Financing the expansion of photovoltaic power generation in Brazil: challenges of using similar mechanisms for different renewable sources ANDREÃO, G. O., PPGE-UFF, gustavo.93.andreao@gmail.com HALLACK, M. C. M., PPGE-UFF, michellehallack@gmail.com VAZQUEZ, M., PPGE-UUF, miguelvazquezmartinez@gmail.com

Brazil Over 100 degrees in farenheit

Brazil

Utility-level Solar Photovoltaics (PV)

Renewables in Brazil Major importance of the hydro source, but the thermal capacity is increasing New renewables are being pushed forward Objective: a responsible and sustainable expansion of the electric matrix Utility-level wind and solar PV potentials are expected to be developed in the near future Wind: 9,71 GW (2015)  24 GW (2024) (Δ= 247%) Solar: 10 MW (2015)  7 GW (2024) (Δ= 70.000%)

Renewables in Brazil Major importance of the hydro source, but the thermal capacity is increasing New renewables are being pushed forward Objective: a responsible and sustainable expansion of the electric matrix Utility-level wind and solar PV potentials are expected to be developed in the near future Wind: 9,71 GW (2015)  24 GW (2024) (Δ= 247%) Solar: 10 MW (2015)  7 GW (2024) (Δ= 70.000%)

Renewables in Brazil Major importance of the hydro source, but the thermal capacity is increasing New renewables are being pushed forward Objective: a responsible and sustainable expansion of the electric matrix Utility-level wind and solar PV potentials are expected to be developed in the near future Wind: 9,71 GW (2015)  24 GW (2024) (Δ= 247%) Solar: 10 MW (2015)  7 GW (2024) (Δ= 70.000%) TO KEEP IT CLEAN

Main drivers for renewable deployment Two essential tools for a larger share of new renewables in Brazil Auction mechanism (major player: ANEEL) Public financing mechanism (major player: BNDES)

Auctions Introduces ex-ante competition among the power plants (generation) Winners have access to long-term PPAs attenuates risk -> demand guarantee

Auctions (cont.) A-3 and A-5 auctions Standard (all-sources) Specific (incipient sources) A-3 and A-5 auctions A: first year of commercial operation A-3/5: three or five years prior to that year Leilão de energia reserva (LER) [more common] Leilão de fontes alternativas (LFA) These are meant to push forward still incipient sources (which would not be successful in a standard auction)

Auctions (cont.) Solar PV was a winning source in three auctions (LER 08/2014, LER 08/2015, LER 09/2015) 2652,8 MW of contracted utility-level solar PV. Four major winners: Enel (22 plants and 620 MW) Canadian Solar Inc (11 plants and 330 MW) Lintran do Brasil (9 plants and 270 MW) Solairedirect SAS (7 plants and 200 MW)

Lintran do Brasil Participações S.A. Auctions Plants Potency Investment numbers In Nov. 2016 R$ (IGP-M) Companies Units % MW R$ 1.000,00 Enel 22 23,40% 619,98 23,64% R$ 4.037.939,82 Canadian Solar Inc 11 11,70% 329,97 12,58% R$ 1.559.566,51 Lintran do Brasil Participações S.A. 9 9,57% 269,97 10,29% R$ 1.356.888,48 Solairedirect SAS 7 7,45% 199,98 7,62% R$ 953.189,81 Other firms 45 47,88% 1203 45,87% R$ 6.790.412,45 TOTAL 94 100% 2623 R$ 14.697.997,07

Main drivers for renewable deployment Two essential mechanisms for a larger share of new renewables in Brazil Auction mechanism (major player: ANEEL) Public financing mechanism (major player: BNDES)

Main drivers for renewable deployment Two essential mechanisms for a larger share of new renewables in Brazil Auction mechanism (major player: ANEEL) Public financing mechanism (major player: BNDES)

Solar PV investments enterprises evolution in Brazil Out of the 110 PV power plants analyzed by ANEEL, only 9 were currently under construction (all belonging to ENEL) as of October 2016 Only 6 should enter into operation according to schedule  

Main drivers for renewable deployment Two essential mechanisms for a larger share of new renewables in Brazil Auction mechanism (major player: ANEEL) Public financing mechanism (major player: BNDES) ???

BNDES’ Public Financing Brazil has one of the world’s highest interest rates! This makes BNDES with its lower interest rates important to finance infrastructure projects Financiamento a empreendimentos (Finem) Objective, methodology and access criteria To promote the national industry (internalize a value chain) Progressive local content steps Measurement: Weight and parts (wind turbines) Items and processes (PV panels)

BNDES’ Public Financing (cont.) BNDES is specially important for the expansion of still incipient sources, as the new renewables: Traditional sources (50%~60%) Wind power generation (90%) The current solar PV panels financing methodology was heavily inspired by BNDES’ institutional learning acquired from the successful financing of wind turbines. However, there are currently no solar farms being financed by the bank

Technical-economical differences between PV and wind generation The solar PV panel industrial chain is more concentrated than the wind turbines value chain In solar PV, both ends of the chain have a high technological complexity Solar PV: More technologically challenging than wind turbines No clear technological path defined Therefore, to base the solar PV financing methodology on the prior wind case makes little sense

BNDES’ Public Financing (cont.) The current solar PV panels financing methodology was heavily inspired by BNDES’ institutional learning acquired from the successful financing of wind turbines. However, there are currently no solar farms being financed by the bank Alleged cause: Local content requirements (too high) Exchange rates and taxes hinders importation of panels Therefore, this essential mechanism is not working properly

Main drivers for renewable deployment Two essential mechanisms for a larger share of new renewables in Brazil Auction mechanism (major player: ANEEL) Public financing mechanism (major player: BNDES)???

Main drivers for renewable deployment Two essential mechanisms for a larger share of new renewables in Brazil Auction mechanism (major player: ANEEL) Public financing mechanism (major player: BNDES)

Mechanisms & Objectives: (in)compatibility? Solar Power Generation Internalize Solar PV industrial Chain Products Services Currently, BNDES unites two objectives through one single mechanism  however, none are achieved Potencial improvements:

Mechanisms & Objectives: (in)compatibility? (cont.) Solar Power Generation Internalize Solar PV industrial Chain Products Services Currently, BNDES unites two objectives through one single mechanism  however, none are achieved Potencial improvements:

Mechanisms & Objectives: (in)compatibility? (cont.) Potential improvement (1): to focus on solar PV power generation and to loosen up or ease the local content criteria Objectives Solar Power Generation Internalize Solar PV industrial Chain Products Services

Mechanisms & Objectives: (in)compatibility? (cont.) Potential improvement (2): A change of focus of the local content criteria – from products to services Objectives Solar Power Generation Internalize Solar PV industrial Chain Products Services

Mechanisms & Objectives: (in)compatibility? (cont.) Potential improvement (3): To create complementary policies focused on catching up and innovation Objectives Solar Power Generation Internalize Solar PV industrial Chain Products Services Innovation-related policies (e.g. R&D)

Conclusions A change of objective would imply a change in the promotion mechanisms (BNDES financing mechanism) The country has to decide what is its objective If the status quo is kept the same, the slow construction of power plants will continue and the Brazilian solar expansion may be highly jeopardized.

Thank you! gustavo.93.andreao@gmail.com michellehallack@gmail.com miguelvazquezmartinez@gmail.com