Brazil’s energy transition |
Renewables gold rush likely to continue
Jamie MacDonald-Murray, chairman of Lisarb Energy, considers the 2022 outlook for Brazil’s energy transition
2021 was a boom year for solar power in Brazil as a record number of new projects were registered with ANEEL, Brazil’s electricity industry regulator. Now, new distributed generation legislation is in the offing, and, when ratified, it will introduce gradual charges for use of transmission networks through distribution system use tariffs (TUSD). The legislation proposes a 10-year transition from the current model, with projects that are already connected to the grid allowed to operate under the existing rules until 2045.
This revised legal framework will continue to drive a ‘gold rush’ of new projects as developers strive to beat the higher charges so that they can offer cheaper power purchase agreements (PPAs) to off-takers for as long as possible. Before the changes were outlined, in September 2020, the pipeline of registered projects stood at 8.7 GW – adding to an installed solar power generation capacity that had already reached 10 GW in the summer. The pipeline had more than doubled to 18 GW after the law was proposed, with solar accounting for most of the new capacity.
When renewable subsidies are decreased or withdrawn it is not unusual to see new project applications dwindle. This has been the case in the UK, for instance, with successive reductions in – and the eventual removal of – the Feed in Tariff (FIT). However, while we expect to see Brazil’s industry pause for breath, the solar market will continue its strong growth trajectory because of the fundamental drivers fuelling the uptake of solar, combined with the decreasing cost of PV panels. As well as more investment in solar parks, we expect to see increased uptake in the residential market as consumers look to manage their rising household energy costs. In the long term, the new law also improves the financial environment, which will encourage foreign investment in renewable projects, opening up access to a wider range of financing options.
The rise and rise of ESG
In April 2021, at a US-sponsored climate summit, Brazil pledged to achieve net-zero carbon emissions by 2050, which is ten years earlier than previously planned.
While there is much well-founded scepticism concerning President Bolsonaro’s environmental and climate pledges, it is noteworthy that the leaders of 30 of the country’s top businesses suggested this pledge in an open letter to Brazil’s president.
Brazilian businesses are increasingly concerned about both the environment and
2021 was a boom year for Brazilian solar as a record number of projects were registered with ANEEL, Brazil’s electricity regulator
broader reputational issues to the extent that environmental, social and governance (ESG) has become a fixture on boardroom agendas. Of course, ESG is now inextricably linked with finance and Brazil is no different from any other country in that respect. And the evidence is there to see. Of the money invested into BlackRock Brazil during the first quarter of 2021, over a third was destined for its ESG exchange-traded funds.
Continued pressure from both indigenous and international businesses is, slowly but surely, forcing Brazil’s government to act on climate. This shift in approach will help to remove a key barrier to international investment in Brazil’s green infrastructure.
The technology revolution in agriculture
Agriculture is hugely important to Brazil. The sector accounts for around 1 in 10 of all jobs and adds over 4% to the country’s GDP. Brazil is the world’s leading producer of many essential commodities including sugar, coffee and orange juice.
There is a revolution going on in the world of agriculture and it involves the use of tech – or ‘agritech’ – to improve crop yields, reduce the use of harmful chemicals and protect the soil. Technology is being applied in a multitude of ways. For example, use of camera technology
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and drones that can identify and remove weeds without the need for mass spraying of chemicals, or even planting seed pods from the air. Analysis of satellite data can help inform exactly where – to within a few metres – crops would benefit from the application of fertiliser, and what amount. More accurate weather forecasting using local climate stations allows growers to plan planting, protection and harvesting to maximise yield.
According to a 2020 survey by McKinsey, the penetration of digital agriculture in Brazil is higher than in the United States and increasing. Brazilian farmers are embracing tech to help them grow and process food more profitably and sustainably.
Solar PV is a natural ally to tech in the sustainable agritech revolution. Solar parks can provide much-needed power to remote and off- grid areas, enabling processing plant, irrigation and agricultural equipment to benefit from clean, predictably priced electricity. We expect agriculture to be one of the key drivers of off-grid solar in 2022.
Some growers are realising the benefits of combining solar and food crops on the same land. This approach maximises land use and enables the use of solar PV to improve growing conditions. For example, in hot regions, PV can be used to provide crop shading during the hottest part of the day, helping to
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