Why Brazil is facing slowdown in renewable generation investments

Brazil is likely to see slowing investment in new wind and solar projects in the coming months, according to Rodrigo de Morais, a partner and energy director of the Falconi consultancy.

The main reason is the current low price of energy due to favorable hydrological conditions in the country, he told BNamericas.

With hydroelectric reservoirs being full there is now less of a need to use more expensive thermoelectric plants, which is reflected in a low PLD – the reference price in the free energy market.

Added to this is the expansion of distributed generation, which has increased energy supply, and relatively slow growth in electricity consumption.

"So we'll enter 2024 in a scenario with reduced announcements of new investments in wind and solar. It's already fallen a lot this year," said Morais.

Large firms are likely to direct their investments to the transmission segment, which has traditionally been viewed as a safe investment bet, he said, adding that companies will also have to consider changes in their supply chains to reduce costs.

"When you look at the capex of new projects versus the price curve for energy sales, this relationship has not yet normalized," said Morais.

What could help make greenfield generation projects viable is the extension of discounts on the rates for using the transmission and distribution systems for renewable energy initiatives, which is being studied by the government.

This possibility has generated opposing views in the electricity sector. 

"In addition to putting pressure on the costs of all consumers, both free and captive [regulated] by means of a charge, the creation or extension of subsidies tends to benefit one generation segment to the detriment of others," Carlos Faria, director-president of Brazil’s large energy consumers association Anace, said in a press release.

On the other hand, consumption could increase as a result of the new market opening in January 2024, when all high-voltage customers will be able to migrate to the free market.

The expected expansion of the free market has generated concerns about the future of energy distribution companies.

"The distributors have not yet evolved to the point where they are prepared for this opening, and they stand to lose a lot of customers as a result," said Morais.

There is also an expectation of increased pressure from electric power regulator Aneel on distributors due to problems faced by Enel in the states of São Paulo and Rio de Janeiro, and discussions about the renewal of distribution concessions. Other distributors, especially Light, are facing financial difficulties.

"There’s still no history of renewing [distribution] concessions in Brazil. There will certainly be a lot of discussion about this," Morais said in reference to the concession system that was introduced in the 1990s.