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Interview

with Paulo Fernando Soares, Vestas do Brasil Energia Eolica Ltda.

26.08.2013 / Energyboardroom

In an interview for Bloomberg you stated: “Money is hard to come by – you need a solid case to justify what you are doing here.” Now, Vestas is the second largest turbine manufacturer, with over 44,000 turbines in over 66 countries. What are the conditions for Vestas to glide in Brazil’s wind industry?

The quotation from Bloomberg refers to a wider context than wind power business in Brazil. My point was related to the build-up of additional manufacturing capacity in Brazil to meet FINAME local content guidelines, while at the same time, companies being challenged on a global level from issues related to the current support for renewables in Southern Europe, PTC extension in the USA, or excess of manufacturing capacity in China, India, USA, and etc. These issues are central to key decisions that business leaders are confronted with.

Companies are working hard to adjust their structures to the new global business reality. While the new current FINAME guidelines for local content are, in my opinion, much clearer than the previous ones, adjustments of the current companies’ set-up in the wind sector are still needed for them to meet those requirements.

It is difficult to make the case for additional local infrastructure when we have, as a Country, only installed 400MW of new capacity in the past years. Local content policies tend to decrease competition, slow down innovation, retard economies of scale, and raise costs by creating supply chain inefficiencies. We are working diligently to lower the cost of energy: that’s our commitment – to public authorities, our customers, and their consumers. Local content regulations create unnecessary barriers to lowering the cost of energy. And the employment effects of such policies have not been proven yet: the countries with the highest levels of wind jobs and investments in fact are those that have secured a free an open market place (like Germany and the US for example).

If governments want to promote the development of the sector at a local level, the best approach is to use the power of public policies to create sustainable and predictable demand – industry will naturally follow up with investments in local markets. Governments enacting local content requirements and other trade barriers will only create short-term, artificial jobs that will not contribute to building a healthy, sustainable industry.

Mr. Tomalsquim, President of EPE, shared his strong enthusiasm about wind power in Brazil, attracting foreign investors, technology, and reducing wind prices during auctions. The Brazilian wind is the best in the world – stable, strong, no turbulences – and Mr. Edison Lobão’s energy plan aims to deliver 12 GW of wind energy capacity by 2020, compared to the two GW today. What would you like to share with us about the potential of wind in Brazil

The potential for wind energy here in Brazil is immense, and Vestas recognizes and appreciates it. For the industry in general all that is required to grow is stable volume, the right business case and the correct policies. The presence of these three elements will ensure wind energy companies’ interest for the Brazilian wind market. Vestas is very committed to it and we consider Brazil as one of the leading countries when it comes to the development of wind energy in the world. Vestas is also committed to achieving the local content levels required to secure that projects with Vestas technology qualify for BNDES financing. However, Brazil’s local content requirements are a challenge for the wind industry to meet and are not conducive to a sustainable development of the wind energy sector. We believe that a free and open market place in Brazil would be more efficient in terms of attracting wind energy jobs and investments to the Brazilian market. We recommend that Brazil shifts its focus from local content requirements to building local capabilities, sound investment climate and competitiveness. By doing this, investing companies and the Brazilian government can create long-lasting benefits that are underpinned by sustainable economic growth. We say this with confidence, as Vestas has more than 30 years’ experience in developing new markets for wind energy.

Brazil has exceptional wind resources and several advantages compared to other countries. I have sold turbines in Inner Mongolia, which also has excellent wind resources. What is even more beneficial for the sector here in Brazil is that the temperature does not drop to minus 40 degrees in winter and there are no natural disasters. Moreover, Brazil’s wind industry is maturing later than in other countries – this means we can learn from other countries’ past experiences.

This also implies that, the latest technology is available just as the industry starts to grow in scale here and Brazil has significantly benefited from having manufacturers with past experience in important issues such as grid-related ones.

You state that wind turbines are not causing any problems on the grid in Brazil but what are your views on the Brazilian interconnected network and what does it take to successfully integrate a wind farm into the transmission grid?

Grid issues are not unique to Brazil. China, India, and the USA, just to name the largest markets, also have to deal with grid- related issues. The next auctions, which will be held in August and October, will serve as a good example. The requirement that new projects’ development are already equipped with a connection point at a substation as precondition for the projects to apply for a PPA is a significant step forward, though not 100% sufficient, as we know of excellent areas for wind development which will not be able to participate in the next auctions due to, among other things, lack of substation capacity.

