Petrobras Grip on Energy and National Indolence Prevent a Brazilian Solar Industry

Vested interests, protectionism and a lack of entrepreneurism have stifled the development of a national solar industry in Brazil, a country with huge potential to generate energy from sources other than oil and large hydropower.

Brazil is way behind fellow emerging economies China and India in developing alternatives such as wind and solar. The uncompetitive award of big hydroelectric contracts by state-owned energy company Petrobras, as exposed by the vast anti-corruption investigation lava jato (operation car wash), has revealed an energy sector that is vulnerable to corruption, captured by incumbent interests, and reluctant to invest in new technologies.

Brazil’s strict laws on using locally manufactured content do not help either. In areas such as solar technology its products are uncompetitive globally, meaning weak sales abroad and limited deployment of imported solar technology at home.

There are two distinct approaches to generating solar energy in Brazil. In the first, known as centralized generation, utility-scale solar competes with other types of generation to win government capacity auctions.

In the other approach, known as distributed generation, companies negotiate directly with consumers to install panels on their properties, which they essentially lease. Any surplus energy is sold to the grid. However, Brazil’s crippling recession has made this option less viable since it has stunted demand.

Renewable energy prices are falling rapidly across the world, bringing them ever closer to the cost of fossil technologies. If demand recovers in Brazil, cheap solar energy could attract consumers looking to avoid high prices, and micro-generation is starting to be adopted on a larger scale, albeit from a lower base. Such schemes also reduce the logistical and environmental challenges of transmitting electricity across a country as large as Brazil.

A major factor holding Brazil back from alternative energy sources is state-owned company Petrobras, according to Carlos Rittl, director of Brazil’s Observatório do Clima (Climate Observatory).

Since its foundation in 1953, the company has promoted the extraction of fossil fuels and has been unwilling to change course and promote renewables, despite being an energy company rather than an oil and gas company, according to its statute.

The discovery of vast, deep-lying oil deposits off the coast of Rio de Janeiro in 2008, referred to as ‘pre-salt’, only reinforced this approach, said Rittl.

However, Brazilians are slowly waking up to the fact that the solar energy potential in any given region in their country is around double that of a country such as Germany, which has deployed significant amounts of solar, and that it will need to reform its hydro and oil-heavy energy matrix in order to meet emissions reductions commitments under the Paris Agreement on climate change.

Hydro Obsession

Despite its impacts on rivers, rural communities, and susceptibility to droughts, hydropower is widely publicly perceived as a vital, reliable energy source in Brazil. In recent years, Brazil has managed to generate up to 80% of its energy from hydropower, but it faces an uncertain future.

Not only has lava jato paralyzed projects, but also unreliable rainfall, conflict over environmental impacts and forced displacement of indigenous communities, has left major projects such as Belo Monte and São Luis do Tapajós hanging in the balance. Estimates suggest 230GW of energy from an estimated potential 300GW remain unexploited in Brazil.

But Brazil’s hydro crisis could be a new dawn for the photovoltaic industry. As with wind power, estimates from IRENA (the International Renewable Energy Agency) indicate that the cost of solar energy should drop by half in the space of eight years, from the current value of US$ 130 per megawatt hour (MWh) to US$ 60/MWh in 2025. Some contracts have been negotiated on the basis of a rate of US$ 50/MWh – or even less.

According to climate analyst Délcio Rodrigues, solar energy has only recently received a push because of the combination of low prices for solar panels and high consumer prices for energy. “Solar panels have become a commodity,” he says.

During the 1990s, the price per MWh of solar energy was equal to the price of energy generated by nuclear power plants, and represented an unattractive option for potential investors.

“Today, the price of solar is a fifth of what it was then in the 1990s. This is the result of large-scale investments by several countries such as Germany, the US, and Japan and China,” says Rodrigues, adding that world is taking a “hard turn” towards generating energy from the wind and sun.

