Brazil Plots Steady Clean-Energy Course Amid Political Turmoil

Brazil is taking steps to promote new renewable-energy projects as the government seeks to reassure the industry that political turmoil won’t threaten current power policies.

The country will organize at least one power auction for clean-energy projects this year, according to Eduardo Azevedo, secretary of energy planning and development at the Ministry of Mines and Energy. A second auction is also being considered that would be open to all energy sources.

The move reflects growing interest in clean energy as the country seeks to meet its commitments under the global Paris climate agreement signed in 2015. The plans also show that Brazil is seeking to move forward with its energy plans and assuage concerns that an expanding political crisis would crimp efforts to boost wind and solar energy.

“There is room for energy auctions this year,” Azevedo said at an event in Sao Paulo Thursday. Brazil’s carbon emissions targets “make it clear the necessity of expanding renewables, which will represent two-thirds of the country’s investments in the power sector over the next 10 years.”

Brazilian stocks, bonds and currency all slumped last month after President Michel Temer was accused of helping obstruct the ongoing Carwash corruption probe. Amid the turmoil, Minister for Energy and Mines Fernando Coelho said he has no plans to revisit his energy strategy and would not be stepping down, despite calls to do so from his party.

“We’re moving forward with reforms and our policy, like nothing else is happening,” Azevedo said.

Canceled Auction

The ministry canceled in December what would have been 2016’s only auction for wind and solar power, as the worst recession in decades drags down electricity demand. Some companies are exiting contracts they won in previous auctions.

That may clear the way for the next auction, which is expected by September. While there’s little need for new power plants now, there may be in a few years when demand growth resumes, Azevedo said.

Wind and solar developers have signed no long-term supply contracts since November 2015. The lack of new projects is threatening the supply chain, and has the potential to leave wind-turbine factories empty and drag down the country’s nascent photovoltaic industry.

“It is important to have auctions planned and it is a good start,” said Jean Claude Robert, wind power director for Latin America at General Electric Co. “But we need volume. Today, GE is executing four projects, but 2018 will be a hard year as the industry doesn’t have more contracts.”

Political Turmoil

Brazil’s energy agencies have not been untouched by the political upheaval. Maria Silvia Bastos, president of the country’s development bank BNDES, stepped down last week citing personal reasons, which was seen as a setback to Temer.

Banco Nacional de Desenvolvimento Economico & Social, as the development bank is formally known, is the world’s biggest provider of funding for renewable energy. The agency is reviewing its lending strategy and negotiating with multilateral banks like International Finance Corp. and Inter-American Development Bank to take on some of the risk for financing renewable projects, according to Carla Primavera, BNDES’s head of energy.

BNDES is seeking to scale back financing for some technologies while encouraging more borrowing from banks, an effort aimed at reducing developers’ reliance on its low-cost financing. For others, such as renewables, it will continue to offer cheap loans, said Primavera.

“We have supported the expansion of wind energy in Brazil since the beginning,” said Primavera. “We are figuring out new financing structures with multilateral banks and capital markets, and that demonstrates that the confidence in the sector has grown.”

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