market assessment for promoting energy efficiency and renewable energy investment in brazil through...

Market Assessment for Promoting Energy Efficiency and Renewable Energy Investment in

Brazil through Local Financial Institutions

Contract 7153994

FINAL REPORT - October 2010 -

International Finance Corporation Market Assessment for Promoting EE&RE in Brazil through Local Financial Institutions

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ABBREVIATIONS AND ACRONYMS

ABADI Associação Brasileira de Administradores de Imóveis ABIA Associação Brasileira da Indútria de Alimentos ABIH Associação Brasileira da Indústria de Hotéis ABIQUIM Associação Brasileira da Indústria Química ABIT Associação Brasileira da Indústria Têxtil ABRABE Associação Brasileira de Bebidas ABRAS Associação Brasileira de Supermercados ABRASCE Associação Brasileira de Shopping Centers ADENE Agência de Desenvolvimento do Nordeste ANEEL Agência Nacional de Energia Elétrica (Brazilian Power Sector Regulator) ANFACER Brazilian Association of Ceramic Tile Manufacturers ANP National Agency for Petroleum, Gas and Biofuels BASA Banco da Amazônia SA BNB Banco do Nordeste do Brasil

BNDES Banco Nacional de Desenvolvimento Economico e Social (Brazilian Development Bank)

BP British Petroleum BRACELPA Brazilian Pulp and Paper Association BREES Brazil Energy Efficiency Study BRL Brazilian real CDM Clean Development Mechanism CEF Caixa Econômica Federal CEMIG Electricity distribution utility in Minas Gerais State CGH Small hydro plants with less than 1,000 kW of capacity CNI National Confederation of Industry (Confederacão Nacional da Industria) COGEN Accociação da Indústria de Cogeração de Energia COPEL Electricity distribution utility in Paraná State CPFL Electricity distribution utility in São Paulo State DISCO Distribution Company (Electricity) EE Energy Efficiency EEGM Energy Efficiency Guarantee Mechanism ESCO Energy Service Company ESMAP Energy Sector Management Assistance Program ESPC Energy Services Performance Contract EPE Energy Research Company (planning agency for energy sector) EUR Euro, official currency of the Eurozone FDA Fundo de Desenvolvimento da Amazonia” of the BASA GDP Gross domestic product GEF Global Environment Facility GHG Greenhouse Gases HVAC Heating, Ventilation and Air-Conditioning IBGE Instituto Brasileiro de Geografia e Estatística IDB Inter-American Development Bank IFC International Finance Corporation INMETRO Federal Agency Responsible for Physical Standards in General


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IRR Internal rate of return kWh Kilowatt hour MEEP Manual for the Energy Efficiency Program MME Ministry of Mines and Energy MRE Market for Reallocating Energy (Mercado de Realocação de Energia) M&V Measurement and Verification MWh Megawatt hour NGO Non-Governmental Organization OECD Organization for Economic Co-operation and Development O&M Operation and Maintenance PNE Plano Nacional de Energia PROCEL National Program for efficiency in electricity use PROESCO Credit line of the BNDES to finance energy efficiency projects R&D Research and Development RE Renewable Energy RELUZ Program to promote energy efficiency in public lighting RT Refrigeration ton SAG Shared General Administration Costs (cost item allowed in the EE program)

SPE Superintendência de Pesquisa e Eficiência Energética (Department of ANEEL responsible for regulating the EE program)

tCO2 Ton of carbon dioxide TRANSCO Transmission Company (electricity) toe Ton of oil equivalent UNDP United Nations Development Programme UNEP United Nations Environment Programme UNICA União da Indústria de Cana de Açúcar USD Unites States dollar USW Urban solid waste VSD Variable speed drive WBG World Bank Group


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TABLE OF CONTENTS

EXECUTIVE SUMMARY .......................................................................................................................X INTRODUCTION ................................................................................................................................... 1 1 EXISTING EE&RE BUSINESSES IN BRAZIL............................................................................. 3

1.1 Overview of Energy Sector.................................................................................................. 3 1.2 Institutional, Policy and Legal Framework ........................................................................ 6

1.2.1 Institutional Framework of the Energy Sector................................................................. 6 1.2.2 Policy and Regulatory Framework in Renewable Energy .............................................. 8 1.2.3 Policy and Regulatory Framework in Energy Efficiency ................................................. 9

1.3 Past and Ongoing Initiatives in EE&RE Financing Mechanisms in Brazil .................... 10 1.3.1 Government Programs for Promoting EE and RE Projects.......................................... 10 1.3.2 Impact of the general and specialized auctions for contracting new RE capacity ........ 12 1.3.3 Existing Renewable Energy Financing......................................................................... 13 1.3.4 Existing Energy Efficiency Financing Instruments........................................................ 14 1.3.5 Lessons Learned from Past Activities in EE................................................................. 17

2 INVESTMENT OPPORTUNITIES RENEWABLE ENERGY...................................................... 19 2.1 Investment Opportunities in Small hydro ........................................................................ 20

2.1.1 Recent trends in the market and potential.................................................................... 20 2.1.2 Regional aspects of the market .................................................................................... 21 2.1.3 Characteristics of typical projects ................................................................................. 21 2.1.4 Brief overview of key players in the market .................................................................. 22 2.1.5 Overall investment needs and current financing .......................................................... 22 2.1.6 Summary of risks and attractions ................................................................................. 23

2.2 Investment Opportunities in Sugarcane Biomass .......................................................... 24 2.2.1 Recent trends in the market and potential for expansion ............................................. 24 2.2.2 Regional aspects of the market .................................................................................... 26 2.2.3 Characteristics of typical projects ................................................................................. 27 2.2.4 Brief overview of key players in the market .................................................................. 27 2.2.5 Overall investment needs and current financing .......................................................... 28 2.2.6 Summary of risks and attractions ................................................................................. 30

2.3 Investment Opportunities in Urban Solid Waste............................................................. 30 2.3.1 Recent trends and regional aspects of the market ....................................................... 31


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2.3.2 Characteristics of typical projects ................................................................................. 32 2.3.3 Brief overview of key players in the market .................................................................. 35 2.3.4 Overall investment needs and current financing .......................................................... 35 2.3.5 Summary of risks and attractions ................................................................................. 37

2.4 Investment Opportunities in Windpower ......................................................................... 37 2.4.1 Recent trends, potential and regional aspects of the market ....................................... 37 2.4.2 Characteristics of typical projects ................................................................................. 38 2.4.3 Brief overview of key players in the market .................................................................. 39 2.4.4 Overall investment needs and current financing .......................................................... 39 2.4.5 Summary of risks and attractions ................................................................................. 41

2.5 Investment Opportunities in Biodiesel............................................................................. 42 2.5.1 Recent trends in the market and potential.................................................................... 42 2.5.2 Characteristics of typical projects ................................................................................. 43 2.5.3 Brief overview of key players in the market .................................................................. 43 2.5.4 Overall investment needs and current financing .......................................................... 44 2.5.5 Summary of risks and attractions ................................................................................. 45

2.6 Overview of smaller isolated off-grid systems in Amazônia.......................................... 45 3 INVESTMENT OPPORTUNITIES IN ENERGY EFFICIENCY ................................................... 53

3.1 Overview of Existing Studies on EE potential in Brazil.................................................. 54 3.2 Investment Opportunities in Commercial and Public Buildings ................................... 57

3.2.1 Energy Consumption Profile in Public and Commercial Buildings ............................... 57 3.2.2 Energy Savings Opportunities and Characteristics of Typical Projects........................ 59 3.2.3 EE Investment Potential in Public and Commercial Buildings...................................... 61 3.2.4 Stakeholders Analysis .................................................................................................. 65 3.2.5 Barriers and Risks ........................................................................................................ 68

3.3 Investment Opportunities in Industrial Sector ................................................................ 70 3.3.1 Energy Consumption Profile in Industries .................................................................... 70 3.3.2 Energy Savings Opportunities and Characteristics of Typical Projects........................ 75 3.3.3 EE Investment Potential in Industries........................................................................... 79 3.3.4 Stakeholders Analysis .................................................................................................. 80 3.3.5 Barriers and Risks ........................................................................................................ 81

3.4 Investment Opportunities in Industrial Cogeneration .................................................... 84 3.4.1 Energy Consumption Profile for Cogeneration in Industries......................................... 84


