Wind Power: Brazil's Second Act

The ethanol leader is quickly ramping up its wind capacity and has what it takes to grow to a large market, says one industry figure

Brazil, the world's No. 2 producer of ethanol, hopes to become a power in another alternative energy field. The country intends to become Latin America's clean energy king by increasing fivefold its capacity to generate electricity from wind by 2013—harnessing the same trade winds that propelled European sailors to the Americas five centuries ago.

The easterly breezes in northern Brazil are among the most consistent weather patterns in the world, according to the American Meteorological Society. They allow for the deployment of cheaper, lighter turbines, instead of the more rugged ones designed for unexpected gusts. "Wind conditions are amazing in Brazil, far better than what is available in the U.S. and Europe," says Unai Otazua Aranguren, head of the engineering group at GL Garrad Hassan, a renewable energy consulting firm in the U.K.

Brazil has been slow to capitalize on its natural bounty. Wind accounts for just 0.7 percent of its 113 gigawatts of electricity generation, according to Brazil's power regulator, the Agncia Nacional de Energia Eltrica (Aneel). The country derives 73 percent of its electricity from hydropower and sometimes suffers shortages during the dry season when reservoir levels fall.

To remedy that problem, the government has held auctions in recent years for rights to build wind farms. In the past 10 months, power companies have won contracts to build 3.9 gigawatts of new wind capacity, vs. 797 megawatts of total capacity now installed. Wind project developers such as Iberdrola Renovables, Renova Energia, and Gestamp have signed deals to supply turbines for 70 wind farms with a capacity of generating 2 gigawatts of power at an average cost of $74.4 per megawatt-hour, low compared with projects in the U.S. and Europe.

Brazil's push into wind energy is well timed. Its currency, the real, has appreciated 35 percent against the dollar since the end of 2008. That cuts the costs of equipment made abroad by suppliers such as Vestas Wind Systems of Denmark, Siemens (SI) of Germany, and General Electric (GE) in the U.S. "All the ingredients are here for Brazil to grow to a large market very quickly," says Steve Sawyer, secretary general at the Global Wind Energy Council, a Brussels-based industry group.

Whether Brazil's wind power sector can be hugely profitable remains uncertain. Developers will have trouble making robust profits because they agreed to sell their electricity at ultra-low prices, on the expectation that their turbines will operate at their top capacity 46 percent of the time—almost double the rate in Europe. An analysis by Bloomberg New Energy Finance indicates that some of the bid-winning projects could have returns below 10 percent—two percentage points lower than some European wind farms manage.

Gustavo Silva, who heads the Brazil office of Portuguese energy consultant Megajoule, believes there's a possibility that some projects will not be rolled out. "Some developers have a lot to worry about," says Silva. "Projects will have to be technically well designed and leave little room for uncertainty."

The bottom line: Blessed with steady breezes, Brazil aims to expand its wind power capacity fivefold and be an alternative energy leader in Latin America.

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