Rodrigues attributes the lack of investment in solar energy to a “culture” of dam-building, and a tendency among large engineering companies to build smaller and less productive hydroelectric dams.

Rittl agrees that the situation could be about to change, as more recent communications from Petrobras acknowledge the future is one of renewable energy. But there is a long way to go.

Currently there are fewer than 10,000 solar panels on the roofs of homes, office blocks and public buildings in Brazil. Bangladesh, a country with a smaller population whose land area would fit in to Brazil over 50 times, has around 1.5 million.

Rodrigues argues that national companies have shown an inability to innovate. In Brazil, the solar energy industry is comparable to the automotive industry, which does not count on a wholly Brazilian company to manufacture vehicles and instead hosts international manufacturers.

“In general, Brazil has never had an innovative [industrial] foundation,” he says, naming small aircraft manufacturer Embraer as one of few exceptions.

This situation is reinforced, according to Rodrigues, by statements from public officials claiming solar cannot replace large-scale generation, or that it is not possible to transition away from current energy sources. “They never took a chance on solar energy the way they took a chance on Embraer,” he says.

According to the Brazilian government’s latest 10-year plan for energy (PDE 2024), installed solar capacity will reach 11.5 GW by 2024 thanks to projected investments of around 62 billion reais (around US$ 20 billion). Yet some 70% of investment is still destined for the oil and gas sectors. Currently, total installed solar capacity in Brazil is 850 MW per year.

Local Content Credit

The administration of impeached former president Dilma Rousseff established a policy at the Brazilian National Development Bank (BNDES) to provide low-interest financing for infrastructure projects. According to the policy, which remains in place, utility-scale solar will only receive financing from BNDES if projects adhere to rules on using a minimum percentage of components manufactured in Brazil.

According to IRENA, requirements for local content are changing – from a quantitative approach (requiring 60% local content) to a quantitative one – with access to finance dependent on which elements are local and which must be imported.

BNDES’ measure replicates a recently adopted policy on wind power projects, which permitted the establishment of a more solid supply chain. The local component policy requires companies to be registered with BNDES, which evaluates whether its manufacturers meet the criteria for local content.

Currently 19 companies producing inverters and photovoltaic panels have been endorsed by BNDES. Their output can produce 300 MW/year. This figure is around a third of the total installed in the country. Therefore, it’s highly likely not every company that produces components in Brazil has obtained BNDES certification.

One of the main players in Brazil is Canadian Solar, which also operates solar generation facilities. The company is expected to inaugurate a factory this year in the municipality of Sorocaba, São Paulo state, in a partnership with the US-owned Flextronics to supply its own projects.

Another notable company is SunEdison, which has almost 200 MW worth of projects. The purchase of this company by the Canadian Brookfield Asset Management, which owns some 217 hydropower sites around the world, is expected to increase production capacity. Then there is Chinese company BYD, better known in Brazil for its electric buses, which has also opened a Brazilian plant to produce photovoltaic units.

The regulations on local content mean it is often cheaper for energy distribution companies to import components from abroad, even if it means missing out on credit from BNDES. With no guarantees of support for the solar market from the Brazilian government, Italian energy distribution company Enel, for example, turned to Chinese firms JA Solar and Jinko to provide panels for power plants commissioned in Brazil in 2014 and 2015.

At the local level, governments are searching for investments in new solar facilities to stimulate job creation and economic activity. Rio Grande do Norte, for example, sent a delegation to China in February to attract Chinese companies, namely Chint Electric, to build a factory in the state.

In the northern state of Amazonas, companies receive tax incentives to produce within its borders. The Free Trade Zone (FTZ) in Manaus has received inquiries from Chinese companies, whose names were not disclosed. Piauí, one of Brazil’s poorest states, is also trying to attract more investments, especially to the region it is marketing as the “Silicon Valley of Piauí”, owing to its embrace of technology and innovation.

