Renova Energia SA (RNEW11)’s strategy to produce wind energy cheaper than anywhere else in the world will be tested as it brings its first turbines online, helping to transform Brazil into the world’s fourth-biggest market.
Renova, which counts utility Light SA (LIGT3) as among its biggest shareholders, started operating South America’s biggest wind farm cluster in northeastern Brazil last week. The company, based in Sao Paulo, plans to build at least six farms next year.
Brazil aims to more than double its capacity to generate wind power next year by harnessing the same weather system that brought Portuguese and Spanish sailors to the continent in the 1500s. Renova is betting its farms can produce energy for as little as a quarter of the price needed to make some European projects viable.
“There’s uncertainty over whether these turbines will perform as expected,” Unai Otazua Aranguren, director of renewable energy consultant Garrad Hassan Group Ltd.’s Brazil office, said by telephone. “The wind here behaves differently to what we have in Europe and the U.S.”
Renova rose 0.3 percent to 31 reais in Sao Paulo trading on June 29, bringing its year-to-date gain to 16 percent. It has more than doubled since it first sold shares in 2010.
Brazil’s government is promoting wind and other renewable energy projects in a bid to diversify away from hydroelectric plants, which account for 66 percent of the nation’s installed capacity. Wind farms can help shore up the supply of electricity in drier months when dam reservoirs diminish.
$16.9 Billion Investments
National energy agency Empresa de Pesquisa Energetica, known as EPE, expects 10 gigawatts of wind farms to come online between 2012 and 2020, requiring investments of about 34 billion reais ($16.9 billion).
Developers including Spain’s Iberdrola Renovables SA and Renova signed wind contracts in six auctions through December to add 6.8 gigawatts of generating capacity. The first of the farms are required to start operating this month.
Brazil was the world’s 11th market for the renewable energy last year, Steve Sawyer, secretary general of the Brussels-based industry lobby group Global Wind Energy Council, said in a Feb. 7 interview.
In an August auction, companies agreed to generate power at an average rate of 99.54 reais, or about $49.31, per megawatt- hour, according to EPE. Wind developers receive about 150 euros ($190) a megawatt hour in Italy, 75 euros in Germany and 74 euros in Spain, Bloomberg New Energy Finance analyst Eduardo Tabbush said by telephone from London.
Renova estimates its turbines will spin more than 50 percent of the time, compared with an average of 25 percent for wind farms in Europe. The gusts that blow westward over the Atlantic across Brazil’s northeast are the most consistent weather system in the world, the American Meteorological Society says, allowing companies to use cheaper and lighter turbines.
Renova declined to comment when contacted by Bloomberg News.
Brazil’s drive to become a major producer of wind energy has lured France’s Alstom SA, the U.S.’s General Electric Co. (GE:US) and India’s Suzlon Energy Ltd. (SUEL), which have all built factories to make equipment in Brazil in the past three years.
Turbine makers likely agreed to cut prices for the Brazil auctions after the market for the equipment collapsed in the U.S. and Europe as the debt crisis prompted governments to scale back the size of subsidies for renewable energy projects, Tabbush said.
Even with the discounts, margins will be “very tight” on the projects, Tabbush said. A weaker local currency, which makes imported parts and equipment more expensive, may erode margins, he said.
Brazil’s real has weakened 23 percent against the U.S. dollar in the past 12 months, the worst performer of the 16 most-traded currencies tracked by Bloomberg.
Pacific Hydro Pty., a Melbourne-based developer that’s built two wind farms in the northeastern state of Paraiba, chose not to participate in the auctions on concern the rates being offered were too low.
“We’re pleased we didn’t take part,” said Rob Grant, chief executive officer of Pacific Hydro, which aims to develop wind farms and sell to the free market. “After the 2010 auctions, we realized the regulated market wasn’t the place to make sustainable returns.”
Light SA, a Rio de Janeiro-based utility, bought a 26 percent stake in Renova Energia for 360 million reais last year and agreed to purchase power from 400 megawatts of wind farms on the free electricity market, the companies said in a statement last July.
Renova expects to raise at least 250 million in a private stock offering to BNDES Participacoes SA, a unit of Brazil’s development bank, to fund current and future projects, according to a June 25 regulatory filing.
“We’ll see what will happen -- maybe there will be problems,” said Garad Hassan’s Aranguren. “When you’re bidding, it’s like a gamble, like a game.”
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