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3.4.2 Energy Savings Opportunities and Characteristics of Typical Projects........................ 84 3.4.3 EE Investment Potential in Industries........................................................................... 85 3.4.4 Stakeholders Analysis .................................................................................................. 87 3.4.5 Barriers and Risks ........................................................................................................ 88

3.5 Investment Opportunities in other Market Segments..................................................... 88 3.5.1 Green Buildings............................................................................................................ 88 3.5.2 Street Lighting .............................................................................................................. 89 3.5.3 Water Pumping and Sewage Treatment ...................................................................... 89 3.5.4 Residential Solar Water Heating .................................................................................. 90

4 CONCLUSIONS AND RECOMMENDATIONS.......................................................................... 91 APPENDIXES...................................................................................................................................... 94 APPENDIX 1 SERVICE PROVIDERS AND SUPPLIERS IN AIR CONDITIONING AND REFRIGERATION SECTOR ............................................................................................................... 95 APPENDIX 2 SOLAR WATER HEATING SYSTEM SUPPLIERS ................................................ 97 APPENDIX 3 TYPICAL COGENERATION PROJECTS ............................................................... 98 APPENDIX 4 SUPPLIERS IN COGENERATION MARKET SECTOR........................................ 102 APPENDIX 5 SMALL HYDRO MARKET SECTOR..................................................................... 104 APPENDIX 6 SUGARCANE BIOMASS MARKET SECTOR ...................................................... 116 APPENDIX 7 URBAN SOLIDE WASTE MARKET SECTOR...................................................... 136 APPENDIX 8 WIND POWER MARKET SECTOR ....................................................................... 150 APPENDIX 9 BIODIESEL MARKET SECTOR............................................................................ 161 APPENDIX 10 INFORMATION ON ISOLATED OFF-GRID SYSTEMS IN AMAZÔNIA ............... 171


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LIST OF TABLES Table 1: Summary of Investment Potential and GHG Reduction in RE...............................................xvii Table 2: Summary of Investment Potential and GHG Reduction in EE ..............................................xviii Table 3: Final consumption by sector in 2008 (thousand toe) ................................................................4 Table 4: Electricity Prices by Sector and Region (November, 2009) ......................................................5 Table 5: BNDES approved operations in the electricity sector - 2003 to 2009 .....................................13 Table 6: Average size and investment/kW of generation projects approved by the BNDES during 2003 – 2009 ...................................................................................................................................................14 Table 7: Evolution of installed PCH and CGH capacity in 2008-200913................................................20 Table 8: Summary of investment potential for small hydro ...................................................................23 Table 9: Evolution of sugarcane, sugar and ethanol production from 2003 to 200814 ..........................25 Table 10: Projected expansion of the sugarcane sector in Brazil until the harvest of 2020/202115 ......26 Table 11: Production of sugarcane in Brazil and by regions (thousand metric tons)16 .........................26 Table 12: Effect of scale on approximate investments in new sugarcane plants17 ...............................27 Table 13: Summary of investment potential for sugarcane cogeneration.............................................29 Table 14: Destination of urban solid waste, by macro-region19.............................................................31 Table 15: Waste generated per capita, by size of municipality20 ..........................................................32 Table 16: Approximate potential for electricity generation from landfill gas recovery ...........................33 Table 17: CDM projects by sector22 ......................................................................................................34 Table 18: Summary of investment potential and GHG reduction..........................................................36 Table 19: Summary of investment opportunities in wind power............................................................40 Table 20: Comparison of the credit terms of the BNDES and the Banco do Nordeste.........................40 Table 21: Evolution of the required blend of biodiesel in diesel from fossil fuel25 .................................42 Table 22: Evolution of the production of pure biodiesel (B100, in m3)26................................................42 Table 23: Prices of oil & fat feedstocks for biodiesel (USD/ton)28 .........................................................43 Table 24: Number of generating plants by resource.............................................................................46 Table 25: Profile of installed capacities of thermal plants in isolated systems......................................47 Table 26: Energy savings by sector (base year: 2005), reference scenario.........................................54 Table 27: Energy efficiency potential, by level and sector35..................................................................55 Table 28: Savings in electricity consumption (TWh) by sector36 ...........................................................55 Table 29: Savings potential by sector and end-use (1,000 toe)37 .........................................................56 Table 30: Energy Breakdown per End Usage in Commercial and Public Buildings .............................58 Table 31: Energy Consumption per Usage in Public and Commercial Buildings .................................59 Table 32: EE Investments Estimate in Commercial Buildings ..............................................................62 Table 33: EE Investments Estimate in Public Buildings........................................................................64 Table 34: Key Market Players in Building Sector..................................................................................65 Table 35: Breakdown per energy source in Brazilian industries55.........................................................75 Table 36: Energy balance per end usage in four Brazilian industries...................................................75 Table 37: Best Available Technologies savings potential for Brazilian industry (2007)60......................78 Table 38: Investments Estimate in Industrial Market Sector.................................................................79 Table 39: Key Market Players in Industrial Sector ................................................................................81 Table 40: Potential for Cogeneration Projects in Industrial Sector - Rio de Janeiro62...........................85 Table 41: Energy generation and investment potential for cogeneration projects in industries............86 Table 42: Key Players for Cogeneration Projects in Industrial Sector ..................................................87 Table 43: Ventures with Qualified Cogeneration in Brazil...................................................................100 Table 44: Values Data - 2008 .............................................................................................................101 Table 45: Evolution of installed PCH and CGH capacity in 2008-2009 ..............................................105 Table 46: Evolution of small hydro potential in 2008-2009 .................................................................106 Table 47: Number of Executive Projects and Inventory Studies by Region........................................106


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Table 48: Small hydro plants in operation...........................................................................................106 Table 49: Hydromechanical equipment for small hydro projects ........................................................112 Table 50: Tubine suppliers for small hydro projects ...........................................................................112 Table 51: Generator and electrical equipment supplier for small hydro projects ................................113 Table 52: BNDES financing for PCH projects.....................................................................................114 Table 53: Estimate of the GDP of the sugarcane sector by product and market (millions of USD)g...116 Table 54: Evolution of sugarcane, sugar and ethanol production from 2003 to 2008.........................117 Table 55: Scenario of expansion of the sugarcane sector in Brazil until the harvest of 2020/2021....118 Table 56: Projected change in the revenue profile of sugarcane mills ...............................................118 Table 57: Effect of scale on approximate investments in new sugarcane plants................................121 Table 58: Typical parameters of sugarcane mill with a capacity of 2 million tc/harvest a ....................122 Table 59: Broad alternatives for generating surplus electricity for sale ..............................................122 Table 60: Surplus electricity for sale with alternative energy configurations.......................................123 Table 61: Boiler pressures in proposals for financing submitted to the BNDES .................................124 Table 62: Impact of plant pressure and scale on investment..............................................................124 Table 63: Estimated phase out schedule for sugarcane burning........................................................125 Table 64: Production of sugarcane in Brazil and by regions (thousand metric tons)..........................126 Table 65: Profile of loans by the BNDES to the sugarcane sector, by state, from 2004-2008 (%).....126 Table 66: Summary of biomass projects in auctions since 2005 ........................................................129 Table 67: Comparison of product mix of different economic groups in the sector ..............................132 Table 68: Total BNDES loans disbursed by sugarcane sub-sectores (BRL milhões).........................134 Table 69: Outstanding loans and loan applications of the sugarcane sector, BNDES .......................134 Table 70: Destination of urban solid waste, by macro-region .............................................................136 Table 71: Average composition of Urban Solid Waste .......................................................................138 Table 72: Approximate potential for electricity generation from landfill gas recovery .........................141 Table 73: Profile of the amount of USW collected in municipalities....................................................141 Table 74: CDM projects by sector.......................................................................................................142 Table 75: Approximate potential for electricity generation from high temperature treatment of USW 143 Table 76: Total investment potential for USW projects on a five-year period .....................................147 Table 77: Winning projects in the December 2009 Auction, by State.................................................150 Table 78: Largest owners of winning projects in the December 2009 Auction ...................................150 Table 79: Classes of wind potential by wind speed ............................................................................151 Table 80: Areas of Land in Different Wind Speed Classes Brazil .......................................................152 Table 81: Approximate Capacity Factor Associated with Wind Speed Class .....................................153 Table 82: Gross Brazilian wind energy potential – Brazil Atlas and modified parameters ..................154 Table 83: Comparison of credit terms between those of BNDES and of Banco do Nordeste ............159 Table 84: Evolution of the required blend of biodiesel in diesel from fossil fuel..................................161 Table 85: Evolution of the production in m3 of pure biodiesel (B100), 2005-2009 ..............................161 Table 86: Current regional shares of biodiesel production capacity and projected shares in the near term.....................................................................................................................................................162 Table 87: Advantages and disadvantages of different feedstocks for biodiesel .................................164 Table 88: Prices of oil & fat feedstocks for biodiesel (USD/ton) .........................................................165 Table 89: Volumes and prices in the 16th and 17th auctions of biodiesel ............................................166 Table 90: Minimum required share of raw material input from small family farms..............................166 Table 91: Key biodiesel producers in Brazil ........................................................................................168 Table 92: BNDES biodiesel support program interest rate for direct operations ................................169 Table 93: Thermal Power Plants in Isolated Systems ........................................................................171