Two Paths

Brazil’s recession has also significantly slowed the development of the photovoltaic industry. The drop in industrial activity, increased unemployment and, consequently, reduced electricity consumption means companies’ plans to build factories in the country are on hold until demand recovers.

An electricity surplus, combined with negative changes in macroeconomic conditions and financing, led the government to promote what is being called the “decontracting auction” – where companies pay a fee to break solar and wind generation contracts and cancel projects.

At the same time, between 2014 and 2015 the government auctioned 1,722 MW of solar energy. Rodrigo Sauaia, president of Absolar (Brazil’s solar industry association), believes that despite the decontracting, there will be new auctions. This is because the government will have to sign contracts for new reserve power plants, that supply energy in the event of shortages.

Rodrigues says solar power is leading a revolution in the energy market through distributed generation. In March, the country had 8,931 micro-generation systems connected to the grid.

These account for the first 100 MW of installed capacity of mini and micro-generation systems. The vast majority, 8,832 systems, were photovoltaics, according to data from regulator the National Electric Energy Agency (Aneel).

Plants with installed capacity up to 75 kW are considered micro-generation in Brazil. Mini-generation stations have capacity between 75 kW and 5 MW, and small hydroelectric units, SHU, are classified as those generating 3 MW.

Taking only panels on residential properties into account, research by the Energy Research Company (Empresa de Pesquisa Energética, EPE), which is responsible for energy planning in Brazil, distributed generation has the potential to provide 164 GW.

While there is potential for strong growth in this sector as costs fall and Brazilians look to lower their energy bills, the troubled government seems less enthusiastic about backing utility-scale solar.

