Marcia Leal, Chief of Electric Energy & Chief of Alternative Energies, BNDES, Brazil
Marcia Leal, Chief of Electric Energy at BNDES, talks about new projects that embrace new sources of energy or alternative energies, which represent a strong potential for growth in Brazil. She further explains that alternative energies such as wind, solar, and biomass are on the verge of taking a real step forward yet need finance to fully realize their potential.
Could you begin with an overview of BNDES’ main client groups in the power and energy sectors and what these sectors in the Brazilian market represent within the overall portfolio of the bank?
L: At BNDES, the energy sector falls under the remit of the infrastructure and social development department, which also has responsibility for logistics, sanitation and public transportation. As a whole, infrastructure represents 34 percent of BNDES portfolio.
In 2012, investment on energy represented USD seven billion, including both our departments covering electric energy and alternative energies. Given that our bank invested a total of USD 74 billion across all our sectors, energy represents around 10 percent of BNDES total investments.
BNDES has a 70 percent participation rate in energy projects, except renewables, which can reach up to 80 percent and coal 50 percent. However, these rates are rarely reached as we only provide our financial support in a project finance basis. This means we only grant the amount that the project is capable of repaying. In this sense, a project’s leverage is defined in consideration with the company’s cash flow.
Since its foundation in 1952, BNDES has been Brazil’s main industry stimulator, helping companies expand and develop their activities accordingly. How has BNDES developed the energy sector since today?
L: Our objective since our foundation has been to assist all sectors with financing solutions allowing the development of companies’ activities and to support the country’s growth. Specifically for the energy sector, we have been focusing on the needs of the generation, distribution and transmission sectors. At BNDES we value very large projects like the Belo Monte dam as much as smaller, more limited hydropower dams. As long as these projects contribute to the growth of the country and represent a safe return on investment, BNDES is always present to give its financial support.
On the transmission side, in the past years we have been investing in this sector as the country needed to achieve a full electrification rate and cannot afford another power shortage like in 2001.
T: With regard to alternative energy, BNDES started to support wind farms in 2006, at a time where wind power was effectively irrelevant in Brazil. Early on, we managed to improve financing conditions for wind companies, while at the same time reducing tariffs to promote competition during the auction process. Since the auction system in Brazil only allows the company bidding at the lowest price to win, BNDES is ensured to finance the most promising project at all times. Thanks to our support, supporting 3GW of wind projects in Brazil, this sector is on the right path to take a further step in becoming a regular source of power for our country.
Moreover, load factors for wind in Brazil are unique, around 50 percent. This rate is much higher than in any other country and provides wind companies with a real competitive advantage.
From our support, the energy sector has gained strength and it is our priority to maintain our focus on such strategic investments.
Among BNDES’ portfolio of investments in generation, distribution and transmission assets, its generation investments represent around 70 percent of total investments—USD 22 billion vs. 31 billion. Similarly, investments in hydro stand out among the others such as thermal, biomass, and wind. How has BNDES been Brazil’s most active actor in the development of renewable energies in Brazil?
L: BNDES, like any other bank, assesses every project to evaluate the returns on investment, risks associated, and benefits of the project for society. When financing a project, we always try to combine our efforts with other sources of investment, from capital markets for example, to buttress our contribution and provide the best financing option for our clients.
We are currently strengthening our division to provide financing to a wider scope of projects. These new projects principally embrace new sources of energy or alternative energies, which represent a strong potential of growth for Brazil. Alternative energies such as wind, solar, and biomass are on the verge of taking a real step forward and need finance to fully realize their potential.
According to BNDES’ annual report, the evolution of its assets has almost doubled between 2007 and 2009. What were the reasons behind this extraordinary performance and how much did the energy sector contribute in this performance?
L: While other countries fell into recession and suffered from the financial crisis, Brazil took another standpoint and decided to invest massively in the country. In this sense our state treasury transferred large assets to BNDES and decided to support the country’s growth. From this support, BNDES was likewise able to support all sectors, thus contributing to the large development of the energy sector in that period. Our goal was not to become a huge bank, but simply to finance the needs of the country.