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LIST OF FIGURES Figure 1: Total Primary Energy Supply (IEA 2009).................................................................................3 Figure 2: Energy prices (USD/barrel oil equivalent)................................................................................5 Figure 3: Financial Scheme of Petrobrás EE Program .........................................................................15 Figure 4: Isolated power plants in the Amazon region..........................................................................46 Figure 5: Capacity Factor vs Installed Capacity....................................................................................48 Figure 6: Sawmill clusters in Pará (Baixo Amazonas Region not shown) ............................................50 Figure 7: Energy Share in the Commercial Sector ...............................................................................58 Figure 8: Energy balance per industrial sector (2006)47 .......................................................................71 Figure 9: Breakdown of paper production in Brazil ...............................................................................73 Figure 10: Main segments in Brazilian chemical industry .....................................................................74 Figure 11: Energy source balance in industrial sector ..........................................................................84 Figure 12: Comparison and Solution for Cogeneration.........................................................................98 Figure 13: Basic project designs for small hydro approved by ANEEL, 1998-2009 ...........................104 Figure 14: Small hydro projects authorized by ANEEL, 1998-2009....................................................105 Figure 15: Small hydro costs/MW as a function of the “power ratio” ..................................................107 Figure 16: Complementation of the natural flow hydropower by seasonal sugarcane mill generation119 Figure 17: Biofuels consumption and land use in a global scenario to reduce greenhouse gases by 50%.....................................................................................................................................................120 Figure 18: Variation of the price of hydrated ethanol in 2009 .............................................................130 Figure 19: Relation of city population and per capita solid waste, Southeast Region ........................137 Figure 20: Relation of city population and per capita solid waste, Northeast Region .........................137 Figure 21: Illustrations of landfill gas output and recovery over time, case (A)...................................140 Figure 22: Illustrations of landfill gas output and recovery over time, case (B)...................................140 Figure 23: Map of average annual wind speeds at 50 m ....................................................................152 Figure 24: Map of biodiesel nominal production capacity versus actual output, 2008........................163


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EXECUTIVE SUMMARY

In the last decade, the International Finance Corporation (IFC), part of the World Bank Group (WBG), has adopted climate change as a strategic priority for sustainable development in developing countries. Thus, IFC fosters initiatives aiming to enhance commercial financing in Renewable Energy (RE) and Energy Efficiency (EE).

The ongoing market assessment of potential investments in EE and RE in Brazil is part of IFC’s broader strategy to mitigate climate change. This market assessment aims to provide potential investors with information on sector segmentation, typical RE projects and EE measures, electricity generation potential for RE or energy and cost savings in EE. Furthermore, this market assessment focuses on investments required for each segment, the number of transactions, financial indicators on cost-effectiveness and benefits analysis. The main stakeholders in each sector as well as typical barriers and risks that may be encountered by investors are also part of the analysis.

Existing EE and RE Businesses in Brazil

In 2008, Brazil’s total primary energy supply amounted to 226 million tons of oil equivalent (Mtoe). The main sources used as energy as well as for non-energy usages were petroleum products (41%), sugarcane bagasse (18%), electricity (16%), firewood (10%) and natural gas (7.5%). Brazil is the third largest producer of hydroelectricity in the world, after China and Canada. Overall, the industrial sector consumed almost 39% of the country’s final energy, followed by the transportation (mainly oil products, biodiesel and ethanol produced from sugarcane), energy and residential sectors with a share of 29%, 12% and 11% respectively. Even though the public and commercial sectors consumed about 23% of the total electricity, their proportion represents only about 5% in terms of total energy. Finally, the “Plano Nacional de Energia” (PNE), which was published in 2007, forecasted the final energy consumption growth of the country to be approximately 3.6% per year for a 25-year horizon.

With regard to RE, auctions for RE supply have been conducted over the last years. While the auction of June 2007 for small hydro and biomass projects had lower results than expected, the auction of December 2009 for wind power projects was a tremendous success. On that occasion, 1,806 MW were contracted with a surprisingly low average price. It encouraged the organization of a new auction for “alternative renewables,” to be held in August 2010.

As for the EE policy and regulatory framework, Brazil has established policy mechanisms that have had impacts on private and public investments in this sector of activity. Public initiatives such as the creation of the national energy efficiency programs PROCEL (for electricity) and CONPET (for gas & oil derivatives) as well as the National Climate Change Program provide an institutional framework for energy efficiency. Other regulations for EE promotion also helped provide guidelines and mechanisms to strengthen the EE market. For instance, the national energy efficiency policy presents a set of goals and policy instruments to be achieved by 2030. It also states very broadly several measures and


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guidelines for governmental agencies to promote market transformation. In addition, the creation of the national fund CTEnerg, which is financed by wire charges on utilities, is another mechanism implemented to foster EE development.

Moreover, several programs were set up by the government through public entities to promote RE and EE in Brazil. Among others, the Electrobras Programa Nacional de Conservacao de Energia Elétrica (PROCEL) and the Petrobras Programa Nacional de Racionalização do Uso dos Derivados do Petroleo e do Gas Natural (CONPET) are two of the main programs promoting rational energy use. The Programa de Incentivos às Fontes Alternativas de Energia Elétrica (PROINFA) is more focused on RE initiatives and was the first major program to promote commercial financing for small hydro, biomass and wind energy for sale to the national grid. As for EE, the BNDES risk sharing credit line for ESCOs (PROESCO) was designed and implemented to offer a financing alternative to EE projects.

While main government initiatives to promote investments in the RE market can be viewed as successful, the same conclusion cannot be drawn for EE financing. In fact, the main lessons learned are as follows:

• PROCEL remains the main reference for energy efficiency in Brazil, hosting the “PROCEL Info” portal. Financial institutions could work in close cooperation with PROCEL in order to be aligned with a federal program and access the network built with more than 25 years of experience.

• CONPET is the only governmental organization focused on fuel savings. Even though it does not have a structure and scope that is similar to that of PROCEL, some level of interaction between CONPET and financial institutions should be maintained to gather information and monitor the market.

• The BNDES PROESCO cannot be regarded as successful yet. In fact, few EE projects have been financed through this mechanism and it seems that excessive bureaucratic procedures slow the scaling-up of this initiative. Therefore, the private banking sector should position itself as an alternative to PROESCO and collaborate with the new IDB/UNDP/GEF guarantee facility to gather more investments in the EE market.

Investment Opportunities in RE

Five renewable energy market segments were assessed: (a) small hydro; (b) sugarcane; (c) urban solid waste; (d) wind power; and (e) biodiesel. These are reviewed below. Moreoever, a preliminary survey of isolated off-grid systems in Amazônia was undertaken and is briefly described.

Small hydro (defined as plants of less than 30 MW) is the renewable resource technology with the longest history of development in Brazil. Capacity has been growing rapidly since specific measures to promote alternatives were launched with the PROINFA program, which was established in 2004. Intense development activities have resulted in a substantial increase in inventoried potential projects.

However, the sector began to encounter problems as costs have risen and delays in authorization and environmental licensing have increased. A large share of projects has also been underperforming,


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which has heightened a sense of technical risk. These problems have led to a significant decrease in projected expansion for the coming 5-10 years. The main reason for the increase in costs is that sites with larger heads (the distance at which the water falls when moving the turbine) have already been exploited.

Whereas older small hydro plants tended to be quite small (less than 5 MW), the recent tendency has been for plants to be larger. The average capacity of plants currently under construction and authorized is 14 MW. Relatively large fixed costs for project development diminish the viability of small projects (below around 5 MW). The investment cost per kW installed varies substantially depending on the characteristics of the site. Projects recently developed or currently under construction tend to cost between BRL 4,000-6,200 per kW (USD 2,200-3,400). The cost of electricity generated tends to range from BRL 160-170/MWh (USD 89-97).

