By Fitch Solutions
- We have revised up our forecasts for Brazil’s wind and solar power sectors, with the non-hydro renewables sector set to continue its growth outperformance in the market.
- Power auctions and an uptick in PPAs support our more positive outlook on renewables sector growth.
- Robust growth in small-scale distributed solar power generation systems further supports our strong outlook for the solar sector, outpacing wind power capacity growth over the coming decade.
- Power auctions to be held through 2023 present additional upside risks to our non-hydropower renewables forecasts.
We have revised up our forecasts for Brazil’s solar and wind power sectors over the coming decade, expecting non-hydropower renewables capacity to more than double from an estimated 40.3GW by year-end 2020 to 90.4GW in 2030. This represents a sizeable upwards revision from our previous forecast in which we were forecasting non-hydro renewables capacity to total 86.7GW by 2030. Supporting our more robust growth outlook, we highlight advancements and additions to both the utility-scale wind power and solar power project pipelines as well as expectations for continued and rapid growth in distributed generation solar projects. We forecast non-hydro renewables generation will grow at an annual average rate of 7.9% to reach 248TWh by 2030. The non-hydro renewables share within Brazil’s power mix is set to reach 31.5% by the end of our forecast period – up from 19.4% in 2020. The increasingly positive outlook reaffirms the non-hydro renewables sector’s outperformance in Brazil’s power sector, which is set to account for more than 83% of total electricity capacity growth and 70% of electricity generation growth through 2030.
Non-Hydro Renewables Remain Outperformer in Brazil’s Power Sector
Our positive view is informed by expanding utility-scale project pipelines, primarily for the wind and solar power sectors. Brazil’s non-hydro renewables sector remains in a prime position for significant wind and solar power growth from projects being developed through private power purchase agreement (PPA) deals as well as through power auctions. For example, in August 2021, Brazilian meatpacker BRF signed a 15-year PPA for the development of a 160MW wind power farm with developer AES Brasil Energia. The project is scheduled to begin operations in 2024. Additionally, the Brazilian government awarded 873MW in non-hydropower renewables capacity through the country’s A-3 and A-4 power auctions that concluded in July 2021 – this includes 419.5MW of wind power, 269.3MW of solar power, and 183.6MW of biomass power. The auction names denote the number of years developers have to bring the projects online, meaning that projects selected in the A-3 auction are scheduled to begin operations by January 1, 2024 while projects from the A-4 auction are set to begin operations by January 1, 2025. The selected developers were awarded 20-year PPAs.
Additional capacity growth from small-scale distributed solar generation systems, in addition the utility-scale projects, further supports our strong growth outlook for the solar power sector. Over the last three years, Brazil’s distributed generation solar power market, which includes solar photovoltaic projects with than 5MW capacity, has developed rapidly. According to Brazil’s Association of Photovoltaic Solar Energy (ABSOLAR), distributed solar capacity has increased from 7,785MW to 9,739MW between January and July 2021 – total installed distributed solar capacity at year-end 2018 was 591MW. As such, distributed generation solar comprises the largest share of solar capacity in Brazil, accounting for 65% of total installed solar capacity. We expect continued growth in the small-scale distributed solar market as multiple factors are set to remain over the coming years that will encourage further adoption of distributed solar systems. These include favourable net metering regulations, decreasing costs of small-scale solar systems, elevated electricity prices, and strong consumer interest.
Additionally, there is significant upside risk for growth in distributed generation solar resulting from expectations that a new legal framework for distributed generation will be enacted into law over the coming months. On August 18 2021, Brazil’s House of Representatives approved PL 5829/2019, which aims to gradually increase fees and tariffs for distributed generation users. The bill has widespread support across political parties, industry associations, and from ANEEL, as it provides long-term visibility in the market and will encourage increased adoption of distributed generation systems once passed – particularly over the medium-term. As such, we expect Brazil’s solar capacity to register stronger overall growth than the much larger wind power sector over the coming decade.
Solar Power Sector Set to See Strongest Capacity Growth Over Coming Decade
Power auctions to be held through 2023 will result in additional investment in non-hydropower renewables capacity– presenting upside risk to our forecasts. The Brazilian government’s competitive power auctions, held by the Brazilian Electricity Regulatory Agency (ANEEL), have resulted in robust utility-scale project pipelines and yielded some of the lowest prices for solar and wind power in the world to date. While power auctions were suspended and ultimately cancelled in 2021 due to the Covid-19 pandemic, in January 2021 Brazil’s Ministry of Mines and Energy released guidelines for auctions scheduled through 2023. Power auctions resumed in June 2021 with the above-mentioned A-3 and A-4 auctions. The next auction, the A-5 tender, will be held on September 30, 2021. In this round, 1,694 projects totalling 93,859MW of potential capacity additions are registered to compete. This includes 835 solar projects, 690 wind power projects, and 43 biomass projects, with total potential capacity additions of 32,245MW, 22,811MW, and 1,791MW, respectively.
Most auctions, including the upcoming A-5 tender, will allow both traditional and renewable power sources to participate. Additionally, the recently enacted law for the privatisation of state-controlled utility Eletrobras includes an amendment which requires A-5 and A-6 auctions held through 2026 to allocate a sizeable portion of declared demand to small hydropower projects up to 50MW. That said, we expect the wind and solar sectors will remain highly competitive and successful in future auctions. We also expect Brazilian utilities Companhia Energetica de Minas Gerais (CEMIG) and Companhia Paranaense de Energia (COPEL) to hold their own wind and solar power auctions over the coming years, with both companies having awarded gigawatts of wind and solar PPAs in recent years as well. That said, the potential for additional delays to the upcoming power auctions will remain due to the ongoing Covid-19 pandemic. Notably, while the A-5 auction is moving forward, the government has yet to decide whether or not to hold this year’s A-6 auction.
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.
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