This article appeared originally in Diálogo Chino – http://dialogochino.net/

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It seems the future never arrives in Brazil What Lies Ahead in Brazil? Brazil Has No Exemplary Past or Present. But What Lies Ahead for the Country? Europeans, US, developed country, developing country. Bolsonaro, future B. Michael Rubin For years, experts have debated what separates a developing country from a developed one. The GDP (Gross Domestic Product) of a country is one simple way to measure its economic development. Another way to measure a country's progress is the extent of public education, e.g. how many citizens complete high school. A country's health may be measured by the effectiveness of its healthcare system, for example, life expectancy and infant mortality. With these measurement tools, it's easier to gauge the difference between a country like Brazil and one like the U.S. What's not easy to gauge is how these two countries developed so differently when they were both "discovered" at the same time. In 1492 and 1500 respectively, the U.S. and Brazil fell under the spell of white Europeans for the first time. While the British and Portuguese had the same modus operandi, namely, to exploit their discoveries for whatever they had to offer, not to mention extinguishing the native Americans already living there if they got in the way, the end result turned out significantly different in the U.S. than in Brazil. There are several theories on how/why the U.S. developed at a faster pace than Brazil. The theories originate via contrasting perspectives – from psychology to economics to geography. One of the most popular theories suggests the divergence between the two countries is linked to politics, i.e. the U.S. established a democratic government in 1776, while Brazil's democracy it could be said began only in earnest in the 1980s. This theory states that the Portuguese monarchy, as well as the 19th and 20th century oligarchies that followed it, had no motivation to invest in industrial development or education of the masses. Rather, Brazil was prized for its cheap and plentiful labor to mine the rich soil of its vast land. There is another theory based on collective psychology that says the first U.S. colonizers from England were workaholic Puritans, who avoided dancing and music in place of work and religious devotion. They labored six days a week then spent all of Sunday in church. Meanwhile, the white settlers in Brazil were unambitious criminals who had been freed from prison in Portugal in exchange for settling in Brazil. The Marxist interpretation of why Brazil lags behind the U.S. was best summarized by Eduardo Galeano, the Uruguayan writer, in 1970. Galeano said five hundred years ago the U.S. had the good fortune of bad fortune. What he meant was the natural riches of Brazil – gold, silver, and diamonds – made it ripe for exploitation by western Europe. Whereas in the U.S., lacking such riches, the thirteen colonies were economically insignificant to the British. Instead, U.S. industrialization had official encouragement from England, resulting in early diversification of its exports and rapid development of manufacturing. II Leaving this debate to the historians, let us turn our focus to the future. According to global projections by several economic strategists, what lies ahead for Brazil, the U.S., and the rest of the world is startling. Projections forecast that based on GDP growth, in 2050 the world's largest economy will be China, not the U.S. In third place will be India, and in fourth – Brazil. With the ascendency of three-fourths of the BRIC countries over the next decades, it will be important to reevaluate the terms developed and developing. In thirty years, it may no longer be necessary to accept the label characterized by Nelson Rodrigues's famous phrase "complexo de vira-lata," for Brazil's national inferiority complex. For Brazilians, this future scenario presents glistening hope. A country with stronger economic power would mean the government has greater wealth to expend on infrastructure, crime control, education, healthcare, etc. What many Brazilians are not cognizant of are the pitfalls of economic prosperity. While Brazilians today may be envious of their wealthier northern neighbors, there are some aspects of a developed country's profile that are not worth envying. For example, the U.S. today far exceeds Brazil in the number of suicides, prescription drug overdoses, and mass shootings. GDP growth and economic projections depend on multiple variables, chief among them the global economic situation and worldwide political stability. A war in the Middle East, for example, can affect oil production and have global ramifications. Political stability within a country is also essential to its economic health. Elected presidents play a crucial role in a country's progress, especially as presidents may differ radically in their worldview. The political paths of the U.S. and Brazil are parallel today. In both countries, we've seen a left-wing regime (Obama/PT) followed by a far-right populist one (Trump/Bolsonaro), surprising many outside observers, and in the U.S. contradicting every political pollster, all of whom predicted a Trump loss to Hillary Clinton in 2016. In Brazil, although Bolsonaro was elected by a clear majority, his triumph has created a powerful emotional polarization in the country similar to what is happening in the U.S. Families, friends, and colleagues have split in a love/hate relationship toward the current presidents in the U.S. and Brazil, leaving broken friendships and family ties. Both presidents face enormous challenges to keep their campaign promises. In Brazil, a sluggish economy just recovering from a recession shows no signs of robust GDP growth for at least the next two years. High unemployment continues to devastate the consumer confidence index in Brazil, and Bolsonaro is suffering under his campaign boasts that his Economy Minister, Paulo Guedes, has all the answers to fix Brazil's slump. Additionally, there is no end to the destruction caused by corruption in Brazil. Some experts believe corruption to be the main reason why Brazil has one of the world's largest wealth inequality