Table 1 summarizes investment needs taking the latest expansion plan for the power sector as a reference (PDEE – 2019).There are established lines of credit from domestic development banks (principally the BNDES). There does not appear to be any financing gap for projects.

The sugarcane sector has been growing quickly since about 2003. The financial crisis of 2008/2009 and the fall in commodity prices slowed expansion and stimulated a major wave of consolidation in the sector. With the increase in commodity prices the sector is recovering its capacity to invest.

The sugarcane sector covers two major and largely distinct energy markets (besides the traditional sugar market): ethanol for fuel and electricity generated from residues. The main driver for ethanol is the domestic flex-fuel automotive fleet which is rapidly expanding. Ethanol exports are also growing, but this segment is subject to major political uncertainty.

Revenue from electricity sales is expected to grow faster than ethanol. Nowadays, less than a quarter of sugarcane mills sell power to the grid. Electricity is attractive because of long-term contracts which assure fairly stable revenues compared to the more volatile ethanol and sugar markets.

Sugarcane mills typically process 2 million tons of cane per year and cost BRL 350 million (around USD 195 million) excluding agricultural investments, although a significant number of mills are larger. If half the cane goes for ethanol, output will be 500 m3 per day. Most mills use 65 bar steam in back-pressure turbines for power generation. The installed capacity for a mill of that size will be about 50 MW and will require an investment of around USD 70 million. The cost of electricity sold is about BRL 150/MWh (USD 83).

Table 1 summarizes investment needs taking the latest expansion plan for the power sector as a reference (PDEE – 2019).There are established lines of credit from domestic development banks (principally the BNDES). There does not appear to be any financing gap for projects now that the sector is recovering from the financial crisis (and low commodity prices) of 2008/2009.

Urban Solid Waste (USW) is relevant in two ways from an energy viewpoint. First, it is possible to recover energy from USW in the form of heat, fuel or electricity due to the large share of organic


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materials in it. Secondly, the separation and recycling of energy-intensive materials such as glass, metal, plastic and paper is possible. The emphasis here is on energy recovery.

More broadly, the rational processing and disposal of USW fits with RE and EE into a more expansive strategy of sustainable development.

About 43% of USW is disposed of in open air dumps or simple landfills (another 7% is not collected at all). The immediate challenge in Brazil, as in most developing countries, is to achieve reasonably adequate disposal of USW – which usually means sanitary landfills. Landfills produce gas with roughly 50% methane, which is a strong greenhouse gas. Projects to collect and flare this gas are common. However, energy recovery projects have been rare. All carbon credits can be obtained without energy recovery – which involves much more investment, risk and lower returns. Few energy recovery projects will be implemented unless there is a substantial change in market signals. Table 1 summarizes investment needs in a favorable policy scenario. A considerable number of smaller projects may be feasible. However, it must be emphasized that this scenario depends on policy changes which may not occur for some time.

Wind power is the most recent renewable resource to make a significant contribution to energy supply in Brazil. Growth is now very fast, by 2012 as much as 3,400 MW could be installed – up from only 29 MW in 2005. The auction of December 2009 was a landmark. The big surprise was that the average price – about BRL 148 per MWh – was lower than in other recent auctions for conventional thermal power plants. The auction scheduled for later this year will add substantially more capacity. The average capacity of the wind farm projects approved in the last auction was 25 MW. The large majority of projects are between 20 and 30 MW, only 5 were below 10 MW. Projects larger than 30 MW are ineligible for the discount on transmission. However, in many cases projects are geographically contiguous and will in fact be operated as a unit in wind farms of as much as 150 MW.

The average investment per kW in the December 2009 auction was BRL 4,000 (USD 2,200) and is likely to be slightly lower in the next auction. Capacity factors are quite high by international standards – 43.8% in the last auction.

Many new investors are entering the sector and large economic groups of diverse origins are establishing stakes. There is also a strong “secondary market” where developers sell on projects which have won long-term contracts. However, buyers should take care to confirm the claimed performance of these plants. While there are internationally recognized technical certification procedures, the recent phase of rapid growth has seen many projects approved outside this certification framework. Table 1 summarizes investment needs for plants entering into operation between 2012 and 2015. There are established lines of credit from domestic development banks (BNDES & BNB). There does not appear to be any financing gap for projects as such. However, transmission capacity to connect to the grid is an acute problem.

The program to mix biodiesel with conventional diesel was established in 2005 and has been a high priority of the government. By 2009, production had reached 1.6 million m3 and a 5% mix became


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obligatory in January 2010. Biodiesel is purchased by Petrobrás in quarterly auctions and subsequently allocated to distributors. In the first two auctions of 2010, the average price varied between BRL 2,218 and BRL 2,329 (USD 1,230-1,290) per m3. The cost of biodiesel is dominated by feedstock – which is mainly soybean oil (around 80%) followed by animal fat (around 12%).

The biodiesel program has a strong social component and a significant share of feedstock must be certified to have been produced by small farmers for a producer to participate in the auction for the larger part of the biodiesel to be commercialized and to receive certain tax exemptions. At the same time, there are economies of scale to be achieved and most biodiesel is produced by large groups in large processing plants. The average plant size is 248 m3/day. The investment in a somewhat smaller plant of 185 m3/day is BRL 27 million (USD 15 million).

Current production capacity is substantially larger than the volume of biodiesel commercialized. More than half the capacity is owned by groups with at least 600 m3/day. There are established lines of credit from domestic development and public sector banks (BNDES, BNB & Banco do Brasil). Private bank participation is very limited. There does not appear to be any financing gap for projects.

In addition to the assessment of specific renewable energy technologies, a survey was undertaken on isolated off-grid systems in the North region, which covers most of Amazônia. It seemed that there is particular interest in the use of sawmill residues to generate power in isolated systems.

Investment Opportunities in EE

As the national planning company, the EPE published the National Energy Plan 2007-2030 which provides a savings potential estimate for the overall economic sectors of Brazil. For all energy sources, the PNE estimated the energy saving potential at 8.7% by 2030. In terms of electricity only, one of the first and probably most important electricity savings potential studies was published by EPE and defined the basis of the National Energy Plan for 2007-2030 (PNE). This study stated that market saving potentials would be of 6% in the industrial sector and 4% in the commercial and public building sectors. No comprehensive investment analysis in the EE field was found during the present IFC market assessment study.

The present study attempted to estimate the potential investment opportunities in the EE sector, for three main market sectors, namely the public, commercial building and industrial sectors. Moreover, EE investment opportunities in industrial sectors have been separated in two sections, typical EE projects in industries and industrial cogeneration projects that require enough investment per transaction to be considered as standing alone. Other industrial EE measures have to be bundled together to be considered as attractive for financial institutions.

In the commercial sector, the total energy consumption was estimated at 18 TWh in 2008, including 84% for electricity and 8% for petroleum products. On the other hand, public buildings consumed an equivalent of 40 TWh of all energy sources in 2006, with a predominant use of electricity (82%). Due to the high similarities between both sectors (at least from energy end-use view point), commercial


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and public building assessments were conducted together, but the EE investment potential has been determined separately for each market segment.

In both commercial and public buildings, the main end-uses of electricity are lighting, with more than 40% of the total electricity consumption, air conditioning and refrigeration (33% in commercial buildings and 18% in public ones) as well as electric motors (28% in public buildings and almost 15% in commercial ones). Finally, heating systems (hot water, laundry, space heating) represent 8.4% of the electricity consumption in commercial buildings, which is not to be neglected.

Based on the above main end-uses, the EE measures to be implemented in the commercial and public sectors are to retrofit lighting, air conditioning, refrigeration and driving systems with more efficient ones and to install solar water heating. There is also an interesting saving potential in retrofitting and fine-tuning building control and energy management systems.

Those EE measures could be part of typical EE projects, which would generate USD 326 million per year in energy cost savings in commercial sectors and USD 120 million per year in public buildings. In order to implement all those projects, the financing requirements would be more than USD 500 million in the commercial sector and almost USD 160 million in public buildings, accounting for respectively 325 and nearly 200 financial transactions in the commercial and public sectors over a 5-year period. Table 2 presents more details on the EE investment potential of those market sectors.

In 2008, the value added by the industrial sector accounted for 25% of Brazilian total, corresponding to almost USD 400 billion. In energy terms, the industry in Brazil represents 40% of total final consumption and electricity for this participation is approximately 45%. The analysis conducted on the Brazilian industrial market allows identifying four key sectors to invest for EE projects, namely 1) food and beverage, 2) pulp and paper, 3) chemicals and 4) ceramics.

