Weaker Brazil Currency Jeopardizes World’s Cheapest Wind Energy

Energy developers in Brazil that have agreed to deliver some of the world’s cheapest wind power may have trouble building new projects as a plunging real drives up their costs.

About 40 percent of the turbines and other components needed for wind farms are imported into Brazil, said Eduardo Tabbush, an analyst at Bloomberg New Energy Finance’s London office. The country’s currency has dropped more than 10 percent, to 1.77 reais a dollar, since developers offered Aug. 18 to sell wind-energy at record low rates.

Wind became one of the cheapest sources of power in Brazil as a strong currency and slowing global demand for turbines drove down costs, Tabbush said. With the reversal in the real, developers will have to rethink some projects.

“This is bound to lower margins, especially on the development side,” Tabbush said yesterday in an interview. “It could render some projects unviable.”

Developers agreed to deliver electricity generated by new wind farms at an average price of 99.54 reais ($55.99) a megawatt-hour in a government-organized auction Aug. 18, the lowest nationwide rate for wind energy, according to New Energy Finance.

That was cheaper than two natural-gas thermal electric plants and a hydroelectric plant expansion that participated in an energy auction a day earlier, and 33 percent lower than contracts awarded in the country’s first auction for wind power, in December 2009.

The strong real was one reason developers could afford to sell power at those rates, Tabbush said. Brazil’s currency climbed 9 percent, to 1.60 reais a dollar, between the 2009 auction and the August one.

Existing Contracts Unaffected

Renova Energia SA (RNEW11), a Sao Paulo-based developer, has already signed real-denominated deals with turbine suppliers and won’t be affected by currency fluctuations, Pedro Pileggi, the company’s investor relations officer, said in a telephone interview yesterday. The company received contracts to sell power from nine wind farms at 98.53 reais a megawatt-hour in the August auction.

Brazilian developers may be unable to match their record- low prices for future wind farms, Marcos Severine, an analyst at Itau Unibanco Holding SA, the Sao Paulo-based commercial bank, said in a telephone interview. “My concern is that for the next auction,” on Dec. 20, “the weaker real will mean projects become more expensive.”

Prices for power contracts may rise to as much as 120 reais a megawatt-hour, assuming the currency finishes the year at 1.85 reais a dollar, in line with Itau’s forecasts, he said.

Alstom SA (ALO), the French maker of power equipment that’s building a turbine factory in Brazil, is close to signing its third turbine contract there, said Philippe Delleur, president of the company’s Brazil unit. The shifting value of the real has little impact on sales.

“It doesn’t make sense to keep looking at the change in exchange rates from one day to another,” he said in a telephone interview.

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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