You mention that grid connection issues are not unique to Brazil. I understand that you worked abroad, very successfully for Kenersys and Suzlon. Could you share with us your secrets of your accomplishments and what is your strategy for Vestas?

Previously I had the opportunity to contribute setting up those companies from a very early stage of development and that, in a way, makes things a little easier. When I started in Suzlon, it was when the wind industry in China was just starting to develop, with the introduction of the Renewable Energy Law. Kenersys was also in its early stages of development, in this case, as a company at global level. Those quite particular situations have enabled me to deal and overcome several challenges.

I come from a “hands on operations” background and this has helped me to understand a bit better most of the stages of this business. Managing operations, actively working in projects’ implementation and managing customer relationship before moving into the commercial aspect of the business, has given me useful insights.

Nevertheless, the opportunity I had to develop an extensive international experience is perhaps more important. I worked in China exactly when the wind industry started to grow and in India for Kenersys and Suzlon. I have experienced what it is to be a very small player in Europe at the time when turbines offered to the market were exceeding the demand, and I was also actively involved in Kenersys’ setup in other markets such as the USA and Brazil. Being able to work for those companies in a variety of environments was highly useful.
How did you convince Vestas shareholders to locate here- did your experience help, particularly in China, which you mention was at a similar stage to Brazil now in developing its wind industry?

I try to work with facts, For example, I do not completely agree with many discussions related to the tariff levels in in Brazil. A tariff starting at BRL 88.0./MWh (which was the value from last auction), will increase, according to the IPCA, about 5% a year. Five years later, this tariff will be at BRL 107.0/MWh. At the end of 20 years of a project the cost would be BRL 222.0/MWh. The average tariff across this period is BRL 145.0/MWh.

It is also important to provide information to all stakeholders and to show that we may have solutions available to overcome obstacles that may exist in Brazil. For example, the local production of parts is a requirement if a company intends to get finance from BNDES but projects can still be carried out without BNDES, if you have the capabilities to access finance elsewhere, and many companies can do that. You just need to structure a solution which enables those companies to compensate the higher cost of getting financed elsewhere.

I believe that the government can justify offering BNDES financing at lower interest rates and ask for something in exchange but local content is not mandatory if alternative sources of finance from organizations such as International Finance Corporation can, in combination with other factors, enable a project to be economically feasible. For us, it is essential to look for those solutions.

I try using my experience from other markets and other situations, but also to focus on the business reality here in Brazil. We do have a difficult market, but we also have grid parity. I’m convinced that there are still good opportunities in Brazil for the entire wind industry.
Vestas wind nacelles production center in the State of Ceara is a clear sign of commitment to the country’s potential. What objectives do you have for this facility?

Brazil’s local procurement policies will be met by Vestas. Under the previous regulations, 60 percent of value and weight of the components had to be sourced in Brazil and Vestas has, at the time, decided not to produce blades locally. With the new local content guideline, the situation has changed. Therefore, defining which strategy we will implement regarding blade production in Brazil is extremely important, because we do not want to develop a product suitable only for sale in Brazil, and neglect the market in the neighboring Countries. We want to have a flexible product, produced in Brazil, which can be sold globally, and while some of our competitors have produced blades here in Brazil for some time already, Vestas is carefully considering how to move forward. As a global company, decisions must be taken in a global context.
You have been collaborating with Chesf in the northeast regions of Brazil – Pedra Branca, São Pedro de Lago e Sete Gameleiras – providing them with high quality wind turbines. How are these important partnerships to shape Vestas’ presence in Brazil? 

Chesf is an indirect customer. The main shareholder is Brennand, from which we received a 90MW order for a project in Bahia. Obviously, we are confident that the way we have been supporting Brennand and our project’s performances have positively impressed Chesf. Recognition for our high quality work is always welcome.
What are your priorities and ambitions to drive Vestas forward in Brazil in the next five years? 

First of all, I hope that the next two auctions in August and October will maintain this positive momentum. Wind generation capacity in Brazil could be built up very quickly, and this also carries many other positives aspects and social benefits which are not always recognized. For example, in several quite poor regions in Brazil, installation of wind farms provides, among other things, employment, financial benefits to the land owners, support governments’ efforts to legalize land ownership titles, improve infrastructure in general, etc.
Wind is quite unique in providing this kind of opportunities in a short period of time.

Additionally, I hope that we will have a stable and long-lasting regulatory framework. With good volumes and fair competition: steady growth is the key target to Vestas and to me. At the moment, Brazil is only scratching the surface when it comes to the immense opportunities wind industry brings with in the country.

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