Total energy consumption for these four industries accounts for more than 50% of the total energy consumption of the Brazilian industrial sector. This includes almost 35% of the overall industrial electricity consumption and nearly 45% of the industrial fossil fuel and natural gas consumption. The main energy end-use is process heating, including the use of furnaces, boilers and dryers. In terms of electricity only, the energy balance of the four sectors identified consists mostly of handling and process equipment (25%), pumps (20%), compressed air systems (12%) and fans (11%). Consequently, the main EE opportunities are as follows:

• EE measures on furnaces, boilers and steam network; • Retrofitting of existing motors and driving systems with more efficient ones and/or with the

installation of variable-speed drives; • EE measures on compressed air systems; • Various EE initiatives on existing energy management and process control systems.

The implementation of the abovementioned EE measures, combined with other smaller EE actions, would generate energy savings of approximately 6.0 TWh per year over a 5-year period, which


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amounts to more than USD 320 million in cost savings yearly. The financing needed to implement those EE projects would be nearly USD 750 million, accounting for a number of financial transactions estimated at 373 projects. Table 2 summarizes the EE investment potential in the four key industrial segments.

Whereas biomass, fossil fuels, natural gas and coal amount for almost 80% of total energy consumption in the industrial sector, other EE measures, such as industrial cogeneration, have a great energy cost and saving potential in this market sector. In fact, cogeneration development in the industrial sector is growing at a rapid pace in Brazil, as shown in the 2006 PNE study. But while cogeneration projects using sugarcane bagasse have been evaluated as part of the RE study, only cogeneration projects using other than waste as fuel and whose potential capacity was lower than 15 MW have been considered as EE measures.

Eighteen different cogeneration projects, compliant with the above specificities, were found and assessed. They represent a total generation capacity of nearly 115 MW, which could generate 720 GWh of electricity on a yearly basis. The annual energy cost savings would be of USD 46 million and the financing needed would be almost USD 275 million with a payback period of approximately 7.5 years. More details on this EE initiative are provided in Table 2.

There are many other market segments where EE investments can be oriented. For instance, the Green Building standard for new construction, the retrofitting of street lighting and water pumping systems, as well as the installation of residential solar water heaters, could be considered as interesting commercial financing opportunities. Nevertheless, the authors suggested focusing first on the market segments previously discussed.


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Table 1: Summary of Investment Potential and GHG Reduction in RE

Small Hydro Sugarcane Cogeneration

Wind Power Urban Solid Waste

Energy Generation Potential (Favorable Policies)

Potential net installed capacity (MW) 1,400 1,300 3,150 375-605

Market penetration rate for 5-year period (%) --- --- --- 80%Market potential over 5-year period (MW) --- --- --- 300-485Market potential energy production at end of 5-year period (GWh/y) 4,900 - 5,500 2,938 11,600 1,840 - 2,975Greenhouse Gas Emissions Reduction Annual CO2 emission reduction (million ton CO2) 0.90 - 1.01 0.54 2.14 9.0 - 14.6Investment Requirements Average unit cost ($/kW) $2,800 $1,420 $2,200 $1,700 - $2,000Typical size range of potential projects (MW) 1-30 MW 40-70 MW 6-50 MW 1.3-25 MWAverage size of projects implemented (MW) 14.3 52 MW 25 MW 6-10 MW

Average size of projects implemented - "export" capacity (MW) --- 30 MW --- ---Investment requirements for average project implemented (USD million) $40 $74 $56 $10-19Number of transactions over period 98 43 126 50Total investment requirements over 5-year period (USD million) $3,920 $1,846 $6,930 $510 - $970Share of projects below 5 MW (based on number of projects) 30% 0 <3% 70%Investment requirements projects below 5 MW over 5-year period (USD million) $230 - $290 0 $35 $140 - $266

Financial Aspects Cost of energy (USD/MWh) $89 - $97 $83 $83 $92

Annual energy sales at end of period (USD million) $436 - $535 $244 $963 $169 - $274Annual carbon revenues in million USD (at USD 12/tCO2) $11 - $12 $6 $26 $109 - $176Carbon revenues: % revenue from energy sales (a) Due to credits from converting landfill gas from CH4 to CO2 --- --- --- 60%-65% (b) Due to credits from sale of electricity 2.2%-2.5% ~2.5% ~2.5% ~2%Foreseen equity - total (USD million) $1,176 $554 $2,079 $102 - $194

Foreseen equity - projects < 5 MW (USD million) $69 - $87 0 $11 $28 - $53Financing need - total (USD million) $2,744 $1,292 $4,851 $408 - $776

Financing need - projects < 5 MW (USD million) $160 - $205 0 $25 $112 - $213


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Table 2: Summary of Investment Potential and GHG Reduction in EE

Industrial Sector

Commercial Buildings

Public Buildings

Industrial Cogeneration Total

Energy and CO2 Emission Saving Potential Potential for installed capacity < 15MW - - - 114 Energy consumption (GWh/year) 207,566 63,816 40,186 - 311,569 Technico-economical saving potential - 5 years (GWh/y) 5,974 4,049 1,486 722 12,231 CO2 emission reduction in tCO2 (@ 0.1842 tCO2e/MWh) 1,100,412 745,867 273,808 269,683 2,120,087Investment requirements Investment requirements (USD million) $933 $647 $193 $342 $2,116 Typical size of potential project (USD million) $0.5 - $5 $0.05 - $5 $0.05 - $3 $2.5 - $38 - Number of transactions over period 373 324 193 18 908Financial Aspects Energy cost savings (USD million/year) $322 $326 $120 $46 $814 Payback (years) 2.9 2.0 1.6 7.4 - Carbon revenues in USD million per year (at USD 12/tCO2) $13 $9 $3 $3 $29 Foreseen equity (USD million) $187 $129 $39 $68 $423 Financing need (USD million) $747 $518 $155 $274 $1,693


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INTRODUCTION

At the end of 2008, Brazil had a population of 190 million inhabitants and a GDP of USD 1,573 billion. The economy is dominated by the services sector which has increased its share of GDP to about 68% by 2009, at the expense of the industrial and agriculture/primary sectors with about 25% and 7% respectively in 2009. For many years a feature of Brazil’s economy was high inflation, which had a profound effect on economic behavior and financial institutions. The reforms begun in 1994 brought inflation down and also initiated a process of economic liberalization. In 2009 GDP dropped by almost 2% as a consequence of the global financial crisis (which severely affected the industrial sector), this recession was mild by world standards and growth has resumed.

The energy consumption of the economy has been increasing year after year. From 2006 to 2008, the total energy consumption increased from 188.6 million tons of oil equivalent (toe) (2006) to 201.2 million toe (2007) and 211.7 million toe in 2008. The industrial and transportation sectors are the largest energy consuming sectors. In 2008, the industrial sector consumed about 39% of the country’s final energy followed by the transportation (mainly oil products, biodiesel and ethanol produced from sugarcane), energy sector, and residential sector with a share of 29%, 12% and 11% respectively. The public and commercial consumption represented about 5% of all energy sources, but 23% of the total electricity consumption.

Despite its hydro based electricity generation system, the country’s energy supply relies heavily on fossil fuels (oil, natural gas and coal) which represented 53.4% of the total primary energy supply in 2007 (oil alone contributed 39.9% of the total energy supply).

In order to progressively shift from a petroleum dependent economy and take advantage of the immense renewable energy potential the country is endowed with, the government has initiated a program (PROINFA) to promote the commercial deployment of projects generating electricity from small hydro, biomass and wind energy for sale to the national grid. A line of credit of BRL 5.6 billion was created in 2004 by the BNDES to finance the projects to be selected. Other official banks and financial agents also became significantly involved, including: Banco do Brasil, Banco do Nordeste do Brasil (BNB), Caixa Econômica Federal (CEF), Banco da Amazônia SA (BASA/FDA) and the Fundo de Desenvolvimento do Nordeste of the Agência de Desenvolvimento do Nordeste (ADENE/FDNE), the latter two bringing up to BRL 570 million of bonds convertible into equity.

