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Wind Cheaper Than Natural Gas, Hydro in Brazil Power Auction

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Aug. 18 (Bloomberg) -- Wind is becoming the cheapest source of energy in Brazil, beating natural gas and hydroelectric power.

Developers of 44 wind farms in Brazil agreed to deliver electricity to utilities for an average of 99.58 reais ($61.93) a megawatt-hour in a government-organized auction, the national energy agency Empresa de Pesquisa Energetica said yesterday in a statement. Two gas plants signed contracts for an average of 103.26 reais a megawatt-hour and a hydroelectric project for 102 reais.

The auction marks the first time that wind farms won on price against conventional power plants in a head-to-head contest in Brazil. The price makes it the most cost-effective source of electricity in the country and is the cheapest anywhere for wind, said Eduardo Tabbush, an analyst at Bloomberg New Energy Finance’s London office.

“These are the lowest power-purchase agreements for wind energy in the world,” he said today in an interview.

Prices below 100 reais a megawatt-hour would have been “unthinkable until recently,” EPE president Mauricio Tolmasquim said today in a statement.

The costs promised by the wind-farm owners were 24 percent lower than developers agreed to in a similar auction a year ago.

Lower Production Costs

Lower global demand for turbines following the 2008 financial crisis may have led manufacturers to cut prices, allowing developers to deliver electricity at lower rates, Jorge Trinkenreich, director of Rio de Janeiro-based consulting company PSR Consultoria, said in an interview.

The auction, along with another completed today for back-up grid capacity, will lead to the installation of 3,963 megawatts of biomass, wind, gas and hydroelectric power plants worth 11.2 billion reais, according to EPE.

Over half of that will be wind farms, which currently comprise less than one percent of Brazil’s grid capacity, according to the country’s electricity regulator Agencia Nacional de Energia Eletrica.

The strong real, which has risen 30 percent against the U.S. dollar over the past 30 months, and more efficient wind turbine designs have driven down the cost of producing wind power, Monica Rodriguez de Souza, manager of thermal and alternative power at Sao Paulo-based energy consulting company Andrade Canellas Consultoria e Engenharia Ltda. in an interview.

While prices are declining, turbines still cost about a third more in Brazil than in the rest of the world, largely because of the country’s import taxes, Tabbush said.

Domestic Turbine Plants

Some of the biggest turbine makers, including Vestas Wind Systems A/S of Denmark, Siemens AG of Germany and General Electric Co. from the U.S., have set up factories in Brazil, driving down prices there, he said.

Average international wind-turbine prices, which make up about three-fourths of project costs, were 940,000 euros ($1.34 million) a megawatt in the first half of the year, down 7 percent from a year ago and 22 percent lower than 2008, according to New Energy Finance.

Wind power is more expensive in other countries. Plants in Italy are getting 145 euros for a megawatt-hour of electricity, under a government incentive system for renewable energy, Tabbush said. Spain offers wind farms 77 euros and France 82 euros, both through feed-in-tariffs.

‘A Bit Worried’

Voltalia Energia do Brasil Ltda. signed contracts for five wind farms for as low as 98.92 reais a megawatt-hour, the second lowest rate, according to electricity trading board Camara de Comercializacao de Energia Eletrica.

Robert Klein, director for the Rio de Janeiro-based wind-power developer, said he didn’t expect prices to fall so much. “Definitely, we are a bit worried about the prices,” he said in an interview. “We will have to fight to make it.”

Even large utilities with low equity return requirements may find it “very hard to build these projects,” Tabbush said.

Eletrosul Centrais Eletricas SA was awarded 21 contracts in yesterday’s auction, the most of any wind developer, for 21 wind farms with a combined capacity of 492 megawatts.

“We won a close race with an excellent rate of return,” Eletrosul’s President Eurides Mescolotto said in a statement.

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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