Finance challenge to Brazilian solar

A long-awaited boom in Brazilian solar power is in doubt owing to concerns over financing.

With up to 2 GW of power coming up for auction this year, developers are likely to find their only source of funding is a bank that requires local content… at a time when manufacturers are loathe to set up shop in Brazil because of currency devaluations.

In May Bloomberg reported that panel makers such as Yingli had put local manufacturing plans on hold following a 20% drop in the value of the Brazilian real since the country released the results of its first solar auction in October 2014.

Six of eight auction winners last year have yet to announce how they will procure panels for their projects, said the report.

Meanwhile the Brazilian Energy Planning Authority (Empresa de Pesquisa Energetica, or EPE) is lining up two further capacity additions to be auctioned off this August and November.

Maria Gabriela da Rocha Oliveira

Maria Gabriela da Rocha Oliveira

The market expects between 1.5 GW and 2 GW of solar contracts from these two auctions alone,” said Maria Gabriela da Rocha Oliveira, First Solar’s head of business development in Brazil.

However, she said, currently the only source of competitive long-term funding for projects is the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social or BNDES), which only lends to projects with local content.

Said Oliveira: “The main challenge for solar developers today is access to financing. There are currently no Tier 1 module manufacturers with a FINAME [Special Agency for Industrial Financing] code, which certifies compliance with local content rules.”

If developers cannot find FINAME-approved products they may not be eligible for BNDES financing, she said. “Developers are struggling to close their project financial plans.”

The situation is a further blow to PV project developers that have watched Latin America’s largest economy eschew solar in favour of wind over the years. Brazil began betting heavily on wind generation some time ago and is still doing so today.

According to the Global Wind Energy Council (GWEC): “On the basis of existing contracts, the Brazilian wind sector is expected to install another 12-13 GW over the next five years, and with four auctions planned during 2015, that number could rise substantially.”

At this rate, says GWEC: “Wind will likely surpass gas in terms of installed capacity by the end of 2017, and assume its place as the number-two power source in the country.”

Against this backdrop there was relief when Brazil began opening the door to solar power last year, in which 10 MW of PV were installed. The country has set a target of 3.5 GW of solar power by 2023.

At least 1 GW of new solar offerings from federal auctions is expected each year,” said Oliveira. “Furthermore, the distributed generation market is also expected to take off, adding significant additional demand for solar in Brazil.”

If developers can overcome the exchange-rate challenge then “solar demand growth is likely to pick up at a faster rate than wind did,” Oliveira believes. “Brazil needs to add generation capacity fast, and no technology can beat solar in terms of time to market.

The question now is whether the EPE can move fast to resolve the industry’s financing problems before the next auction is due.