How to finance environmentally friendly projects in Brazil?

As an emerging market Brazil has a lot of resources to invest in the development of environmentally friendly projects. Yet, accordingly to the experts’ announcement the problem is that “there are not enough decent projects to finance”. We hope that through the cooperation with German leading green companies and research institutions Brazilian project proposals could gain additional value to enable them to have more chances to obtain different national and international funds.
Brazil has different state programmes that aimed at supporting the innovation and sustainable project development

1. Federal funds

One of the low cost access to financing is confined to credit lines provided by Brazilian National Development Bank (BNDES), which offer rates between 2.5% - 5.5% under their climate fund (Fundo Clima) program,. The program provides a credit interest rate lower than the current reference rate (11%) stated by the central bank of Brazil. The financing is granted for products with nationalization (local content) index, in value and weight, higher than 60%, and what is making more difficult to obtain it for solar energy projects.
BNDES has also other funds such as Fundo Amazônia, Technology development fund (FUNTEC), support for energy efficiency projects (PROESCO) etc. All these funds are aimed to support  the innovation projects and differ in the project location or its specification.
More detailed information can be found here: http://www.bndes.gov.br/SiteBNDES/bndes/bndes_en/

Funding Authority for Studies and Projects  (FINEP)
According to the law about innovations (Lei de Inovação) companies might obtain public resources from 10% to 200% of applying amount (depending on the size of the company) to develop innovative projects. Generally projects should be from the strategic areas selected by the Federal Government to be able to receive such support. FINEP is responsible for this subsidy and it is publishing the information about the beginning of a tender on its site http://www.finep.gov.br/editais/vigentes.asp

In the process of selection foreign companies might take part only if they have partners in Brazil. However, for this purpose a company should be in a category of “leading companies”.  According to established for this program criteria a “leading company” should have gross operating revenue equal or higher than 4 926 790 Euro (R$ 16 000 000) or equity equal 1 231 699 Euro (R$ 4 000 000) in the latest fiscal year.

To apply for this program a company should send a note of interest.  After this leading companies will be selected to present their business-plans.  For selected business-plans will be elaborated an instrument of support with conditions of a credit and a financing amount.

2. Regional programs in Sao Paulo

Many regions in Brazil have the funds for the innovation projects financing and it is possible to negotiate the conditions with local government that depending on the projects. Regional autority are usually offering the place for free or under subsidies, special fiscal treatment and many other incentives in order to attract a foreign investor/company that could bring an economic development and jobs creation in the region. As an example we could see the offer of regional bank in São Paulo.

Desenvolve SP

The São Paulo state provides to investors credit facilities and specific tax incentives for activities related to the sector. There is the green economy credit facility, from São Paulo Development Agency – Desenvolve SP. The interests of this bank is a bit higher than the one of than BNDES, but it is easier to get, because it requires less bureaucracy and it allows to import material needed for the construction (while  to get BNDES credit company should guarantee to use at least 60% of materials produced in Brazil ).

Name of credit line	Interest rate/ per month	Repayment period (months)	Repayment period (months)
FIP	0, 57%	Up to 120	Up to 24
Linha Economia Verde	0,41%	Up to 120	Up to 24
Linha Economia Verde – equipment	0,41%	Up to 60	Up to 12

Concentrated solar power in Brazil

Solar thermal power plants for the production of electricity until now have been mainly built in Southern Europe, North and South Africa and the United States (GIZ, 2014). 

Power plants with concentrating solar power systems use the sun, instead of the fossil fuel, as a heat source. The steam from the boiling water spins a large turbine, which drives a generator to produce electricity (NREL, 2014). The key advantage of this system in compare with the other renewable energy sources is a possibility to implement a thermal storage system. This opportunity of energy storage makes this system a reliable and flexible energy generation unit (IRENA, 2012).

