The Blog - Wind energy market analysis

Posted 06/12/2018

Ilaria Valtimora

    

Country Analysis: Brazil

We ranked Brazil among the 30 key emerging markets for wind investors, as the country has generated plenty of interest in recent years due to its impressive supply of natural wind resources and ambitious renewable energy targets. But, with investors already wary of its historically unstable economic and political atmosphere, how much will the election of Jair Bolsonaro affect growth?

Brazil - Jair Bolsonaro

Photo Source: Flickr - jair-bolsonaro_multidao

Key facts 

  • Brazil produces a high percentage of renewable energy: 79% of domestically produced energy is renewable
  • Most of Brazil’s renewable power comes from hydro power and biofuels. Hydro currently accounts for 63.7% of Brazil’s energy generation.
  • There’s 12.8GW of wind capacity currently installed in Brazil – which is similar to European countries like France and Italy, making it the most developed wind market in Latin America.

Brazil Today

Brazils remains in a fragile state following a brutal two-year recession that was the worst in the country’s history. Businesses has had to deal with low power consumption, weak industrial demand, and rising interest rates, and the country hasn’t fully recovered yet.

Annual performances of gross domestic product (GDP) have improved but remain below the government’s expectations, unemployment sits at around 12% and the budget deficit is running at 7% of GDP.

Against a backdrop of economic crisis, rising unemployment, increasing violence and murders, and a deepening distrust of politicians due to corruption scandals, many Brazilians and investors alike have backed the election of Jair Bolsonaro of the Social Liberal Party as the country’s next president.

Whilst Bolsonaro has yet to assume his office, and hasn’t officially laid out his policies, there are reasons for investors to feel wary.

In October, Bolsonaro pledged to pull Brazil out of the Paris Agreement on climate change, but made an abrupt volte-face just days before the second round of voting. This implies his other pledges may also be subject to short-term changes. This brings uncertainty, and we’re sure investors will be taking note.

He has also been a vocal opponent of environmental protection. As such, it is little surprise that wind farms didn’t get much of a look-in in his manifesto. Bolsonaro has said that he would support the transition to renewable energies but, in his manifesto, wind power is mentioned only twice and solar once. Renewable energy is clearly not a priority.

However, with Brazil suffering 13% of all global homicides, we do get that the most urgent matter at hand is combating the rise of violence. Bolsonaro, who was himself the victim of a stabbing in September, knows this all too well.

Perversely, though, that lack of attention could be good news for renewable energy. The new administration has bigger priorities, which means that it may avoid tinkering with the country’s existing renewable energy tenders and policies.

Just think Trump. Our observations of the US market over the past two years have taught us that, with the right investment conditions and expertise, wind markets can be successful under ambivalent, or even hostile, leadership.

The Prospects for Wind Investors

Our recent Emerging Markets Attractiveness has showed that investors would be wise to consider administrative hurdles as well as an uncertain political and economic environment when choosing whether to invest in Brazil. This is despite the size of the market, attractive wind resources and an ambitious target of 28GW of installed wind capacity by 2026, which remain key for investors.

Finally, despite the President hasn’t actually outlined his energy policies, wind businesses could find reasons to be cautious in the election of the new Mines and Energy Ministry.

Bolsonaro picked in November the head of the country’s nuclear submarine programme, squadron admiral Bento Costa Lima Leite de Albuquerque, to lead the country’s energy sector from 1 January, when the new government assumes control.

A defender of Brazil’s nuclear programme, Albuquerque is set to tackle offshore oil licensing rounds and planned energy privatisations of utilities including Electrobras.

While Brazil’s current energy plan sees wind more than doubling its capacity in the next 8 years, nuclear energy is set to play only a marginal role. The plan foresees 3.4GW of nuclear capacity by 2026, up from the current 2GW. But this might well change under the new energy minister.

We don’t expect Bolsonaro’s administration to become a champion of Brazil’s wind market – but that might not be a big problem as long as he isn’t trying to actively damage it.

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