Lighting the way ahead – the auspicious outlook for new Brazilian energy projects

Brazil’s energy market is experiencing oversupply, mainly due to the large volume of centralized and distributed renewables projects that are being connected to the grid.

This scenario, combined with low energy prices that reflect the favorable hydrological conditions seen in the last two years, makes it difficult to develop new power generation projects.

Even so, according to major financial players, there will be demand for financing greenfield projects, especially in the medium and long term, and considering new sources of demand such as hydrogen and green products. 

To gain more insight, BNamericas speaks to Marcelo Souza, partner and head of the energy sector at Pátria Investimentos; Jorge Abrache, vice president of the private sector at Latin American development bank CAF; and Carlos Pinto, country manager at the International Finance Corporation (IFC), which is part of the World Bank.

Marcelo Souza 

"We're at a time when there is a structural oversupply of energy and very low energy prices. This combination has reduced the viability of new renewable projects in the short term, since large free consumers are following low short-term prices and don't want to position themselves in higher long-term PPAs.

"But this will reverse at some point. In recent weeks, we’ve seen price volatility. In two to four years' time, new projects should become viable, with new positions from large consumers and self-producers. So we believe that we’ll be able to finance renewable projects over the next few years.

"The discussion about green hydrogen and offshore wind is a discussion about when, not if. These are agendas that will happen. 

"Brazil still has a lot of areas for onshore wind, with a competitive capacity factor, but I believe that offshore wind will be a reality in the medium and long term, as fewer areas on land will be available.

"For now, there’s still a lot of potential onshore, including in terms of solar energy, which has a whole avenue for growth.

"With regard to green hydrogen, we need to ask ourselves, for example, why we export ore when we could be producing steel using clean and safe energy. There’s a question of competitiveness, about the cost of the green hydrogen molecule compared to blue, as well as technological challenges, but this is an agenda that will happen."

Jorge Abrache

"Brazil has great potential, certainly one of the greatest in the world, to host investment projects that help decarbonize the global economy. We’re very confident about this. 

"There’s growing interest in 'powershoring' [relocating production to countries that offer clean energy close to consumption centers]. This is a thesis advocated by CAF. We already see the results happening from the perspective of increased consultations and firm investments from energy-intensive businesses.

"Renewable energy consumption is likely to grow disproportionately. Supply will meet demand. The very existence of this supply ends up creating demand. 

"Green hydrogen is part of this. But in order for it to advance, wind power, including offshore, and solar power must be generated at competitive prices and in a safe manner.

"We’re confident that the regulation of the green hydrogen market will move forward. It's only a matter of time because the economic incentives are obvious, and politicians know it. 

"We're interested in financing renewable energy and green hydrogen projects not only in Brazil, but in Chile, Uruguay, Paraguay and Colombia, among other countries."

Carlos Pinto

"We believe that there will be natural growth in demand for energy and that, at the same time, new sources will be created that will require electricity. 

"The issue of green hydrogen, for example, is unavoidable, as is green methanol. All of this will require more renewable energy, generating an exponential curve over the next few years. 

"We’re following this issue very closely in Brazil. It will happen, that's for sure, but it's a long road that has to be traveled slowly. 

"We still have some reservations about offshore wind power because there is plenty of capacity to generate onshore wind power, which is much cheaper."