Brazil offers a great potential for the CSP technology. The data from NREL shows very good values of direct normal solar radiation. In addition the values near the equator showing the constant optical conditions for the plant operation that add the stability to energy producing (GIZ, 2014).

Furthermore, Brazil possesses a developed industrial sector that can be adapted to produce components of CSP plant, such as steel and glass industry, chemical and petrochemical companies. 

As part of the German Climate Technology Initiative (DKTI), Brazilian government together with GIZ (German Federal Enterprise for International Cooperation) are working on the creation of conditions for the development and dissemination of CSP in Brazil. The project consists of different components as training and education, research and development, building of the experimental plant, matching industry and universities etc. This cooperation is aiming at the creation of foundation for further CSP development in Brazil and the strengthening the German-Brazilian cooperation.

As CSP technology requires for the moment high investments. In Brazil it’s seen currently as a good opportunity for the steam generation. There are many industries that need the heat for the production processes. At the moment these companies use wood that sometimes favors illegal deforestation. Indeed, CSP technology could be already a competitive alternative for the steam production and clean energy producer in the future.

Where the energy is coming from?

When I was working at the International trade Center, I learned one very important rule: always ask in the shop where the product is coming from! This small action could influence the supply chain of that product as if the customers are asking then the shops will start to do the same.
Apparently, now I can ask even where the energy is coming from! IDEAL institute in Brazil introduced the solar energy label called "Celo Solar" in order to give visibility for solar energy. It's been a long time, Brazil needed something to encourages companies to install the solar energy at least for the marketing reasons. Yet, this label is unknown in Brazil even within the specialists in this area. Moreover, after I went through the guide to obtain this certificate, I got an impression that it's not so easy. Many papers are required including the marketing plan on how it's going to be promoted. Indeed, these criterias will provide a certain credibility for a label, yet it will require a long time to be well-known.

For more info: http://www.selosolar.com.br/en/selo-solar/

Ideal financial lines for PV system in Brazil

Yesterday, I participated at the defence of one Master's theses concerning the regulation measure for solar energy in Brazil. The objective was to identify the main regulation barriers to develop solar energy, which one of the most important is the lack of an appropriate financial support mechanism.

Indeed, in Brazil there are already some support mechanisms as auctions for solar energy, net-metering and even some financial lines for the energy plants provided by BNDES (development bank). Yet, there is no any adequate financial line for the distributed generation.  If I want to install the Photovoltaic (PV) panel on the roof of my home it will cost me around 20-30 thousand real (or $700-$1000) with the payback achieved in 10 years. There are some governmental banks, as Caixa that provides the credit lines for solar heaters and it's possible to take for PV energy, but still with very high-interest rates.

The work made by Helena Mian proposed the introduction of special financial incentive with the interest rates of 5% that could be adequate for the viability of solar energy in Brazil. However, when I talked with some of the financial sector representatives in Brazil and asked them about the possibility to open a special credit line, they were complaining about the lack of demand. They were saying that until the time when solar energy will be accessible for the majority of consumers they are unable to provide a special financial line for it. In other hand, we understand that without the adequate financial line for solar energy it will take long time before it will be accessible for a consumer.

Nevertheless, he agreed, that it would be possible to create a "consórcio" that is used very often in Brazil to finance concrete products as car or homes. Basically, it means that group of people who wants to buy the same product, without the immediate necessity to have it, make installment payments over a fixed period.  A bank could create this consórcio specifically for the PV system, that will bring the financial costs down and become a more budget-friendly product.

Why do we need a solar energy in Brazil?

Many people are asking me why I'm studying and working on solar energy in Brazil. Why solar and not biomass, where Brazil have so many successful projects or do not work with consolidated wind energy?

Let me try to explain you here why I'm so passionate about the solar energy and especially in Brazil:

First of all, Solar energy is growing much faster than any other renewables. Accordingly to Renewable Energy Network report growth rate in 2013 for Solar Photovoltaic (PV) was 28%, for Concentrated Solar Power (CSP) 26% and for wind only 11%.