At the same time, highly renowned commercial banks, foreign banks and capital markets were collapsing and creating a lot of instability across all industries. Brazil remained strong in comparison to other countries due to its highly protectionist measures and reduced international capital exposure.
Brazil’s hybrid power model, which started in 2004, is a success since its long-term Power Purchase Agreements (PPAs) are supported by BNDES, which guarantees the financial strength of the investment throughout the company’s concession agreement. Without BNDES the hybrid power model would be unsustainable. How has BNDES collaboration on this matter been installed?
L: As a government bank we have been financing this model since its inception. This is our principal role. We have been taking part in discussions between the different stakeholders, but in the end we are here to support the government and other institutions with financial support, with the aim of successfully completing projects. Our support in the energy industry, and for the varying sources of energy, comes under the supervision of the ministry of Mining and Energy, which provides planning and regulation for the market. Given that the energy industry is a priority for Brazil, we have spread across all forms of generation, distribution and transmission projects.
With our ability to offer unique conditions for finance we are responsible for providing the energy sector and its companies with affordable financing tariffs allowing them to take part of the auctions with serenity and confidence. Our financial structure provides a wide variety of support to the companies and in this sense the development of the energy sector relies on us.
In January of 2013, BNDES along with Aneel and Finep partnered on a new program named Inova Energia and created a USD 1.5 billion plan to foster innovation in the energy sector. Could you outline how this agreement intends to foster innovation?
L: The Inova Energia program is of major focus for us and for the country as it fosters new technologies and solutions in different areas such as smart grids, solar, ultra-high voltages, wind and vehicular efficiencies.
Smart grids represent a very important niche and a real requirement to allow development of new innovative solutions for our national industries. Smart grids can be applied in many ways and cover a wide array of solutions from specific industry products to improving transmission line systems to in-house personal smart metering systems. While these systems are well developed in European countries, Brazil is at an early step and needs to prioritize what model of smart grid system needs to be implemented, especially in such a diverse country where Southern regions with cities like Sao Paulo and Rio de Janeiro are well developed yet many others in the North are underdeveloped.
Similarly, ultra-high voltage transmission lines should be rolled out nationally, as our very long transmission lines require these systems to perform optimally. As our country further improves its transmission line systems, other sources of energy will benefit from a robust national grid system.
T: Wind is a very recent development in Brazil’s energy matrix to any great degree and today represents two percent of the total installed capacity. Therefore, it is of interest to further develop the whole supply chain of wind suppliers. More specifically, Brazil needs to develop its own blades adapted to our local winds which are very strong, stable and provide low turbulence. This will enable us to provide more energy to the national grid. From this supply chain initiative, we feel it is also important to support nacelle and gear box manufacturers, which are regulated under the local content requirements.
In the past, local content measures were set at 60 percent. However today, this figure is less relevant as local content is specifically adapted to every sector. At BNDES, we have set a list of very specific local content measures and targets that companies must meet in order to have access to our financing solutions. Therefore every six months, companies falling under BNDES financing must prove they are attaining our specific targets.
These measures might seem drastic, but the energy market needs transparency and foreign businesses need to rely on solid regulations to ensure their future investments in the country.
If we were to come back in five years’ time, how would you like us to see BNDES in Brazil?
L: We have a very optimistic vision for Brazil’s future, and this vision depends on the success of renewable energies. We must keep promoting hydro as the backbone of our energy sector, yet simultaneously we must also give a strong push for wind, solar and biomass.
T: My greatest wish for renewable energies is to develop source specific auctions. Once we achieve this, solar energy will rapidly expand and other sources such as wind and biomass will lead the way setting the pace for development of our country’s unique renewable energy resources.
L: Renewable energies are definitely a real improvement for our country, but currently we must also make use of base load energies such as thermal power plants as an active part in our energy matrix. Thermal power represents a reliable backup solution and can reduce our reliance on reservoirs. This year a specific thermal power auction will take place and we can expect a stronger positioning of thermal power in Brazil.
We are on the right track to push both renewable and non-renewable sources, establishing the best combination of energies for our energy matrix. With BNDES standing as the main financial entity for the energy sector in Brazil, all we need is strong participation from the sector and collaboration between government entities in order to embrace a bright future.