We’re going to find out in the next few years if Brazilian wind developers can deliver on their promise to generate some of the cheapest energy in the world – a rate on a par with ultra-cheap U.S. shale gas. If it happens, it could be a big breakthrough, but a lot of close observers seem to be skeptical.
The story here is that in December, the government held an auction for contracts to sell wind energy, and four companies won deals to provide 282 megawatts of power from 10 proposed wind farms at an outrageously low average price of 87.94 reais per megawatt-hour. That was around $42/MWh at the time and has nudged up to $44 by current exchange rates, but it’s still incredibly inexpensive.
“To put this price into context, the average 2012 wholesale electricity price in the USA’s North East Power pool was $42.2/MWh pricing Brazilian wind generation on a par with shale gas-fired US generation,” GlobalData analyst Jonathan Lane said.
The price was also “12 percent lower than the August 2011” price developers bid, Bloomberg reported in December, which “was the lowest price in the world for wind power then and the least expensive power in Brazil, beating natural gas and hydroelectricity.” Bloomberg New Energy Finance analyst Eduardo Tabbush told the publication it would be “very challenging raising equity and debt for these projects,” and GlobalData’s Lane said delivering profitable projects would only be possible if the developers are able to source very turbines and towers and very low prices.
Lane suggested that the only hardware that could make such projects profitable would have to come from China – but that would disqualify the projects from financing from the Brazilian Development Bank, which requires 40 percent local manufacturing.
“Whilst there are examples of wind projects in Brazil using imported equipment from China and Chinese financing, it cannot be expected that this will become the norm,” GlobalData said. “Therefore it seems that in the rush to secure projects many will not be built.”
Lane compared the price of the Brazilian wind energy to Turkey, where a feed-in tariff pays $79/MWh and will yield an internal rate of return to developers of 11 percent. At a price just a little over half of that, Lane said, “the economic in Brazil do not quite add up.”
According to Lane, the developers have five years to bring the new wind energy online.