According to Luiz Silva and Tiago Alves, founders of investment and asset management company Solar Americas Capital, the Brazilian solar market has matured in terms of investment and growth. Attractive government incentives, high power demand, intermittent power supply, favorable climate and lack of viable alternatives mean that this market will flourish in the next five years.
The views of Silva and Alves have also been recognized by industry analysts. In view of the recovery of Brazilian utility projects and favorable government legislation, analysts have a positive attitude towards the Brazilian solar market in the next five years.
According to the data provided by BloombergNEF (BNEF) to PV Tech, Brazil imported more photovoltaic modules from Chinese companies in the first half of 2021 than in 2020.
James Ellis, BNEF's head of Latin American research, said, "This shows that 4.7GW of products have arrived in the first half of the year. Considering the inventory at the end of 2020, we estimate that more than 4GW of products have not been installed."
Why Brazil? Why now?
Silva and Alves said that due to the continuous increase in power demand, the existing power sources cannot meet this demand, and now is the best time to enter the Brazilian solar market. In 2021 alone, Brazil’s energy prices have increased by more than 50% and are expected to continue to be far ahead of the inflation rate.
Solar Americas plans to develop 2GW of solar energy in Brazil by 2026 through cooperation with domestic or multinational companies in Brazil. These companies need to provide reliable electricity at reasonable prices. However, they are reluctant to invest capital expenditure in the creation of the project and lack the solar expertise to implement the project. Another option is to sign a power purchase agreement with a third party, but these long-term contracts are often accompanied by annual price increases and only a few discounts.
On the contrary, Solar America has created a business model in which companies with annual electricity costs of more than $200,000 can form a joint venture to jointly develop solar joint venture projects, and Solar Americas will bring their industry knowledge and skills.
"We entered the market in the third way, and solved the main problems faced by the company's two choices at present." "Joint venture projects mean joint supervision and management. What we have is a shareholder relationship, not a customer-supplier relationship. ."
This proposition is even more attractive if one considers Brazil's net metering system. Brazil has had a very attractive net metering system for a long time. Currently, negotiations surrounding the reform of the net metering system appear to be coming to an end, which has had a positive impact on solar energy.
"In mid-August, the latest version of the law (Projeto de Lei nº 5.829) was approved by the lower house of the Brazilian Congress. It is currently under consideration in the Senate and is likely to be discussed in the third quarter. If approved and passed into law, Brazil will be generous. The net metering regulations will last until 2045 and are applicable to those who already own solar systems or add solar systems within 12 months after the law is promulgated."
This provides a huge opportunity for companies investing in Brazilian solar energy. These companies can not only harvest reliable and affordable clean energy, but also may establish new sources of income for their businesses. Alves explained that companies co-developing projects with Solar Americas can enjoy long-term clean energy at low prices while also diversifying their asset portfolios.
He added that it is easy to obtain land in Brazil and there are no obstacles to installing solar energy projects. Brazil also provides some tax incentives for the import of solar energy products.
In addition, Silva also said that hydropower in Brazil accounts for about 60% of the country's electricity generation, but it has been plagued by many problems, especially low rainfall. Brazil’s climate and geographical environment make solar energy the most attractive renewable alternative energy source, which helps reduce energy prices. Due to insufficient supply of hydropower systems, Brazil's energy prices have soared.
Ellis believes that “people think that the worsening water crisis in Brazil is the reason for the adoption of new regulations, which are good for solar energy.”
Finally, with the coming of the general election in October 2022, Silva and Alves are not worried that political changes will have a negative impact on the solar industry, and these changes may even help the industry to develop further. Contrary to his climate change skepticism, the government of Brazilian President Jair Bolsonaro considers Brazil's energy needs and is friendly to solar energy.
However, the expected victory of opposition leader Luis da Silva (commonly known as Lula) may actually push Brazil to support renewable energy. Therefore, no matter which party is in power within a year, the political situation in Brazil seems to be favorable.
BNEF expects to add 5.3-6.5GW of solar energy in 2021. "As the deadline for projects related to the previous bidding approaches, starting this year, the contribution of public utility construction projects will increase." Ellis said that it is expected that about 6GW of solar energy will be added each year in 2022 and 2023.
Brazil currently only has 10GW of solar energy, which only accounts for 1.5% of its energy mix. In view of this, it is not difficult to see why both Silva and Alves are optimistic about the future of the solar energy market. They hope to successfully develop and integrate the project in five years, and then set their sights on the initial public offering, where their business partners can participate or choose to sell.
Currently, they are focusing on the development of Brazil in the next five years. If experts and analysts are not wrong, others should do the same.