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B
razil is the worlds secondbiggest producer of hydroelectricity, getting 81% of its power from hydro plants, while also boasting the cheapest wind energy in the world. But, scared by a drought in 2012 its worst in 50 years the country has revised rules for its power auctions this year to push development of natural gas and coal-
In recent years, major cost barriers and a dated energy auction format have priced biomass out of Brazils energy matrix. But with changes to public auctions this year and a handful of biomass projects drawing private investment, the role of biomass in Brazilian power may be on the rise, writes Bob Moser.
fired thermal plants. The new auction rules will segregate wind energy projects for the first time from thermal, a category that includes natural gas, coal and biomass.
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If all of So Paulos mills were properly connected to the grid and operating with updated machinery, the state could generate four to five times the biomass-based energy its generating today.
Brazils auction format needs to change so biomass doesnt have to compete head to head with wind power, says Guillaume Sagez, partner with Brazilian venture capital and private equity management company Performa Investimentos. He likes the potential of biomass cogeneration as a future investment option, but wont put money into the sector until its shielded from wind powers low prices. apply for a BNDES loan after theyve won a long-term contract in Brazils public auctions, and in recent years, wind power has dominated that arena. We dont have a huge private market for electricity in Brazil the public auction is the main driver of energy investment, says Milanez. In 2012, only five or so [sugarcane] mills requested this type of investment. If the auction rules were to change, I think it could drive a new cycle of investment in biomass cogeneration. Its not yet known how many biomass energy projects will enter the thermal-only public auction later this year, and if theyll compete well against natural gas and coal-fired projects. But for those that win, BNDES remains the favourite for finance.
Distributor as investor
So Paulo is studying new incentives for investment in cogeneration from sugarcane mills, the states energy secretary said in April. The state currently counts about 4,500MW of cogenerated energy from cane biomass, of which around 1,000MW is being sold as excess by mills to the grid. Typically, sugarcane mills must cover the costs of connecting their generators to a local grid, updating old biomass boilers and ensuring their grid connection can support large energy discharges. The investment can vary from R$1 million to R$4 million per megawatt of installed capacity. A nascent but promising business model can emerge in Brazil, with electricity distributors making direct investments and taking management roles in cane mills. The first such investment occurred in March 2012, when CPFL Renovveis purchased 100%
Biofuels in the transport sector are already a success for biomass in Brazil.
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of the cogeneration activities of Ester Mill, based in the small town of Cosmpolis, So Paulo. More than 100 of the roughly 200 mills in So Paulo lack the modern boilers necessary to turn their biomass into energy at a profitable rate. If all of So Paulos mills were properly connected to the grid and operating with updated machinery, the state could generate four to five times the biomass-based energy its generating today.
Energias Renovveis do Brasil (ERB), which is drawing hundreds of millions of reais in private equity financing from major banks to support its focus on eucalyptus as a dedicated feedstock. BNDES has made financing available to ERB, but the company has opted to rely mainly on partners like Rioforte Investments (a holding company of Portugals Esprito Santo Group) and Brazilian bank Caixa Econmica Federal, which together have invested R$120 million, and control 98% of ERBs capital. We believe that, for good projects, the money will come, says Emilio
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