Brookfield Renewable Partners, a Canadian investor and asset manager, has entered a binding agreement to acquire an unspecified 1200 MW solar project in Brazil.
The transaction will close in the fourth quarter 2020, and the project, which has PPAs for three-quarters of its capacity, should be commissioned in 2023. Brookfield plans to arrange PPAs for the remaining quarter before construction begins, and another $200 million equity is needed to complete the project. Brookfield Renewables acquired its first Brazilian solar with 278 MW acquisitions in January, but already holds extensive assets in hydroelectrics, wind, and transmission infrastructure.
Through to 2024, Brookfield plans to spend $4 billion on project development and acquisitions. It has assets worth $48 billion, including 19.3 GW of generating capacity in the Americas, Europe, India and China, running the gamut of technology types – more than a third of it hydro, due to Brookfield’s renewable investments starting out 25 years ago, and reflecting an emphasis on 50 to 100 year assets.
Brazil is now the big renewables market in Latin America, since the Mexican government is attempting to undermine the previous administration’s green reforms. Solar has taken off in the past couple years since 2017, rocketing from 4.5 GW to 5.9 GW in the first half of the year – indicating 3 GW this year, 40% of which will be utility-scale. We expect Brazil to reach 22.6 GW of solar installed by 2030.
Wind is even bigger, expected to reach 24 GW in 2024. The country has a wind capacity factor of around 42%, better than the global average, and some coastal projects enjoy a very high 60% factor.
Large-scale complexes are not a new thing in the country for either technology type, but 1.2 GW would be at new level, with the largest announced prior to this weighing in at 540 MW. These solar complexes are typically located in the northeastern and central-eastern states – Minas Gerais, Pernambuco, Piaui, and Bahia, which combine wide areas of flat land with equatorial sun. Large-scale solar PPAs are also nothing new for Brazil, whether with state-owned utilities or with private corporations such as Anglo American, Dow, and Braskem.
The Bolsonaro government has largely continued pro-renewable policies, despite also being sympathetic for the old state-owned fossil fuel sector, and having a more neoliberal, anti-subsidy attitude. Early this year, Bolsonaro blocked a tax on distributed solar which had been proposed by the power regulator ANEEL.
Imported modules do not face tariffs since a regulatory change last year, having previously been subject to a 12% tariff. Subsidized development loans were only granted by the development bank BNDES for projects with 65% local content, but this factor was also undermined when its rates were raised to be closer to the market norm in 2018. There are other downsides such as power contracts being denominated in Brazilian reals introducing currency risk, but nothing that overwhelms the very strong natural conditions.
Massive investment into Brazil’s renewables sector has naturally included Chinese companies, including buying power stations, establishing wind, solar and battery storage factories, and acquiring local companies such as CPFL Renovaveis. One of the more prominent solar players, Canadian Solar, has a plant which assembles modules from imported components.
Iberdrola invested $7.2 billion last October, the same month in which Fitch Solutions fingered the country as a global investment hotspot, based on record low solar auction prices supported by partial spot market output sales. Brazil held two renewable auctions last year, but this year’s A4 and A6 pair of auctions have been indefinitely delayed by the pandemic.
The nation’s solar industry group ABSOLAR expects distributed solar investment rising by 200% year-on-year for 2020.