Experts and investors from the renewable energy sector point to the indexation of power purchase agreements (PPAs) in US dollars as a valid option to speed up the expansion of solar energy in Brazil.
Unlike wind energy that has been growing rapidly since its early stages, the solar sector is in its infancy. In 2015 alone, the country's wind energy production reached 21.6 TWh, according to data from the National Energy Balance Synthesis Report (BEN). The most recent data from September shows Brazil's installed wind power generation capacity reached 9,507 MW, while solar stood at just 23 MW.
The US-dollar PPA idea was widely discussed during the Brazil International Renewable Energy Congress (BIREC), an event that took place between November 7 and 10 in Sao Paulo city. Among the main arguments for the dollarisation of PPAs is that photovoltaic (PV) equipment imports are still the main option for developing projects in Brazil.
The CEO of financial advisory firm Clean Energy Latin America (CELA), Eduardo Tobias Ruiz, said it is less expensive to import the solar equipment, such as PV panels, from other countries when building projects in the country. There has been a decline in PV prices globally in the second half of 2016, as reported by analysts and sector players, mainly due to a sharp drop in demand from China. So the topic of overcapacity may be back on the table and brings with it price pressure.
When power contracts are agreed in local currency, Brazilian investors face foreign exchange risks that may be too high. Recently, solar projects of nearly 700 MW that won an auction in 2014 requested changes to the implementation schedule, saying their projects have been delayed by unpredictable events in the Brazilian macroeconomic scenario. They claimed the depreciation of the local currency had made it very expensive to import equipment, while local factories did not have enough capacity to supply the solar projects. The latter factor also leads to inability to meet domestic content requirements of the Brazilian Development Bank (BNDES), hurting the projects' efforts to secure financing.
The sector believes that if the PPAs were contracted in US dollars it would level the field with other markets.
Another bottleneck in the Brazilian solar industry discussed during the fours days of BIREC was the project execution time. In the country, due to its process for finance, implementation and regulation, it takes at least one year while in Europe it is less than half of that period, said Natalia Svejgaard, investment director of the Danish Climate Investment Fund (IFU).
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