gaps. Political corruption robs government coffers of desperately needed funds for education and infrastructure, in addition to creating an atmosphere that encourages everyday citizens to underreport income and engage in the shadow economy, thereby sidestepping tax collectors and regulators. "Why should I be honest about reporting my income when nobody else is? The politicians are only going to steal the tax money anyway," one Brazilian doctor told me. While Bolsonaro has promised a housecleaning of corrupt officials, this is a cry Brazilians have heard from every previous administration. In only the first half-year of his presidency, he has made several missteps, such as nominating one of his sons to be the new ambassador to the U.S., despite the congressman's lack of diplomatic credentials. A June poll found that 51 percent of Brazilians now lack confidence in Bolsonaro's leadership. Just this week, Brazil issued regulations that open a fast-track to deport foreigners who are dangerous or have violated the constitution. The rules published on July 26 by Justice Minister Sérgio Moro define a dangerous person as anyone associated with terrorism or organized crime, in addition to football fans with a violent history. Journalists noted that this new regulation had coincidental timing for an American journalist who has come under fire from Moro for publishing private communications of Moro's. Nevertheless, despite overselling his leadership skills, Bolsonaro has made some economic progress. With the help of congressional leader Rodrigo Maia, a bill is moving forward in congress for the restructuring of Brazil's generous pension system. Most Brazilians recognize the long-term value of such a change, which can save the government billions of dollars over the next decade. At merely the possibility of pension reform, outside investors have responded positively, and the São Paulo stock exchange has performed brilliantly, reaching an all-time high earlier this month. In efforts to boost the economy, Bolsonaro and Paulo Guedes have taken the short-term approach advocated by the Chicago school of economics championed by Milton Friedman, who claimed the key to boosting a slugging economy was to cut government spending. Unfortunately many economists, such as Nobel Prize winner Paul Krugman, disagree with this approach. They believe the most effective way to revive a slow economy is exactly the opposite, to spend more money not less. They say the government should be investing money in education and infrastructure projects, which can help put people back to work. Bolsonaro/Guedes have also talked about reducing business bureaucracy and revising the absurdly complex Brazilian tax system, which inhibits foreign and domestic business investment. It remains to be seen whether Bolsonaro has the political acumen to tackle this Godzilla-sized issue. Should Bolsonaro find a way to reform the tax system, the pension system, and curb the most egregious villains of political bribery and kickbacks – a tall order – his efforts could indeed show strong economic results in time for the next election in 2022. Meanwhile, some prominent leaders have already lost faith in Bolsonaro's efforts. The veteran of political/economic affairs, Joaquim Levy, has parted company with the president after being appointed head of the government's powerful development bank, BNDES. Levy and Bolsonaro butted heads over an appointment Levy made of a former employee of Lula's. When neither man refused to back down, Levy resigned his position at BNDES. Many observers believe Bolsonaro's biggest misstep has been his short-term approach to fixing the economy by loosening the laws protecting the Amazon rainforest. He and Guedes believe that by opening up more of the Amazon to logging, mining, and farming, we will see immediate economic stimulation. On July 28, the lead article of The New York Times detailed the vastly increased deforestation in the Amazon taking place under Bolsonaro's leadership. Environmental experts argue that the economic benefits of increased logging and mining in the Amazon are microscopic compared to the long-term damage to the environment. After pressure from European leaders at the recent G-20 meeting to do more to protect the world's largest rainforest, Bolsonaro echoed a patriotic response demanding that no one has the right to an opinion about the Amazon except Brazilians. In retaliation to worldwide criticism, Bolsonaro threatened to follow Trump's example and pull out of the Paris climate accord; however, Bolsonaro was persuaded by cooler heads to retract his threat. To prove who was in control of Brazil's Amazon region, he appointed a federal police officer with strong ties to agribusiness as head of FUNAI, the country's indigenous agency. In a further insult to the world's environmental leaders, not to mention common sense, Paulo Guedes held a news conference on July 25 in Manaus, the largest city in the rainforest, where he declared that since the Amazon forest is known for being the "lungs" of the world, Brazil should charge other countries for all the oxygen the forest produces. Bolsonaro/Guedes also have promised to finish paving BR-319, a controversial highway that cuts through the Amazon forest, linking Manaus to the state of Rondônia and the rest of the country. Inaugurated in 1976, BR-319 was abandoned by federal governments in the 1980s and again in the 1990s as far too costly and risky. Environmentalists believe the highway's completion will seal a death knoll on many indigenous populations by vastly facilitating the growth of the logging and mining industries. Several dozen heavily armed miners dressed in military fatigues invaded a Wajãpi village recently in the state of Amapá near the border of French Guiana and fatally stabbed one of the community's leaders. While Brazil's environmental protection policies are desperately lacking these days, not all the news here was bad. On the opening day of the 2019 Pan America Games in Lima, Peru, Brazilian Luisa Baptista, swam, biked, and ran her way to the gold medal in the women's triathlon. The silver medal went to Vittoria Lopes, another Brazilian. B. Michael Rubin is an American writer living in Brazil.

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