Growth rate by renewable energy technology during past decade
Source: REN 21, 10 years of renewable energy progress 2004-2014

Nowadays, wind power accounts for the largest share of growth in renewables-based generation (34%), followed by hydropower (30%), solar technologies reaches only 18%. However, we can see more investments made in solar energy ($114 billion) rather the wind energy ($80 billion), (World Energy Outlook, 2014). 

Secondly, while wind energy sector employs around 0.8 million persons, the solar photov

oltaic sector accounts for 2.3 million jobs (2013), largely concentrated in China. The Chinese PV value chain employed 1.6 million people and shows an outstanding example of what solar energy could bring into the economy (IRENA, 2014).

Jobs in selected countries in 2013 (IRENA, 2014)

And finally -  the great potential of solar energy in Brazil. Currently in Brazil there are 5GW of wind energy in operation and 10.2 GW planning or under construction. Solar energy, however, hangs for the moment behind with 20 MW in operation, but 50 MW are already planned to be introduced (ANEEL data, 2015). Brazil has all the conditions to be one of the leading countries in solar energy sector and there are some of the criteria that could prove its potential:
• Germany is famous as one of the main solar energy producers with the solar irradiation between 900-1250 kWh/m2/year. In Brazil the south regions with the lowest irradiation are equal to the best spots in Germany and accounts about 1,500 kWh/m2/year, while in the north regions irradiation could achieve around 2,500 kWh/m2/year.
• Brazil has one of the most expensive prices of electricity in the world that could be profitable for the renewable energy development. High electricity prices help to achieve the grid parity when the renewable energy sources could compete with other fossil fuel sources in terms of generated electricity costs.
• Photovoltaic technology represents the opportunities to decentralize electricity production and bring it to the remote areas. Many people still live without electricity in Brazil and it’s very costly to extend the grid to these villages. PV panels with batteries could be rapidly delivered and installed in these areas; however, there are many other problems that were not resolved as the maintenance of technology, environmental problems and social acceptance of such innovation.
• Other technology that uses solar irradiation as a resource for energy generation is Concentrated Solar Power (CSP) that has the unique possibilities of 24 hours constant energy generation. Brazil offers a great potential for the CSP technology as it has a high direct normal solar irradiation, especially near the equator. Furthermore, Brazil has a developed industrial sector that can be adapt to produce the component of CSP plant, as steel and glass industry, chemical and petrochemical companies. Jointly with the German government, Brazil has started the bilateral technical cooperation project aimed to create the conditions for developing and disseminating CSP in Brazil.

New possibilities in the Brazilian solar energy market

Recently Senator Ataídes Oliveira proposed the bill in order to exempt the import tax on all equipment and components of solar energy. That bill was already approved in the Federal Senate and is under consideration in the Chamber of Deputies. If this bill will pass, that means that the prices for Photovoltaic (PV) systems will reduce by 10% and solar energy will spread in Brazil.

Currently, there are some taxes already exempted in Brazil, as State VAT, Import Tax,  Excise Tax (IPI) that acheive 0%  for PV modules, but not for other components of PV system. For exemple, Excise tax for inverters is about 15% and import tax vary till 25%. The introduction of this law could partially reduce the barrier with the importation of other PV sistem components and reduce the prices. However, this project of low gives the exemptions on taxes only if there is no similar product in Brazil, that could stimulate the national production.

It's been a while, while I'm hearing at the conferences about the chicken and egg problem: there is no market, thus it's not rentable to build a factory in Brazil; in other hand, if it would be a factory, the special lines of financement will be available and demand would increase. Many European and Chinese companies are negotiating currently to build a PV modules factories in Brazil, but for the moment only one company that montage the solar panels in Brazil exists with the prices far higher than the imported panels (Technometal).

