Strong energy demand and favorable governance make Brazil a solar hotspot, say investors and analysts
The Brazilian solar market is ripe for investment and growth. Attractive government incentives, high demand for electricity, intermittent power supply, a conducive climate and a lack of viable alternatives mean that the market will explode over the next five years. This is according to the founders of the investment and asset management firm Solar Americas Capital Luiz Silva and Tiago Alves.
But Silva and Alves’ views are also shared by industry analysts, who are positive about the Brazilian solar market over the next five years, given the resumption of its large-scale projects and favorable government legislation. BloombergNEF (BNEF) data provided to Photovoltaic technology showed that in the first half of 2021, Brazil imported more modules from Chinese companies than in the year 2020.
“This suggests that 4.7 GW of product arrived in 1 hour and given the inventory that remained at the end of 2020, we estimate that over 4 GW of product has yet to be installed,” said James Ellis, Head of Latin America Research at BNEF. .
Why Brazil? Why now?
London-based Solar Americas launched yesterday (September 16) and Silva and Alves said there was no better time to enter the Brazilian solar market as demand for electricity continues to rise , the existing sources of electricity generation fail to do so. Energy prices in Brazil rose by more than 50% in 2021 alone and are expected to continue to rise significantly above inflation, they said.
On its own, Solar Americas plans to deploy 2 GW of solar power in Brazil by 2026 by working with national or multinational companies in the country. These businesses need reliable power at reasonable prices. However, they are reluctant to invest in the creation of projects and lack the solar expertise to carry them out. The other option is to sign power purchase agreements (PPAs) with third parties, but those long-term contracts can often come with annual price increases and minor discounts, Silva said. Instead, Solar America has created a business model in which companies that spend more than US $ 200,000 on electricity per year can form a joint venture that will see the two entities working together to develop the co-financed solar asset, along with Solar Americas. bringing their knowledge of the industry. and know-how.
“We entered the market with a third option that addresses the main concerns of the companies’ current two options,” Alves said. “Co-financing the project means shared supervision and management, because we will have a shareholder relationship and not a client-supplier relationship. “
This proposition is made even more attractive when considering Brazil’s net metering system. Brazil has had a very attractive net metering system for a long time and the ongoing negotiations around its reform seem to be coming to an end, with positive implications for solar.
“The latest version of the law (Lei project nº 5.829) passed the lower house of Brazil’s National Congress in mid-August and is currently in the Senate, with a strong chance of being taken over in the third quarter, ”Ellis said. “If approved and passed, the current text would leave Brazil’s generous net metering rules in place until 2045 for those who already have solar systems or add them within 12 months of the law being enacted. “
This represents a great opportunity for companies investing in Brazilian solar energy not only to reap the rewards of reliable and affordable clean energy, but also to potentially establish new sources of income for their business. Alves explained that companies that co-develop projects with Solar Americas can enjoy long-term clean energy at low prices while diversifying their portfolio of assets. The land is also easily acquired in Brazil and presents few obstacles to the installation of solar projects, while the state also offers some tax advantages when it comes to importing solar products, he said. added.
In addition, hydropower in Brazil, which accounts for around 60% of the country’s electricity production, has been plagued by many problems, including low rainfall, said Silva. Brazil’s climate and geography make solar the most attractive renewable alternative and will help drive down energy prices, which have skyrocketed due to lack of supply from hydropower systems, he said. added.
“The worsening hydroelectric crisis in Brazil has been credited with facilitating the passage of the new rules, which are seen as broadly favorable to solar power,” Ellis said.
Finally, with an election on the horizon in October 2022, neither Silva nor Alves feared changes in political administration would negatively impact the solar industry, perhaps even helping it to grow further. . Contrary to its skepticism of climate change, the administration of Brazilian President Jair Bolsonaro has welcomed solar power to the country given its energy needs. A victory predicted by opposition leader Luis da Silva (popularly known as Lula), however, could actually bolster the country’s support for renewables. Therefore, the political situation in Brazil looks favorable regardless of which party is in power a year from now.
BNEF expects additions of 5.3 to 6.5 GW in 2021, with “an increasing contribution from large-scale construction starting this year as commissioning deadlines from past auctions approach”, Ellis said, adding that annual additions of around 6 GW in 2022 and 2023 should be expected. Considering that Brazil currently only has 10 GW of solar power, accounting for just 1.5% of its energy mix, it’s easy to see why Silva and Alves are optimistic about their future in the market. After what they hope will be five years of successful project development and aggregation, they are considering an IPO, which their business partners can participate in or sell.
For now, however, they are focused on the next five years in Brazil. And, if experts and analysts are right, others should be too.