovoltaic solar power is taking-off, prices are starting to fall.
These new renewables are adding clean energy to an energy matrix that is cleaner than the global average: 45 per cent of Brazil’s total energy comes from hydropower. Hydropower represents 80 per cent of electricity production, and all renewable sources, account for 89 per cent of the electricity used by the country. The government has further pledged to invest $1.7 billion on research and development for alternative clean energy, aiming at boosting innovation and investment. Applications for which have already amounted to $6.3 billion.The stumbling blocks?
There are however a few pitfalls on the way.
Fossil fuel subsidies are still very high in Brazil, and drastically reduce biofuel competitiveness. Planning mistakes and low priority to new renewable sources have led to an increase of the share of coal, oil, and natural gas fired thermopower plants in the grid. Reservoirs of hydropower plants have been more severely affected by frequent drought, especially in the areas of the Northeast where some of the larger reservoirs of hydroplants are located.
Wind power would be a perfect complementary source, because winds are stronger during the drought season, and most of the new windmills are also located in Northeastern Brazil, reducing the costs of plugging the mills into the grid. Photovoltaics and wind power together would be even more productive and complementary to each other and to hydropower in the grid. Windmills use only about five per cent of the area they occupy.
Brazil’s flex fuel engine is a stunning success case on most counts. In 10 years it has replaced more than 60 per cent of the fleet. Today only a small portion of new light vehicles come out of the assembly lines without a flex fuel engine. All service stations in the country have ethanol pumps and all large service stations located at main highways have biodiesel pumps.
The ethanol challenge
The ethanol industry in Brazil, however, is facing dire times. Extreme climate events have hit sugarcane crops for four years in a row. This year will likely be the first to see a growing harvested area over the last six. Ageing plantations are yielding lower ethanol productivity crops, and investment in plantation renewal has been lagging.
The government has only very recently taken notice of these limiting factors to production and productivity, and has created a special finance program to help producers. It will provide $1.9 billion of subsidised credit for plantation renewal, and $1 billion to increase ethanol storage capacity. It has also decided to grant a small tax reduction aiming at increasing ethanol’s competitiveness over gasoline.
This month, ethanol was competitive only in one out of the 27 Brazilian states (26 states and the Federal District). To control inflation, the government has frozen gas prices to distributors at the refinery for several years, and only recently has authorised a modest increase to prevent state-owned oil giant Petrobras’ balance from going farther down the red.Fossil fuel subsidies damage not only Petrobras’ balance sheet, but also the biofuel industry. The ten-year old flex engine initiative, although a success in renewing the auto fleet becomes almost useless as far as the use of cleaner ethanol is concerned.
The wind power success in Brazil
Another clear success case in Brazil is wind power. The Brazilian industry has actually taken off only after 2009, when its so-called phase 2 began.
Its installed capacity has grown almost 2000 per cent between 2005 and 2009. Growth over the four years of phase 2, from 2009 to 2013 was 550 per cent, according to the state-owned Energy Research Enterprise (EPE).
Many companies have come to the Brazilian market after the Euro crisis. They say that the minimum sustainable price for wind power today would be around $52.00. Even at $52.00-55.00/kw it would still be lower than hydropower prices, the benchmark prices for both the government and the market.
The last report by the Brazilian association of wind power producers, Abeólica, stresses the impressive gains in productivity. The new windmills are equipped with generators that have greater power output
Brazil’s capacity factor for phase 2 averages 54 per cent, far greater than the world average of 27 per cent, China’s 25 per cent, and Australia’s 39 per cent. Capacity factors vary widely from location to location. In Brazil, the new windmills are primarily located in northeastern states, considerably windier than the southernmost state where earlier mills are located.
Bad state planning could play spoilsport
The country’s energy planning however has become quite loose and fragmented.
There are 32 new state of the art windmills off the grid because the installation of transmissions lines has been delayed. Today all major global wind power players are active in the Brazilian market, but the power grid, and corresponding transmission lines are government-controlled. Transmission lines have lagged behind as the government was unable to match the pace of construction of windmills.
In partnership with China
Brazil and China have signed a cooperation agreement for the joint-development of science and technology on sustainability. The major instrument for this cooperation will be the China-Brazil Center for Energy and Innovative Technologies that will be jointly maintained by COPPE and Tsinghua University. The agreement sets the Center research agenda around electric vehicles, solar energy, energy planning and ocean energy.
The government hopes that this incentive to clean energy R&D will encourage domestic technological development, and boost investment in these industries that are already very competitive due to the country’s natural advantages in solar and wind power generation, as well as in energy from biomass.Need to fight systemic shortcomings
All players in the domestic energy sector are excited with this new program of incentives to innovation, Inova Energia (Energy Innovation), the government has announced at the end of last year. The $1.7 billion plan aims at: stimulating research and development on smart grids and ultra-high tension transmission; photovoltaics, thermosolar, and wind power generation.
Another important target is R&D on electric (power trains) and hybrid vehicles using ethanol.
The National Development Bank, BNDES, has announced that it received applications from 373 companies and organisations seeking $6.13 billion for this. That’s about four times the program’s approved budget in reais, the Brazilian currency.
There are many such exciting initiatives and ventures under way. BNDES has just released $150 million to finance Brazil’s first second generation ethanol mill, which will use sugarcane residue and biomass to produce cellulosic ethanol.
The Engineering Program of the Federal University of Rio de Janeiro, COPPE, has also recently closed a deal to build a pilot project of a sea tide power plant and has started the construction of its model for a magnetic levitation train.
But to really unleash Brazil’s vast clean energy resources and natural advantages, the government has also to deal with the contradictions of its energy policy. The first step in this direction would be to eliminate fossil fuel subsidies, and to fight systemic inefficiencies that drive energy prices upwards and harms the interests of consumers, as well as the country’s economic competitiveness.