Wind-Power Deals Total $7.6 Billion Luring Brazil’s Weg
Weg SA (WEGE3), the only Brazilian wind- turbine maker, is vying for a slice of $7.6 billion in contracts set to be awarded in the next decade even as a supply glut and slumping demand drive prices to a record low.
Developers at an auction last week offered to sell power from projects to be built through 2017 for an average 87.94 reais a megawatt hour, 12 percent less than the mark set in August 2011, according to the Sao Paulo-based CCEE electricity trading board. Wind-farm companies agreed to build 282 megawatts of projects in 2012, down from 2,905 megawatts last year.
Weg is a latecomer to a Brazilian wind-power market that has drawn nine foreign manufacturers since 2009, when the first auction was held. After winning its first contract to build wind turbines in September, Weg probably is counting on below-market government financing and local-content rules to help top rivals, said Mario Bernardes Junior, a Banco do Brasil SA (BBAS3) analyst.
“Weg has invested a good amount of capital expenditure in wind power equipment,” Bernardes said in a phone interview from Sao Paulo. “The company is a market leader in other segments and it can be in wind power as well.”
Companies including Denmark-based Vestas Wind Systems A/S (VWS), the world’s biggest wind-turbine maker, opened local offices and assembly plants in Brazil as U.S. and European policy makers cut subsidies for the renewable energy. Total installations are expected to drop 9.4 percent globally next year, data compiled by Bloomberg show.
“Wind energy is going through very difficult times,” Fatih Birol, chief economist of the International Energy Agency, told reporters yesterday in Rio de Janeiro. “We have seen increases of wind and renewable energy investments for 10 years in a row and for the first time this year we are seeing a decline. This is mainly because of the financial crisis and the governments are reducing their support.”
Weg, a maker of electric motors and power transformers, opened a wind-turbine plant in Jaragua do Sul, where the company is based, after previously delaying the project because it didn’t want to enter into a “price war,” Chief Financial Officer Laurence Beltrao Gomes said in April.
The company’s press office declined to comment about competition in Brazil and its plans.
About 40 billion reais is expected to be invested in Brazilian wind-power projects through 2020, Banco do Brasil’s Bernardes said. Turbine manufacturers have signed deals on 24 billion reais already, and Weg can likely capture at least 10 percent of the remaining 16 billion reais, he said.
Weg surged 45 percent in Sao Paulo trading this year through yesterday, beating the 14 percent gain for the Bloomberg World Machinery-Diversified Index of 133 stocks. Weg trades at 21 times estimated 2013 earnings, compared with an average of 14 for the index.
In March 2011, Weg created a joint venture with Spain’s M Torres Olvega Industrial SL to build turbines in Brazil. The venture, initially able to supply about 120 megawatts of installed capacity, expects to generate about 500 million reais of revenue a year, according to a regulatory filing.
Weg “is well-positioned because it has the technology and is 100 percent national,” helping it meet local-content rules for financing from national development bank BNDES, Bernardes said. “Obviously, foreign companies have technology and that differential, but Weg has a positive perspective because of that government incentive.”
BNDES, the main lender for wind power in Brazil, offers loans below the benchmark Selic lending rate, currently at 7.25 percent.
Vestas, India’s Suzlon Energy Ltd. (SUEL) and other foreign producers initially qualified for the loans with plans to buy or make at least 60 percent of the parts to build turbines and towers using local content. They were later cut off after a BNDES audit this year ruled they weren’t complying with the rules. The companies declined to comment about the issue.
As of Jan. 1, the minimum requirement will be increased.
Weg’s wind strategy is unfolding in a slowing economy that may revive next year. Growth in Brazil is expected to drop to 1 percent in 2012, according to a weekly central bank survey of economists, from 2.7 percent in 2011. The economists forecast the expansion to accelerate to 3.4 percent in 2013.
While the wind-energy market continues to be weak, Weg will be a strong competitor as Brazil’s economy rebounds, said Carlos Manuel Pereira de Sousa, a strategist at Rio de Janeiro-based investment consultant Lopes Filho & Associados.
“This is a company that dazzles because it always anticipates what is going to happen,” Pereira de Sousa said. “Investors can sleep well knowing they won’t lose money.”
To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at email@example.com