Brazil has the largest power market in Latin America, with a total installed capacity of 141GW in 2015. The country’s size, plentiful resources and conducive policies have made Brazil the region’s main renewable energy market and one of the top 10 in the world.
In Brazil, energy from wind projects has reached wholesale price parity with conventional sources and become one of the main sources of new capacity. Brazil is also the second largest ethanol producer worldwide, although the sector has struggled in recent years due to gasoline price controls and weak sugarcane crops.
The country is battling a macroeconomic crisis, and its clean energy sector has started to feel the impact. Beginning in 2015, demand for clean energy – and power in general – has decreased, costs have increased and securing financing for a project is becoming more difficult. Brazil’s matrix remains highly reliant on hydropower. In the past five years, roughly 75-80% of the country’s generation came from moving water. The heavy reliance on one source came at a high cost for the country in 2014. A prolonged drought put Brazil’s water supply and energy matrix under stress, exposing the market to costly generation from fossil-fuelled thermal plants. In the regulated market, utilities struggled to meet power demand and accumulated losses that were later passed to consumers in the form of higher electricity bills. In the wholesale power market, average spot prices in 2014 reached BRL 642/MWh ($273/MWh), up 146% from the average in 2013.
Two lessons emerged from the hydro crisis: the need for diversification and the importance of distributed generation. Auctions and net metering will continue to be crucial to development of Brazil’s power sector. Further incentives to encourage small scale renewable systems are expected, as high costs and access to finance continue to prevent mass-deployment of PV systems in Brazil, in spite of higher electricity prices.
All generation capacity to supply the regulated utility market is contracted through reverse auctions. Brazil previously held renewable energy auctions where technologies competed against each other, as well as biomass and wind-specific auctions. However, due to the falling cost of renewable power generation, since 2010 all renewables have competed with conventional fuels in regular tenders.
Banco Nacional de Desenvolvimento Economico e Social (BNDES) has played a major role in the development of the Brazilian renewable energy market. The bank is among the top global lenders to clean energy, having disbursed $25bn for renewable energy (excluding large hydro) projects between 2006 and 2015. BNDES applies a strict local content requirement in making wind and PV project loans, pushing equipment manufacturers to set up factories in the country. For all other renewable energy equipment, local content is based on equipment weight.
Brazil’s ethanol production is exceeded only by that of the US. The South American country mandates a 27.5% national blend of anhydrous ethanol in conventional gasoline. Additionally, the government sets an 8% mandatory blend of biodiesel in conventional diesel. The biofuels industry is also supported through tax incentives and access to BNDES financing.
Energy efficiency is promoted through an energy savings obligation, requiring electricity distribution companies to allocate 0.5% of their net operating revenue towards end-use energy efficiency investments. Since 2014, electricity distributors have been obliged to provide smart meters at no cost to customers who opt into the dynamic tariff scheme. Customers who request additional smart-meter functionality are charged for the cost of the meter. However, the final regulation on smart meters is unfinished, and deployment has been delayed.
Brazil scored 2.29 in Climatescope 2016 to rank third overall on the list of countries. It slipped from second last year, when it scored 2.12. The country placed in the top five on all parameters, except for Clean Energy Investment and Climate Financing Parameter II.
The country’s score increased on Enabling Framework Parameter I, but it dropped to 5th place from 3rd. Its power sector structure has many positive aspects, although utility privatisation is not among them. It got a good score due to the level of installed clean energy capacity.
On Parameter II, Brazil’s score increased and it moved up one place to 16th. Though investment declined from last year’s level, the fall was modest. The average cost of debt was a weakness however – at 44% it was among the highest in the world.
Brazil’s score on Low-Carbon Business & Clean Energy Value Chains Parameter III was unchanged and it slipped down three places to 5th. A very large number of value chains and service companies are represented.
On Greenhouse Gas Management Activities Parameter IV, the country’s score decreased slightly and it slipped from 2nd to 4th.
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