By Fitch Solutions
- We maintain our positive growth outlook for Brazil’s wind power sector, resulting from continued developments to the market’s sizeable wind power project pipeline.
- Growing momentum towards the establishment of an offshore wind power industry within Brazil presents substantial upside risk to our medium- to long-term forecasts.
- We expect oil and gas producers with a footprint in Brazil’s offshore upstream market, including Shell and Equinor, will become key players in the initial development of Brazil’s offshore wind market.
Brazil’s wind power sector is set to experience significant growth over the decade, in which we forecast wind power capacity to increase from 15.4 gigawatts (GW) in year-end 2019 to 30.5GW in 2029. Supporting our robust growth outlook, we highlight that Brazil’s project pipeline continues to develop and expand. Auctions held by both the Brazilian Electricity Regulatory Agency (ANEEL) and Brazilian utilities between 2017 and 2019 have added more than four gigawatts (GW) of wind power capacity that are set to come online over the next several years. In the most recent auction held in October 2019 just over 1GW of additional wind power capacity was selected – the projects are set to come online by no later than 2025.
Further supporting our positive outlook, major wind power projects continue to secure funding and progress through the development stages. Recently in November 2020, developer Total Eren reached a financial agreement to provide funding for the development of two wind farms in the state of Rio Grande do Norte – totalling 160MW in added wind power capacity. Earlier this year in May 2020, Engie secured a USD210mn loan for its 361MW Campo Largo II Wind Power Complex. The project is currently under construction and is expected to begin operations in 2021. As such, we forecast wind power generation will increase at annual y-o-y growth rate of 7.3% between 2020 and 2029, with total generation reaching 104TWh at the end of the decade.
Growing momentum for the development of offshore wind capacity in Brazil presents significant upside risk to our mid- to long-term wind power forecasts. While the continued suspension of power and renewables auctions presents some downside risks to our medium to long-term growth outlook for the wind power sector, risks remain mostly to the upside. Within the wind power sector, this upside risk is largely the result of growing momentum towards the development of an offshore wind power industry in Brazil. While Brazil currently has no offshore wind capacity, the market has highly suitable conditions for the development of offshore wind power projects along its coast. Additionally, the market has gained significant attention from both domestic and international developers over the past couple of years, with several major developments taking place over 2020. Among the developments over the past several months, we highlight:
- In August and September 2020, it was reported that Neoenergia, a subsidiary of renewables developer Iberdrola, was in the preliminary stages of analysing the development of three offshore wind power projects in Brazil. The three projects, in the states of Rio Grande do Sul, Rio de Janeiro and Ceará, respectively, each have maximum potential capacity of 3GW. According to the reports, the company is aiming to be one of the pioneers within the market.
- In August 2020, it was reported that Equinor has submitted applications for environmental impact assessments for two possible offshore wind projects – the Aracatu 1 and Aracutu II wind farms. The projects will have a capacity of 2GW each and will involve the installation of 320 wind turbines in total. The Arcatau I wind farm will be developed on the coast of Rio de Janeiro and is currently scheduled to begin operations in 2024, while the Arcatau II wind farm will be developed between the states of Rio de Janeiro and Espírito Santo.
- Also in August 2020, BI Energia announced plans to invest BRL21bn (USD4bn) in the development of the 508MW Caucaia and the 1.2GW Camocim offshore wind projects in Brazil. The two facilities, which are currently undergoing environmental evaluation, will be developed off the coast of Ceará state.
- In February 2020, the Brazilian government’s Energy Research Office (EPE) released its Brazilian Offshore Wind Roadmap Report. The aim of the report is to create dialogue about the development of an offshore wind power sector in Brazil while noting some of the possible barriers and challenges. According to the report, Brazil’s coastlines are highly suitable for offshore wind development, with the technical potential for several hundred gigawatts of development. Additionally, the report noted that as of January 2020, six projects were under development in the preliminary licensing phase with Brazil’s Institute of Environmental And Renewable Natural Resources (IBAMA).
As of November 2020, more 16.5GW of total offshore wind project capacity is under development across various stages of progress in Brazil. Despite this growing momentum and an expanding project pipeline, we have not yet included any projects in our forecast. Supporting this decision, we note that the current lack of offshore wind development means that there are several barriers that will need to be addressed before the industry can accelerate and see large-scale development. As such, we note the risk for significant delays to initial development within the industry. One notable challenge includes conducting studies on and developing the transmission infrastructure that will be required to efficiently incorporate offshore wind projects into the grid. In addition, while Brazil has a sizeable existing port network, industry-specific facilities will also need to be constructed, presenting another component that could delay initial project construction. Development costs also need to come down significantly before they can be cost-competitive with onshore wind power projects in the country. That said, the decision to not yet include these projects in our forecast because of these initial challenges means that there is strong upside risk to our wind power growth outlook.
|Project Name||Maximum Capacity (MW)||Project Stage||Developer(s)|
|Águas Claras Offshore Wind Farm||3000||Early Planning||Neoenergia|
|Aracutu I||2330||Early Planning||Equinor|
|Aracutu II||2330||Early Planning||Equinor|
|Espírito Santo||1400||Early Planning||Votu Winds|
|Camocim||1200||Early Planning||BI Energia|
|Asa Branca I – CEMAB I||720||Consent Application Submitted||Eólica Brasil Ltda|
|São Miguel do Gostoso||624||Early Planning||BI Energia|
|Caucaia||598||Early Planning||BI Energia|
Source: Developer Websites, Local Sources, 4COffshore, Fitch Solutions
We expect that O&G producers with a footprint in the Brazil’s offshore upstream market will likely become key players in the development of the offshore wind power sector in the country. Over the past several years, the Brazilian offshore reserves have attracted a number of majors and large international oil companies (IOCs), which have expanded their exploratory activities and development of the prolific offshore reserves. Among key upstream producers in Brazil, there are Shell, Equinor and Repsol, who are leaders in renewable power investments among O&G producers globally as they pivot toward integrated energy companies from pure oil and gas players. These companies have also already committed to offshore wind projects elsewhere, including the US, and, as mentioned above, Equinor is already actively reviewing the development of two offshore wind projects in Brazil. We now anticipate that other offshore upstream producers will likely follow Equinor and eye opportunities in the offshore wind power market in Brazil as they pursue a transition into low carbon economy. We expect that any O&G producer which establishes its presence in the offshore wind market early on, such as Equinor, will benefit from a first-mover advantage, in which having a supply chain, local infrastructure and base of operations will provide leverage against industry competition later on. In contrast, we note that the largest Brazilian oil producer, Petrobras, is set to prioritise investment on the core deepwater, oil-producing assets, and will likely lag behind some global counterparties in expansion to Brazil’s offshore wind.
In our view, the O&G producers are likely to see a number of benefits through investing in the Brazilian offshore wind projects. First, their years-long presence in the Brazilian upstream market has allowed them to deepen their specific expertise about Brazil’s market and establish a workforce base and a net of local contractors. We also note that the synergies, stemming from the technical know-how of the offshore upstream projects and knowledge sharing, will likely foster the project portfolio diversification in Brazil for the O&G producers active on this market. In addition, the technical expertise provides by O&G producers could also help cut costs for offshore wind power developments – comparatively high costs remain a key challenge for the market.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. The original article can be accessed by clicking here