An insider’s perspective on local content and financing in the Brazilian solar market

By on August 15, 2017
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Like many emerging solar markets, my Brazilian homeland has had its share of unique economic and political challenges in recent years. If you have been following the national news here in Brazil, you know what I mean! Nevertheless, there still remain many lucrative opportunities for solar. If you’re a solar developer looking to enter the Brazilian market, here’s my insider’s guide to the Brazilian market today and in the near future.

With its abundant sunshine, large land mass and growing appetite for power, few countries have as much potential for solar deployment as Brazil. Solar offers a strong complementary power supply to hydro, which is not only the country’s largest renewable energy resource but its largest by far of any type, providing nearly three-quarters of Brazil’s electricity. Recent droughts have reduced the water flow to the hydro stations, resulting in severe power shortages; solar, on the other hand, has benefited from strong insolation during these dry periods and can offset much of the hydro shortfall. Conversely, when the rains come and hydro production is maximized, the solar generation might taper off a bit due to the cloudy conditions. There’s a great synergy between the two renewables.

The Brazilian solar market currently features nearly 3 GW of utility-scale projects in the pipeline, about 850 MW of which should be operational by the end of 2017. Growth in the nascent distributed generation sector has begun to accelerate, with some experts expecting it to reach 150 MW of installed capacity. If these projections come to pass, Brazil will reach a gigawatt of solar PV installations by year’s end.

The first tectonic shift in the Brazilian large-scale solar market took place in 2014, when the federal government established an interesting financing program through the Brazilian National Development Bank (BNDES). As a way to develop solar in the country, BNDES offered a low-interest line of credit incentive package for project developers that chose to use locally manufactured solar components such as modules, inverters and trackers. The higher the local content amount, the better the financing package that manufacturers could get from BNDES, which offers to finance up to 80% of a project’s capital expenditures.

Although potential participants could choose to employ non-Brazilian content and financing if they thought such an option penciled out (based on a combination of capital expenditure, interest rates, and currency hedge), the attractiveness of the local content package caught the attention of many investors. On the back of the BNDES package, the first-ever renewable energy auction in the country took place in October 2014.

Although I have to admit there have been difficulties and delays in many projects awarded during the first auction, I’m happy to report that several major solar farms that came out of that auction are now poised to come online in 2017-18. With lessons learned, subsequent auctions have streamlined the process and added more than 2 GW of projects to the pipeline.

This heightened interest in BNDES led NEXTracker to establish local manufacturing in 2015 with our parent company Flex, which has a major production facility in Sorocaba in the state of São Paulo. This decision paid off when BNDES awarded its FINAME accreditation to NEXTracker, signifying that the company had complied with the bank’s strict local content and manufacturing processes criteria. The FINAME certification, combined with Flex’s strong local manufacturing capability and our reputation for delivering on a quality project, established bankability for NEXTracker in the eyes of developers looking for solar component suppliers for projects in Brazil.  

With the door open to connecting our customers to the attractive low-interest credit lines and other benefits, NEXTracker signed an agreement with the Biosar unit of Aktor Construction Group to supply “Made in Brazil” NX Horizon single-axis trackers for the 191.5 MW Pirapora 1 solar plant. The plant, located in the state of Minas Gerais and now undergoing commissioning, has been built by Biosar for owners EDF Energies Nouvelles and Canadian Solar under a 20-year power purchase agreement. BNDES recently paid $163 million in project financing to the Pirapora I owners. 

Biosar 191.5 MW Pirapora Solar Power Plant using NX Horizon single-axis trackers

Pirapora I is not the only major solar farm using trackers in Brazil, as the market has started to embrace trackers in record numbers. According to GTM Research’s “Global PV Tracker Report 2016,” Brazil had 580 MW of tracker shipments in 2016, an exponential jump from the zero trackers shipped in 2015.

That’s the recent history. As for the future of the Brazilian large-scale solar market, I’m happy to say that it looks promising.

After the consternation caused by the government’s cancellation of the renewables auctions in 2016, the auction process is back on track. Just last week the Brazilian Ministry of Mines and Energy (MME) announced that it will hold a pair of renewables auctions in December 2017, although only one of them is currently open to solar projects. I will be working with the Brazilian solar trade organization, ABSOLAR, to urge MME to include solar in both auctions, and we are confident they will eventually adjust the terms of the second auction to include solar.

With the big price drop in solar, it has become much more competitive with wind and other energy sources than three years ago, and we expect our partners to win bids for many of these projects at auction

I’m also very excited about new opportunities in Brazil, such as the chance for large, grid-connected consumers to buy power on the free market directly from power producers and the growth of distributed generation (DG) projects under 5 MW. The solar DG market is of particular interest to NEXTracker, since we have already built 155 DG-type projects in the U.S. for commercial, industrial and agricultural customers. As a result of this growing demand, NEXTracker is ramping up production capacity at the Flex factory in São Paulo to support the expansion of our business in Brazil. I believe that the combination of the direct power purchase market and DG could take Brazil to the next level of solar deployment.

To learn more about NEXTracker’s current activities and future plans for the Brazilian and other South American markets, please come by Booth D100 at Intersolar South America next week at the Expo Center Norte in São Paulo.