Why Brazil has lost attractiveness for renewable energy investments

Brazil fell four positions and now ranks 13th in the Renewable Energy Country Attractiveness Index (Recai), released by consultancy EY on Monday. 

Produced since 2003, Recai ranks the 40 main markets in the world in attractiveness for investments in renewable energy and implementation opportunities.

Despite the drop in the overall ranking, Brazil continues to be the leader in Latin America in terms of installed capacity of renewable energy, with 158GW in 2021. Hydropower alone represents 58% of all power generated in the country.

The dependence on hydroelectricity leaves Brazil vulnerable to droughts, as happened in 2021 and on other occasions. To alleviate the scenario, the country is intensifying its efforts aimed at non-conventional renewable energy alternatives, while promoting the opening of the market, and consumers are beginning to gain access to a wider range of options.

In this sense, wind energy, which represents 11% of the country's total capacity, is gaining prominence. This is because there is internal capacity to manufacture wind generation systems and companies operating in Brazil are often financed by development banks such as BNDES and Banco do Nordeste (BNB). 

On the other hand, as solar panels are imported, mostly from China, this makes the exchange rate a challenge for companies and financing by development banks becomes unfeasible. 

EY sustainability partner Elanne Almeida spoke to BNamericas from Chile about the outlook for investments in renewable sources in Brazil.

BNamericas: What are the main reasons for Brazil's drop in Recai?

Almeida: First, it’s important to say that being in the top 15 is still a great position. The best Brazil managed was sixth position in 2016. The last year was a very complex period in Brazil due to the drought and the proximity to the election year, which affects the market's perception of how profitable and feasible it is to invest in Brazil now. Recai is biannual, and its analysis covered the months from October to May, so it’s a very specific picture. 

Chile has a long-term project to reduce the share of fossil energies, and because of the drought it had to reactivate coal-fired units, which generated noise. In Brazil, this was considered something that affects the security and stability of energy in the country. 

We also considered the ease or otherwise of doing business in the energy sector in Brazil. And in the ranking of ease of establishing PPAs [power purchase agreements], Brazil's position was relatively low. This is a message to the government that it’s necessary to have more flexible and intelligent mechanisms for doing business and promoting investments. Today, it’s easier to do business in India than in Brazil. 

On the other hand, Brazil has positioned itself well with regard to market maturity and long-term potential. 

BNamericas: What are the prospects? What can be done to recover the lost positions?

Almeida: I’ll base myself on what the countries that have been rising considerably in the ranking in recent years have been doing. First, determine a very clear long-term policy on the part of the government, with apolitical measures, necessary to develop and foster investment in the energy market in the long term. 

Then, set clear targets for each of the types of generation, whether PV solar, wind or hydrogen, for example. Chile, on this point, has a list of the next auctions of areas and types of energy. It’s necessary to respect this detailing. This year there was an auction cancellation here [in Chile], and this generated mistrust, because the market was getting ready, the companies were mobilizing themselves, developing a financial strategy. 

And it’s necessary to have clear investment targets. The USA has just announced US$369bn in investments in renewable energies for the next 10 years. This is an excellent signal. So investors can plan ahead, knowing there will be government support. 

BNamericas: Brazil has a 10-year plan, the PDE, and a longer-term one, the PNE. And there are auctions that normally occur on schedule. Perhaps what has really affected the country the most are the drought and the political and economic instability... 

Almeida: I agree, but I believe there is a lack of greater articulation among political entities and also with market agents. In Chile, there’s a plan with goals for the reduction of gas emissions and that foresees the growth of renewable sources. The country has a national renewable energy plan and a national hydrogen plan. In the finance ministry, there is a guide for the market, the stock market investor, the stock commission [regulator], and the banks to start educating themselves and reviewing plans to adjust to a more renewable matrix. There are plans for increasing the electric vehicle fleet and for greener, plug-in real estate developments for electric vehicles, as well as for installing charging points on highways. It’s not just the mines and energy ministry, but a set of ministries working together.     

BNamericas: With geopolitical turmoil, energy security has regained greater importance, and this is a topic that has historically been under the umbrella of nation states, albeit in partnership with private companies. France recently decided to fully nationalize EDF, for example. The report says, however, that Mexico is choosing a risky path by promoting reforms that increase state control. How do you see the Brazilian strategy? Could a change in government alter this course?

Almeida: The cases of Mexico and Argentina show how the actions of governments have impacted the willingness of markets to invest. If the governments are talking about nationalization, I think that a natural consequence is a move away from private investors.