Leader or laggard? Brazil's offshore choice

Most talk about offshore wind investment in the Americas is focused on the US. Frankly, that’s how we like it! We’ll discuss the market extensively with a host of experts at our virtual Financing Wind North America next week.

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However, companies investing in offshore wind in the US should look at what’s happening in Latin America too, especially Brazil.

This is an industry where investment decisions are made with a regional view, not just nationally. Latin America could present huge opportunities in the next 20 years, and Brazil is taking an early lead. While the nation has a conservative target of 16GW installed offshore wind by 2050, we've also seen that utilities want to push things further and faster.

This month, Equinor has applied to the Brazilian Institute of Environment & Renewable Natural Resources for an environmental impact assessment that would pave the way for an up-to-4.7GW complex called Aracatu 1 & 2. This would be located off the states of Rio de Janeiro and Espirito Santo.

That capacity would be in addition to the three projects totalling 9GW that Iberdrola’s Brazilian subsidiary Neonergia is planning.

And we've seen activity from local company BI Energia, which is developing the 1.2GW Camocim and 508MW Caucaia projects off the coast of Ceara. It plans to build Caucaia first, and kicked off environmental planning for Camocim last month. BI Energia is largely unknown outside Brazil, though it could prove to be an early pioneer in much the same way as Deepwater Wind was in the US.

These seven projects alone would equate to 15.4GW and put the country in touching distance of its 2050 target. If established offshore wind markets are anything to go by then Brazil could exceed that 16GW by the mid-2030s.

So there’s no shortage of investor interest. Offshore wind may not be universally popular - Brazilian oil giant Petrobras has this year cancelled a 5MW pilot project - but that won’t faze the likes of Equinor and Iberdrola.

There’s no shortage of natural resource either. The Energy Research Office, which is part of the Brazilian Ministry of Mines & Energy, said there's potential for 700GW of offshore wind in the country’s waters in a report in January.

No, the main limitations are those we see in other emerging offshore markets: a concern from policymakers that offshore wind is too expensive, and how to make the regulatory environment fit for purpose.

But we're seeing progress on both fronts.

For example, offshore wind didn’t feature in the country’s latest energy plan, which was completed in 2019, because the authors believed it would be too costly. But the Brazilian Wind Energy Association has said the rate of cost reduction in offshore wind worldwide means it should be able to compete in energy auctions in Brazil by 2023. The first turbines could be built in 2027.

And this isn't just from looking at cost falls in Europe, where offshore wind is most established.

No, the best examples of how Brazilian projects could compete on cost are Taiwan and the US. Both have shown that it's possible to deliver offshore wind at highly competitive prices even without an established supply chain.

In addition, corporate off-takers have shown they’re comfortable signing huge power purchase agreements at offshore wind projects in new markets. Ørsted won a 920MW PPA with Taiwan Semiconductor Manufacturing Company at Changhua 2b & 4 in Taiwan last month despite the youth of the industry in Asia. Developers in Brazil should benefit from similar corporate appetite.

The regulatory system is likely to prove tougher to fix.

Brazil's federal government controls the territorial waters, unlike the state control we see in the US. This means the industry will need support from the top in areas such as offshore leasing and the development of the transmission network. It probably would be in the best interests of offshore wind investors to see the back of anti-renewables President Bolsonaro.

But there is an economic incentive to remove roadblocks. If the government helps build an offshore wind supply chain in Brazil then it could profit if other Latin American nations – such as Argentina, Chile and Uruguay – look to grow in offshore wind as well, as we expect they will.

Brazilian policymakers can choose for the country to be either a regional leader or a regional laggard. We know which we’d go for.

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