Renewable energy development in Brazil

Brazil currently has one of the cleanest energy matrix in the world  with 77% of all electricity supply coming from renewable energy sources, where 62% of all electricity supply coming from hydro power. However, currently Brazil is experiencing their worst drought since 1930 and going through the water crises, which put in danger the generation of electricity from hydro. This and many other factors are pushing the government toward the diversification and increasing of investment in the development of new green technologies.

Total energy consumption by type in Brazil

Source: ANEEL banc of information on generation, actualised on 28/01/2015

Accordingly to the IRENA country profiles the targets in Brazil were set to achieve 

In addition it has plenty of new energy resources to develop. Apart from huge deposits of offshore oil, gas and hydro power, it disposes huge potential for solar and wind energy. The world’s largest sugarcane crop provides bagasse, a fibrous residue which burns in high-pressure boilers. The country may also have shale gas (the Economist, 2013).

Accordingly to the IRENA country profiles the targets in Brazil were set to achieve increase by 16% of electricity generation from renewables (except hydro power) by 2020:

·           16% of electricity generation from renewables (excluding large hydro) by 2020

·           11.5 GW of wind capacity by 2020

·           9.2 GW of biomass-fired capacity by 2020

·           6.4 GW of small hydro capacity by 2020

Nowadays small hydro stations generates already 4.7 GW and 2.3 GW are planning or under construction. Wind energy accounts for 5GW in operation and 10.2 GW planning or under construction. Solar energy however hangs behind with 20 MW in operation and 50 MW planned (ANEEL data, 2015).

In 2012 ANEEL (National Energy Agency) established the normative resolution Nº 482, which represents the general conditions for net-metering system for mini and micro electricity generation. The idea of this system is to enable the distribution and use of self-generated energy, e.g. when the electricity generation system produces more electricity than current electricity consumption, the surplus is injected in the electricity network which could be used later when the consumption is higher than generation. Thus houses and small commerce could generate their own electricity and get the credit for this generation to use it after when they need the energy from the greed.

Brazil has the experience of organising the “solar only” energy auction, firstly made for Pernambuco region and in 30 October 2014 for the Federal Reserve energy. (EPE, 2014). However, the initial price was very low for current electricity companies, which was set in average at R$228.63/MWh (ibid).

Brazil currently has no solar feed-in tariffs policy, while this policy could help as well solar energy to reduce its cost. From 2002-2006 due to help of feed-in tariffs integrated in the programme “PROINFA“, the cost of wind energy dropped from $150 per MWh to $53 per MWh in 2011 auctions (Chadha M., 2014).

Despite high costs of solar energy Brazilian government decided to support its use for certain social projects. There are several joint projects between electricity distribution companies and institutions for electrification of rural regions. The Program “Light for all” (“Programa Luz para Todos”) was implemented in Minas Gerais by Electricity Company CEMIG, which installed photovoltaic systems for 285 000 consumers in rural areas from 2004 till 2011, the same program substitute Sunlight Program (“Programa Luz Solar”) in the Northeast Region and the National Program for Rural Electrification.

Moreover, some states introduced the tax incentives for solar energy. According to the Agreement ICMS 75/11 (Tax on Circulation of Services and Goods) solar modules become a tax exemption on ICMS that exclude the double taxation of consumer. In addition, Brazilian government together with Germany started the researches in new solar energy technology as concentrated solar power (CSP) and plan to construct the first CSP plant in Petrolina (Schlipf, 2014).

The development of solar energy use is gaining momentum in Brazil. Once successfully implemented program aimed at increase in use of solar energy for water heating in houses (“Minha casa, minha vida”), opened new perspectives for the following use of solar panels to produce electricity. According to the Brazilian National Department of Solar Heating (DASOL), the production of water heating solar collectors grew by almost 19% in 2009 and more than 21% in 2010. Same results are likely to be achieved with new photovoltaic legislation and incentives, thus creating great opportunities for the emergence of a strong photovoltaic industry in Brazil.