In the energy efficiency field, many studies including government projections concluded that there is huge potential for energy savings in all sectors of the economy in Brazil and despite nearly two decade of efforts this niche is still largely untapped. It is also recognized that government initiatives, by themselves, can not achieve the goal of promoting and creating a viable market for energy efficiency projects. Among the existing initiatives, it is worth mentioning the following: (i) Eletrobras’ PROCEL aiming at reducing electricity consumption in major electricity consuming sectors, (ii) Petrobras’ CONPET for rational use of oil and natural gas, (iii) BNDES’s PROESCO which is a risk sharing credit


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line for promoting EE projects through ESCO. Most of these efforts have yielded very limited achievements, particularly PROESCO.

Though there is no detailed study and estimate of the investment needed in RE and EE projects, all major market players agree that the market could be worth several billion USD, mainly in the form of private financing.

Given this context where a lot of effort has been deployed with very weak results, the International Finance Corporation (IFC) has decided to investigate the private sector financing investment in the Brazilian RE&EE market. This decision is in line with its strategic priority of adopting Climate Change in its operations. IFC intends to closely coordinate with the Brazilian FIs to jointly understand the feasibility of a potential business line and eventually implement EE&RE products.

The objective of the present study mandated by IFC is to conduct a market assessment on EE&RE investment opportunities in Brazil. The results of this assessment will serve as a basis for IFC and FIs to assess the feasibility of implementing new business products and/or tailor existing ones with the ultimate goal of significantly increasing commercial lending activity for EE&RE in Brazil.

The study report intends to provide some answers to the following points:

• Description of on-going EE&RE activities in Brazil, including lessons learned from past experience

• Description of relevant policy and legal framework for EE&RE in Brazil • Assessment of investment opportunities in RE and EE markets focusing on growth market

segments • Identification of key market players that may be interested in a new approach in new market

products in EE and RE. • Analysis of key barriers to FIs intervention in RE and EE projects financing and implementation,

and recommendations.


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1 EXISTING EE&RE BUSINESSES IN BRAZIL

1.1 OVERVIEW OF ENERGY SECTOR

In 2007, Brazil’s total primary energy supply amounted to 235.6 million tonnes of oil equivalent (Mtoe). The breakdown of primary energy supply is as follows: 39.9% from petroleum, 13.9% from hydro power, 13.7% from woodfuels, 13.1% from sugarcane by-products (bagasse), 7.7% from gas, 5.8% from coal, 1.4% from nuclear, 4.3% from other sources (waste, biofuels) and 0.2% from geothermal/solar/wind. Brazil is the largest producer of hydroelectricity in the world after China and Canada. In 2007, it generated 374 terawatt-hours (TWh), equivalent to 77.3% of total electricity generation. The rest includes: imports (8.5%), gas-fired generation (3.2%), biomass (3.6%), oil derivatives (2.8%), nuclear (2.5%), coal (2.1%) and other (2.5%)1.

Figure 1: Total Primary Energy Supply (IEA 2009)

The following table summarizes the final energy consumption by sector, as well as non-energy consumption (such as petrochemical feedstocks, asphalt, etc). Noteworthy is the large consumption of bioenergy (including ethanol in transportation) and the very small consumption of fuel in the commercial/public sector.

1 IEA Energy Statistics 2009. http://www.iea.org/statist/index.htm


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Table 3: Final consumption by sector in 2008 (thousand toe) 2

Oil

products Natural

gas Coal Wood Sugarcane Electricity Other sources

Total

Energy sector 4,733 4,926 0 0 13,305 1,582 0 24,546Residential 6,052 229 0 8,237 0 8,220 0 22,738Commercial 489 171 0 156 0 5,375 0 6,191Public 592 3 0 0 0 2,972 0 3,567Agriculture 5,776 2 0 2,545 0 1,582 0 9,905Transportation 49,135 2,158 0 0 11,013 138 0 62,444Industrial 12,466 8,453 11,647 12,131 15,390 16,961 5,280 82,328Sub total energy use 79,242 15,942 11,647 23,069 39,708 36,830 5,280 211,718

Non-energy use 13,027 710 149 0 791 0 0 14,677Grand total 92,269 16,652 11,796 23,069 40,498 36,830 5,280 226,394

Overall, the industrial sector consumed almost 39% of the country’s final energy followed by transportation (mainly oil products, biodiesel and ethanol produced from sugarcane), the energy, and residential sectors with a share of 29%, 12% and 11%. Obviously, the share of energy per sector will completely change depending on the energy source. For instance, the public and commercial sectors consumed about 23% of the electricity while their proportion represents only about 5% in terms of total energy consumption.

Greenhouse gas emissions

According to the International Energy Agency (IEA), the total CO2 emissions from fuel combustion were only about 347 million tons of CO2 in 2007. CO2 emissions per unit of GDP fell dramatically from about 270 tons of CO2 per million USD (2008) of GDP in the 1970s to 215 tons of CO2 per million USD (2008) of GDP in the early 1980s, due to the effort to substitute oil imports. They returned to earlier levels during the 1990s, but then stabilized and have been falling since the turn of the century to 230 tons of CO2 per million USD (2008) of GDP in 20073.

Unlike most countries, these energy-related emissions represent a relatively small share of Brazil’s total CO2 emissions. By far the largest source of CO2 emissions is due to land-use changes and deforestation – mostly in the Amazon region.

Energy prices

The price of fossil fuels was relatively stable in the 1990s, but has since increased substantially following international trends. The next figure shows the price trends in current USD of the most relevant fuels. The prices are for “barrel of oil equivalent” to make comparisons between energy sources easier. It is relevant to mention the decline of electricity prices for households, following

2 Source: Balanço Energético Nacional, 2009 3 Source: Simplified calculations based on the Balanço Energético Nacional, 2009. Values are approximations which do not consider differences in the carbon coefficients of net exports and imports of oil derivatives.


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principles of “new model” for the sector that privileges residential consumers and reduces advantages for industries.

Figure 2: Energy prices (USD/barrel oil equivalent)

There are relatively few explicit subsidies for energy delivered to final consumers. Electricity for low income residential consumers, rural users and those in isolated off-grid systems are the main exceptions.

Table 4: Electricity Prices by Sector and Region (November, 2009)4

Regions Sectors Mid-West

Northeast North Southeast South Brazil

Residential 293 284 307 307 286 299 Industrial 219 221 247 251 224 237 Commercial, services, and other

278 301 319 287 264 286

Rural 208 215 234 205 170 195 Public power 286 329 345 303 287 309 Public lighting 159 175 178 167 147 165 Public services 185 205 215 220 143 203 Internal consumption 303 316 326 302 265 303 Aquiculture 241 200 251 195 79 192 Rural Irrigation 206 139 229 223 145 166 Total by Region 258 259 288 277 242 266

A noteworthy distortion in energy prices is that peak period electricity rates are far higher than off-peak rates (7-10 times higher) for medium and high voltage consumers. From the point of view of policy making for energy efficiency, the consequence is that most investments to rationalize electricity use emphasize cutting peak period consumption rather than efficiency per se.

4 ANEEL


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Supply and Demand Planning and Perspectives

The “Plano Nacional de Energia” (PNE), which was published in 2007, is an indicative plan for energy demand and supply with a 25 year horizon. The overall forecasts presented in the PNE are that the average GDP growth will be 4.1%/year. Assuming that the country’s economy will become more energy efficient, the PNE forecasted that the final energy consumption growth to be approximately 3.6%/year.

With respect to this energy planning, it is clear that there is need for increased access to energy and diversified energy sources in order to sustain economic growth. Developing diversified renewable energy sources reduces the risks related to using other technologies to produce electricity. For example, droughts or fossil fuel price increases are two important risks that could be mitigated by the use of various renewable energy sources for electricity generation.

At the same time, promoting energy efficiency in existing and new industries and buildings is another sustainable means to contribute to private sector competitiveness. When comparing energy intensity in different economies in Latin America in terms of GDP, it appears that Brazil is among the highest energy consumers (though this is partly due to a relatively large share of energy intensive industries). More efficient energy use reduces the operation costs of private companies and thus allows economic growth with reduced investment in new electricity power plants. This is interesting from a macro-economic perspective, since power sector expansion is extremely capital intensive compared to most economic sectors. The same investment in efficiency will usually generate much more employment than the same investment in new energy supply.

1.2 INSTITUTIONAL, POLICY AND LEGAL FRAMEWORK

The purpose of this section is to present the most relevant government institutions, programs, policies and regulations that influence the energy efficiency and renewable energy market. The idea is for the readers to see if there are any possibilities of collaboration with these organizations, marketing-wise, or as an advisor, or if it is advisable for the local financial institutions to monitor these market players.

