Rousseff Aims $2.85 Billion at Energy Research: Corporate Brazil
Brazil will pour 6.1 billion reais ($2.85 billion) to fund renewable-power and biofuel technology research, accelerating its efforts to modernize its energy industry and shift away from a commodity-export based economy.
The country plans to triple funds for companies including Bunge Ltd. (BG) and Petroleo Brasileiro SA that are developing processes to turn sugar cane into high-margin chemicals and boost ethanol output, said Alexandre Tanaka, an official with Brazil’s research-financing agency Finep.
Brazil’s ambition is to lead development of the next generation of biofuels after a decade of hyperinflation stymied research budgets. The country is seeking to become a supplier of fuel-production technology and processes rather than purchasing them from other countries, Tanaka said. Its position as the world’s top producer of sugar cane may help it succeed with an approach some U.S. companies have abandoned.
“Brazil has traditionally had a policy of substituting imported technology and prioritizing commodities in its trade balance,” Tanaka said by phone from Brasilia. When the country’s economic policies were shaped by hyperinflation “it was unthinkable to invest in projects that yield returns over long periods. Technology innovation is a long-term investment.”
Tanaka’s comments are the most detailed to date on the progress of investment programs under President Dilma Rousseff.
Financiadora de Estudos e Projetos, as the innovation agency is officially known, and the state-development bank BNDES will provide 5.2 billion reais of loans under its PAISS program and another government effort announced in April called Inova Energia, Tanaka said. The debt will carry interest rates as low as 3.5 percent, less than half the benchmark interest rate. Finep will also offer 300 million reais of grants.
The PAISS program, announced in 2011 with a budget of 1 billion reais, was expanded to meet demand and 3.1 billion reais of loans have been approved to companies including Dow Chemical Co. and Petrobras for research into projects like converting cane waste into cellulosic ethanol. The leftover stalks and leaves are typically discarded or burned. That will boost output at cellulosic refineries by 45 percent, according to GranBio Investimentos SA.
The agriculture companies are also starting to convert cane into specialty chemicals used in consumer products including skin lotion and industrial lubricants. Some of these high-margin chemicals sell for $20 a liter, compared to about 50 cents for a liter of ethanol. Press officials with Dow, Bunge and Petrobras didn’t reply to e-mailed questions about government funding programs.
Shares of Petrobras rose 0.2 percent to 20.08 reais at 11:54 am time in Sao Paulo, while Bunge fell 0.2 percent to $69.48 in New York.
Agencia Nacional de Energia Eletrica, Brazil’s power regulator, expects utilities to channel 600 million reais into projects in the Inova Energia program. The companies are required to invest 1 percent of net operating revenue on research and development as well as energy-efficiency programs.
Brazil is investing in biofuel research while companies in North America are having second thoughts about converting non-food crops into fuel.
Venture capital and private equity investment in next-generation biofuel companies in the U.S. fell 17 percent to $698 million last year from its peak in 2008, said Alejandro Zamorano Cadavid, an analyst at Bloomberg New Energy Finance in New York. Investment in production plants dropped to $560 million last year from a peak of $1.2 billion in 2010.
Coskata Inc., a U.S. biofuel company withdrew plans for an initial public offering in March, after reevaluating its business model last year. The company was developing systems to turn wood waste into ethanol, and said in July that it would switch to natural gas as its feedstock because it would be more economical than using biomass.
Calysta Energy LLC is also developing gas-to-fuel systems. It’s run by Chief Executive Officer Alan Shaw, who led a six-year effort to develop enzymes to turn inedible crops into fuel as CEO of Codexis Inc. He said biomass may not be an economically viable feedstock because there isn’t enough readily available. The enzyme company’s program was backed by Royal Dutch Shell Plc, and abandoned in August.
“Cellulosic fuels and chemicals are not widely manufactured at commercial scale because their unit production economics have not yet been shown to be competitive with incumbent petroleum,” Codexis said in its April 2 annual report.
Making ethanol from crop waste may be economical in Brazil because sugar-cane stems are discarded at the mill and growers don’t have to return to the field after harvests to collect residues, Zamorano said.
“Brazil has the best conditions to lead a biotechnology revolution in second-generation ethanol,” according to Bernardo Gradin, chief executive officer of GranBio, a Sao Paulo-based company that was approved on May 7 for a 300 million-real BNDES loan to build a plant that will make ethanol from crop waste.
“We need companies to take a risk on innovation,” Ricardo Rivera, a manager at national development lender BNDES’s department for information technology and communication, said in an interview from Rio de Janeiro. “We had some macroeconomic problems in Brazil which sapped the spirit of innovation here.”
The PAISS program will increase income at mills by extracting more value from cane, said Alexandre Comin, director of the department of industrial competitiveness for the Ministry of Development, Industry and Foreign Trade. That will boost margins as rising production costs and depressed ethanol prices eat away at profits.
“We’re trying to boost investment in research in areas that we think Brazil can be competitive in,” Comin said in an interview from Rio de Janeiro. “We need to drive up the competitiveness of ethanol without subsidizing it” like they do in the U.S.
The PAISS and Inova Energia funding programs are meant to lure companies into committing to long-term research projects that eventually yield patents, Comin said. About 90 percent of investment in Brazilian renewable-energy research projects were made by governments last year, compared to 68 percent in China and 58 percent in the U.S, according to Bloomberg.
Government agencies and businesses in Brazil invested $112.6 million last year in researching renewable-energy technologies, up 15 percent since 2009, while China spent $2.53 billion, India spent $145.2 million and the U.S. spent $8.63 billion, according to data compiled by Bloomberg.
Brazil’s hyperinflation years, from the mid-1980s to 1994, saw consumer prices rise by as much as 7,000 percent a year.
Inflation (BZPIIPCY) accelerated to 6.59 percent in March before easing to 6.49 percent in April. The country’s annual gross domestic product grew by 1.9 percent in the first quarter. The MSCI Brazil Energy Index, a equity index that tracks five Brazilian energy companies, has fallen 4.5 percent this year.
Solazyme Inc., a U.S. renewable-fuels company that’s slumped more than 30 percent since its May 2011 initial public offering, and agribusiness Bunge have been approved a loan for a project that will use bioengineered algae, which feeds on sugar in fermentation tanks, to produce high-value chemicals, Tanaka said. The $145 million plant will be installed at Bunge’s Moema sugar-cane mill in the fourth quarter and is forecast to produce 100,000 tons of its algal oil a year.
“We’re rich in natural resources but not in knowledge industries, which makes us vulnerable to changes in commodity prices,” Mauricio Tolmasquim, Rio de Janeiro-based president of the government energy-research agency Empresa de Pesquisa Energetica, said in an interview .