Brazil looks to "Shoot itself on the Foot" with the ill thought of – Local Content Rules for Wind Energy

Brazil made a lot of headlines when it managed to auction a couple of gigawatts of wind energy capacity at very low prices to wind energy developers. Note Brazil does not have much renewable energy capacity apart from hydro power, despite huge potential for both wind and solar power. A number of wind turbine producers bagged contracts to supply WTGs to the winners of the wind energy auctions, amongst them were top global wind turbine producers like Vestas, Suzlon, Gamesa, GE and others.

Local Content Rule in Brazil

However Brazil had formed a rule that 40% of the wind turbine equipment must be sourced locally. The reason for the rule was to foster the development of a local wind manufacturing industry. Like China, when Brazil opened its wind market, it too hoped to develop a robust wind turbine industry. But Brazil is not China and the turbine makers have found it impossible to source wind components to meet their requirements. The National Development Bank has announced that five of the wind turbine producers will be ineligible for low interest loans making the wind projects unviable. Local Content Rule are a major headache everywhere in the green industry. Though some countries especially China have benefited hugely from this rule, others have mostly shot themselves in the foot as the local industry is not capable of meeting the requirements or have very high costs which raises the consumer price.

Bloomberg

Wind-farm developers in Brazil may be forced to halt construction on some projects within 15 days because the state development bank BNDES is freezing financing for turbines purchased from suppliers it claims aren’t meeting local-content requirements.

Without loans from Brazil’s biggest wind-farm financier, developers are unable to pay for equipment they’ve already agreed to buy, Elbia Melo, executive president of the Sao Paulo- based wind-energy trade group Associacao Brasileira de Energia Eolica, said today in a telephone interview.

BNDES, formally Banco Nacional de Desenvolvimento Economico e Social, temporarily suspended loans last month for turbines from five foreign manufacturers with operations in Brazil that it says aren’t obtaining enough components from domestic suppliers.

“If this goes on for another 15 to 20 days, projects will stop,” Melo said. Suppliers like India’s Suzlon Energy Ltd. (SUEL) “are already losing new clients.”

BNDES suspended financing for equipment from Suzlon, Denmark’s Vestas Wind Systems A/S (VWS), Germany’s Fuhrlaender AG, Clipper Windpower Ltd. of the U.S and Spain’s Acciona SA, Melo said.

They are initially required to get 40 percent of their components from Brazilian suppliers. The local-content requirement eventually rises to 60 percent on a schedule that varies by supplier, and BNDES may decide next week to extend those shifts, Melo said.

Also Read on GWI:

List of Wind Energy Companies in India.

Pros & Cons Of Renewable Energy.