1.2.1 Institutional Framework of the Energy Sector

Key government institutions acting in the energy sector are briefly presented briefly outlined below:

• Ministry of Mines and Energy (Ministerio de Minas e Energia –MME). The government ministry responsible for energy issues in Brazil is the Ministry of Mines and Energy (MME). This Ministry, through the Secretary of Energy formulates the guidelines and policies for the national energy sector and coordinates and supervises their execution.

• Energy Research Company (Empresa de Pesquisa Energetica – EPE). The EPE was created in 2004 as a government body subordinated to the MME to provide services in the areas of studies and research destined to support energy planning, including National Energy Balance


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(BEN), an official document detailing energy supply, transformation, consumption, energy efficiency, etc. The final approval of Energy Planning is the responsibility of the National Council of Energy Policy (NCEP). The Comit de Monitoramento do Setor Elétrico (CMSE) monitors trends in power supply and demand. If any problems are identified, CMSE will propose measures to avoid energy shortages, such as special price conditions for new projects and reserve generation capacity. The Ministry of Mines and Energy hosts and chairs this committee.

• Agência Nacional de Energia Elétrica (Brazilian Electricity Regulatory Agency - ANEEL). ANEEL was created in 1996 under the MME to oversee the power sector regulation in Brazil. Its regulatory mandate includes the regulation of prices and other aspects of the electricity industry, concession granting for the operation of electricity companies, supervision of concession agreements. In the energy efficiency field, ANEEL has played a leading role through the Energy Efficiency Program (a.k.a. public benefit wire charge) consisting of compulsory investments in energy efficiency programs for electricity distribution companies.

• Agência Nacional do Petroleo, Gas, Natural e Biocombustiveis (National Agency of Petroleum, Natural Gas and Bio-diesel – ANP). Like ANEEL, ANP is the federal government agency, linked to the Ministry of Mines and Energy, responsible for regulating and monitoring the production, quality control, distribution and commercialization of both biodiesel and conventional diesel. It organizes the auctions and was created in 1997.

• Banco Nacional de Desenvolvimento Econômico e Social (National Bank for Economic and Social Development – BNDES). BNDES was founded in 1952 to support industrialization in Brazil. It has become, over time, the main funder for all economic sectors—industry, agriculture, commerce —and during the 80’s incorporated the “S” of social into its mission. BNDES is also a main player in the RE market. From 2003 to 2009, overall RE lending was BRL 10.5 billion (about USD 6 billion5), supporting total investments of BRL 15.3 billion (USD 8.5 billion). Regarding EE, BNDES is a traditional supporter of energy efficiency initiatives in Brazil, financing in 1998 the first performance contract. All available products can be considered for EE measures and projects, but in order to provide additional incentives, the bank created a specific product, named “PROESCO”, exclusively for EE projects.

• Confederação Nacional da Indústria (National Industry Confederation – CNI). The CNI is a private, not-for-profit organization. As a confederation, it brings together twenty-seven (27) federations (states and Federal District), representing more than 1,000 industrial organizations and nearly 200,000 companies. CNI is involved with EE in several forms. Under a cooperation agreement with PROCEL, CNI funds reports focused on assessments of international practices for the promotion of EE in industries, as well as detailed potential for energy conservation in 13 industries in Brazil (not yet published). They also funded a study that aimed at forecasting energy demand in industry and potential savings and GHG emissions reduction; this report has not yet been published either.

5 Exchange rates have fluctuated during the period of 2005-2009. An average rate of BRL 1.75 has been assumed to permit approximate translations to USD. We may fine tune this as the project develops, in this document rates of 1.80 and 2.0 are also used.


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1.2.2 Policy and Regulatory Framework in Renewable Energy

Government policies have been important for promoting renewable energy resources. Some have been cross-cutting actions: that is, they have been directed at more than one resource. Three lines of policy action are briefly described below as background for the discussion of each resource.

The new auctions for renewable energy supply

Since a new regulatory framework for the power sector was instituted in 2004 periodic auctions have been held to contract power 3 and 5 years hence. The contracts to purchase power are long term, which facilitates project financing. In the beginning the smaller renewables (small hydro, wind & biomass) had stayed outside the auction process – being regarded as too expensive. They were kept within PROINFA.

Things began to change with some sugarcane cogeneration projects, which competed successfully with conventional fossil fuel alternatives in several normal auctions for thermal generators after 2006. The free market also began to attract some projects.

The next step was an auction for “alternative renewables” in June of 2007. This auction was intended to show that these sources had evolved sufficiently to permit more market-oriented mechanisms than PROINFA. The scope was restricted to biomass and small hydro because wind power at the time was considerably more expensive than the ceiling price of BRL 140/MWh.

This first auction was something of a disappointment. In the end only 12 biomass plants with an installed capacity of 542 MW and 6 small hydro plants with an installed capacity of 97 MW were contracted. The relatively low ceiling price was a disincentive at the time, since prices were higher in the free market.

The next step came with an auction for wind power which was held in December, 2009. The original motive was apparently to have a major initiative to show at the COP 15 meeting in Copenhagen. This auction was an unequivocal success. As described in the section on wind energy, not only were 1,800 MW contracted but the average price was surprisingly low – much lower than had been used for PROINFA.

The success of the wind power auction has changed perceptions of the possible role of wind energy in the future expansion of electricity supply. More immediately, it has encouraged the organization of a new auction for “alternative renewables” – known officially as the Auction for Alternative Resources - to be held in August, 2010. Bids for biomass plants, small hydro and wind power will compete separately. 517 projects totaling 15,774 MW (installed) have been registered for the auction.

Thus, after a shaky start, the use of auctions to promote the development of renewable energy for electricity generation appears to be establishing itself as an effective policy mechanism. Officially sponsored auctions are also used for the purchase of biodiesel to blend with conventional diesel oil, as will be described later in this report.


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1.2.3 Policy and Regulatory Framework in Energy Efficiency

Brazil has established policy mechanisms that have had impacts on private and public investments over the years. Public initiatives such as the creation of the national energy efficiency programs PROCEL (for electricity) and CONPET (for gas & oil derivatives), as well as the National Climate Change Program, provide an institutional framework for energy efficiency. PROCEL and CONPET have been direct players, making investments, designing programs, and supporting other agents (public and private) in developing energy efficiency initiatives.

Some relevant regulations for EE promotion are summarized below:

• National Energy Efficiency Policy. Its main objective is to present the set of goals and policy instruments to be implemented in the country up to 2030. It will also be an important component of the National Energy Policy and should provide a clearer picture of priorities and coordination of energy efficiency initiatives. This document is still in preparation and states very broadly several measures and guidelines for governmental agencies to promote market transformation, strengthening their role in supporting and promoting energy efficiency technologies and practices.

• Regulated investments in energy efficiency (electricity). In 1998, the regulator (ANEEL) issued a resolution mandating utilities invest a minimum of 1% of their net annual revenues in EE and research and development (R&D) programs (“1% obligation”). These have been the largest and most constant flow of financing (BRL 300 million per year) for energy efficiency investments in the country during the last two decades6. Most of the utilities’ programs have the characteristic of subsidizing 100% of the equipment and related energy services. In 2000, a national law7 was approved by Congress changing the allocation of the resources coming from the “1% obligation” and creating a national fund - CTEnerg, in charge of investing in public interest energy efficiency and energy R&D.

• The Energy Efficiency Law (Lei de Eficiência energética). Law 10.295 was enacted in 20018 with the goal of guaranteeing the legal mandate for public agencies and procedures to establish minimum energy efficiency standards for equipment, buildings, and vehicles. The Comit Gestor de Indicadores e Níveis de Efici ncia Energética – (CGIEE)9 was created with representatives from governmental agencies, academia, and civil society, with the principal goal of setting minimum energy efficiency levels. Energy efficient building standards are currently being implemented in the country on a voluntary basis, and will become mandatory (i.e., become “codes”) sometime in the future.

6 We estimate that almost USD 1.8 billion was invested in Utilities’ EE programs in the last 10 years. 7 Lei 9.991/2000 8 LEI Nº 10.295 9 The Decree no 4.059/2001 establishes the composition: Ministry of Mines and Energy (Chairman of the Committee), Ministry of Science and Technology, the Electricity Regulatory Agency, the Oil Regulatory Agency, Ministry of Industry, Development and International Trade, Academia and a representative from the civil society.


