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Interview

with Elbia Melo Presidente-Executiva ABEEolica: Brazil’s Wind Power Association

01.07.2013 / Energyboardroom

In a previous interview you mentioned: “since wind power generation is more efficient in the dry season, it could heavily contribute to the low capacity of hydroelectric reservoirs in this difficult period.” As president of ABEEólica, what would you like to share with our international readers about the true potential of wind power in Brazil?

With our technology today, our onshore wind energy potential is settled at 300 GW. In 2001, a very accurate study mentioned a potential of 143 GW. Therefore, wind energy today is stronger thanks to our technological progress. Towers are taller, more efficient and capture wind like never before. Our wind is unique, fast, gust free and does not cause turbulences which make efficiency rates much higher than anywhere else in the world using a similar technology.

Wind potential is a certainty, now we must put the necessary investments, resources and government participation to make it a reality.

Mr. Tomalsquim, President of EPE and yourself actively participated to Brazil’s hybrid power model, providing the necessary reforms to ensure a public auction system and promoting a fair market competition. Since this new model set foot in 2004, what have been its benefits?

Prior to the establishment of this new model in 2004, I was part of the supply crisis board committee to find the right solutions in order to resolve the unprecedented power shortages that shook the country in 2001. Therefore, it was time to think about a new model and we came up with the idea of creating a very open and dynamic one. Such model does not exist anywhere else, and since the electricity sector is rigid, this open model had to be well adjusted to meet the country’s expectations.

Our 2004 hybrid power model became an instant success because many mistakes were done prior to it and we knew what had to change to improve it. Three main points were developed to ensure its success – securing supply, price and a large scale electricity project for the poor communities who did not have access to it.

To guarantee the supply it was needed to guarantee investments through long term PPAs – Power Purchase Agreement. As such, investors could show to the financial institutions their long term contracts and cash flow expectations for that period. This is a major achievement of our model and represents a real improvement for our investors. Clearly, our auction bidding system, bringing a wide array of participants has enabled very competitive prices. As long as we maintain a strong participation and interest in our sources, this model will prevail.

Moreover, our national electricity project “Light for all” has given electricity to the most remote communities spread across Brazil. Brazil is a social country and needs to promote more initiatives like this one.

Overall, it is clear that this model is a success. Of course nine years after its creation there are adjustments to make, but its foundation is solid.

Today’s wind energy price is extremely low and one of the most competitive prices among all sources of energy – USD 50 per MW. How was it possible to attain such a low price?

In 2004, we prepared a new program called PROINFA, an incentive program for alternative electric energy sources. At that time the price for wind was around USD 160 per MW, whereas price for hydropower was only USD 30 per MW. Given this situation it was really difficult for wind to be attractive.

In our second phase in 2009, the situation had drastically changed as technology available had radically improved, bringing 100 meter wind towers instead of 50 meter ones in 2004. Also, that year, the government made a special effort to do a specific wind auction and set the price at USD 90, which dropped to USD 70 after the auction took place. Finally, the amount of wind contracted was higher than in 2004 – 1.4 GW – reaching 1.9 GW.

Our unique wind as well as our technology makes us 30 percent more competitive than any other country. Our capacity factors which represent the ratio of the actual output of a power plant over a period of time, to its potential output if it were possible to operate it at full capacity indefinitely, are the best in the world. In 2011 our capacity factor was around 54 percent, and even reached 71 percent in Salvador de Bahia. These results are extraordinary and are a proof of the uniqueness of our wind in Brazil. Moreover, our 20 year PPAs give financial guarantees to the financial authorities and a lot of safety and stability to the investor who knows what his return on investment will be. Finally, with the crisis affecting European countries, many international manufacturers came to Brazil and provided very attractive machineries and equipment at competitive prices.

This is a reality and this why with such conditions we can reach such competitive prices at bidding auctions, even USD 50 per MW.

ABEEólica’s priority is to promote the competitiveness of its members, defining the best return on investments for them and a clear regulatory framework. Since you joined in 2011, what have you been focusing on to help wind power producers?

Our first focus since we began our operations in 2002 was to promote wind in Brazil’s energy matrix. After achieving to contract 2 GW of wind power for the auction in 2010, we knew that wind power was on the right track to spread its wings. Therefore between 2009 and 2013, we achieved our focus by selling 7.1 GW.

Our priority and my target right now are to consolidate wind power, by selling at least 2 GW every year.

The largest wind projects and future eolic constructions are taking place in the north of Brazil; mostly in Rio Grande do Norte. However, the Eolic sector is currently facing transmission line issues. How is ABEEólica dealing with these shortcomings?

This situation is unfortunate as once again a long term planning and local analysis had not been performed to evaluate possible transmission line difficulties. We did not foresee issues in environmental and archeological licensing as well as land property permits.

We need to make sure that for future wind auctions, long term planning is fulfilled and transmission lines are guaranteed to connect the wind farms to the grid.

Overall, what would you say are the biggest challenges in promoting wind power in Brazil?

2013 represents a very big challenge for us both in terms of market and future sustainability of wind power in Brazil. If manufacturing companies which so far have been really active in previous auctions decide to leave, the competition will drop and price will rise. Last year, 14 GW were available at the auction, whereas this year only 3 GW remain. This is a major cutback for the sector and we must be very vigilant.

Finally a new certification requirement came in place which heavily affected the wind sector – P50 versus P90. Basically, when a new project is created, during three years an anemometer placed on a tower calculates the potential of wind to be produced. As an example, a 30 MW capacity wind farm project could produce around 12 MW on average. Therefore, with the P50 measure, you needed to prove that 50 percent of the time you could generate these 12 MW. Now this measure has been upgraded – P90 – and requires the proof of a 90% generation fulfillment. Ultimately the only way to certify this 90% requirement is by installing more towers, yet producing the same amount of energy. Therefore costs rise heavily but revenues remain the same as before.

These additional costs, combined with a lack of competitiveness and line issues are creating a lot of instability in the market and making wind power’s sustainability unsure.

What should be the priorities of Brazil in achieving a sustainable energy matrix?

Wind power is essential, but what is even more crucial for our country is to build a strong, highly renewable and sustainable energy matrix. Our country is diversified and we must take advantage of the wide array of sources we have available. Brazil needs to take a strong commitment with renewable energies, even if renewables do not always represent the best price alternative.

On the forefront of our energy matrix should remain hydropower, yet with a stronger influence of wind, biomass and of course thermal. It is fundamental that we take advantage of what Brazil has to offer in terms of renewable resources to establish our energy matrix. I believe we are capable of achieving this, and we must embrace this challenge as a team and as responsible citizens.

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