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• Solar water heating legislation. Some Brazilian cities are introducing municipal legislation or voluntary regulation to stimulate the use of solar water heating systems in buildings (residential and commercial sectors). As of 2009, there were about 30 municipalities with legislation in place, and about 50 others with proposed bills being considered in the respective local parliaments. There are two types of legislation related to solar water heating in place in Brazil: Incentive regulation (reduction of local property tax) and mandatory legislation (for instance in São Paulo).

1.3 PAST AND ONGOING INITIATIVES IN EE&RE FINANCING MECHANISMS IN BRAZIL

1.3.1 Government Programs for Promoting EE and RE Projects

Several programs were set up by the Government through public entities to promote RE and EE in Brazil. Some of the remarkable programs are briefly introduced hereafter.

National electricity conservation program

The Programa Nacional de Conservacao de Energia Elétrica (National Electricity Conservation Program – PROCEL) was created on December 30, 1985. PROCEL’s main objective is to promote the rational use and production of electricity, reducing losses, costs, and investments in the sector. PROCEL operates in several branches, including commerce, sanitation, education, industry, institutional buildings, municipalities, and public lighting. Overseen by MME, the program is administrated by the federally-owned utility ELETROBRAS. In 2008, PROCEL accounted energy savings of 4.4 GWh, equivalent to 1.1% of electricity consumption in Brazil, with total investments of BRL 46.3 million, from which nearly 30% originated from operational resources from Eletrobras.

PROCEL’s budget in 2008 was of BRL 31 million, which is nearly 40% less than what it was in 2007 and represents only 28% of the budget of 2006. This budget decline could be partly explained by the diminution of the RELUZ program for public lighting, mainly due to the problem of contingency of loans to many municipalities which have reached their debt ceilings. Nevertheless, estimated energy savings have increased over this period, thanks to the savings generated from the Selo PROCEL program (“endorsement label program” like the Energy Star program), which accounted for 98.2% of total savings in 2008.

National program for rational use of oil and natural gas derivatives

The Programa Nacional de Racionalização do Uso dos Derivados do Petroleo e do Gas Natural (National Program for Rational Use of Oil and Natural Gas Derivatives – CONPET) is an official program from the MME, coordinated and implemented by PETROBRÁS, the state-owned petroleum company. The program was created by Federal Decree in 1991, with the goal of integrating and developing initiatives for the rational use of oil and natural gas derivatives. CONPET was created


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following the same directives as PROCEL, and is not a formal organization. All its operating funds come from Petrobrás.

CONPET operates on project-based models, and main projects include labeling (vehicles, stoves, and heaters), transportation (adjustments in diesel trucks and buses), and education. In 2009, PETROBRÁS invested nearly BRL 9 million (USD 5 million) to maintain CONPET activities.

Programa de Incentivos às Fontes Alternativas de Energia Elétrica (PROINFA)

The Programa de Incentivos às Fontes Alternativas de Energia Elétrica (PROINFA) was the first major initiative promoting the commercial deployment of projects generating electricity from small hydro, biomass and wind energy for sale to the national grid. Although it was originally conceived during the Administration of Fernando Henrique Cardoso, it was promulgated by Law 10762 in November, 2003.

This legislation was complemented in March, 2004 by the creation of a line of credit at the BNDES (Programa de Apoio Financeiro a Investimentos em Fontes Alternativas de Energia Elétrica) with BRL 5.6 billion to finance the projects to be selected by December 2006. Other official banks and financial agents also became significantly involved, including: Banco do Brasil, BNB, CEF, BASA/ADA and ADENE/FDNE (the latter two bringing up to BRL 570 million of bonds convertible into equity).

The program was originally intended to contract and implement (by December 2008) 1,100 MW of capacity from each category: small hydro, biomass (mostly sugarcane) and wind. The contracts (Power Purchase Agreements) were for 20 years in order to facilitate financing. The government set a purchase price for each of these resources and then selected projects based on, for example, who had first obtained a preliminary environmental license to operate.

In the end, implementation was slower than originally planned and the breakdown of sources was changed. The share of biomass projects was dramatically reduced, from 1,100 MW to 700 MW; while wind power increased to 1,400 MW. In August, 2009, about 22% of projects had still not begun construction – though by then 1,800 MW had entered operation. The situation was particularly difficult for wind power projects, less than half of which had begun construction.

Despite the numerous difficulties – some, though not all of which, were due to defects in the design of the program – PROINFA did seriously mobilize the market agents in a range of sectors and valuable experience was gained. There was never the awaited “PROINFA II”. Instead, the government changed the strategy for promoting new RE capacity. This strategy, the use of specialized auctions, has so far proven to be remarkably effective.


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1.3.2 Impact of the general and specialized auctions for contracting new RE capacity

Since the new regulatory framework for the power sector was established in 2004 periodic auctions are held to contract power 3 and 5 years hence. The contracts to purchase power are long term, which facilitates project financing. Until recently the smaller renewables (small hydro, wind & biomass) stayed outside the auction process – being regarded as too expensive. They were kept in the “PROINFA Ghetto”.

Things began to change with some sugarcane cogeneration projects, which competed successfully with conventional fossil alternatives in several normal auctions for thermal generators after 2006. The free market also began to attract some projects.

The next step was an auction for “alternative renewables” in June of 2007. This auction was intended to show that these sources had evolved sufficiently to permit more market-oriented mechanisms than PROINFA. The scope was restricted to biomass and small hydro because wind power at the time was considered to be more expensive than the ceiling price of R$ 140/MWh.

This first auction was something of a disappointment at the time. In the end only 12 biomass plants with a capacity of 542 MW (140 average-MW) and 6 small hydro plants with a capacity of 97 MW (46 average-MW) were contracted.5 The price paid at the time was R$ 139/MWh for the power from the biomass plants and R$ 135/MWh from the small hydro plants (equivalent today to about R$ 156 and R$ 152 respectively per MWh). All but two of the contracted plants are coming into operation as scheduled, by 2011.

The next step came with an auction for wind power which was held in December, 2009. The original motive was apparently to have a major initiative to show at the COP 15 meeting in Copenhagen. This auction was an unequivocal success. Not only were 1806 MW contracted in 71 projects, but the average price was surprisingly low – R$ 148/MWh - much lower than had been used for PROINFA – above R$240/MWh (at prices 4-5 years ago).

This success led directly to the recent set of auctions (officially, Reserve Energy and A-3, for alternative energy sources) which were held on August 25-26, 2010, for wind, biomass and small hydro. Biomass basically means sugarcane cogeneration. The auctions were contested by 478 projects totaling 14,529 MW. The 89 winning bids totalled 2,892 MW of which: wind – 2048 MW (at R$131/MWh), biomass 713 MW (at R$144/MWh) and small hydro 132 MW (at R$142/MWh).

The increasing success of these renewable energy auctions is having serendipitous effects on the strategic planning for power sector expansion. The prospects for sugarcane biomass and wind power have already been substantially expanded in the latest Ten-Year Plan relative to the PNE 2030. Firther changes will surely occur. Projections of the market for financing projects are therefore in a flux, especially for the period after 2013. 5 Average-MW means the average output over a year and thus is smaller than the installed capacity. It is equivalent to a 100% capacity factor.


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The auctions have also demonstrated the effectiveness of using market mechanisms to reduce the cost of achieving a higher penetration of new RE supply sources.

This principle could be expanded, through the use of specialized auctions, to segments not yet dynamized by the existing auction process. These segments have characteristics that inhibited developers from participating in the existing auctions. The government is just beginning to move this way with isolated off-grid systems in Amazonia. Other possibilities for extending this approach will be raised in the sections on urban solid waste and saw-mill residues.

With the rapid expansion of RE contracted through auctions, - more than 8,500 MW in five years – attention will turn increasingly to performance in building this new capacity.

1.3.3 Existing Renewable Energy Financing

The initiatives cited above to promote the development of renewable energy resources – specifically small hydro, wind, sugarcane (ethanol and electricity) and biodiesel – have been explicitly complemented by lines of credit at the main development banks targeting these sectors. The main source of this credit has been the BNDES, though other official banks and financial agents have played a role, especially in specific sectors. These include the BNB (especially in wind), Banco do Brasil (biodiesel), CEF, BASA/ADA and ADENE/FDNE (the latter two have offered bonds convertible into equity).

Information from the BNDES gives an idea of the considerable level of investment that has been financed in recent years (Table 5). A significant share of the BNDES has been in “indirect operations” through financial intermediaries, though no information is available on how much.

Table 5: BNDES approved operations in the electricity sector - 2003 to 2009

Segments Installed N˚ of BNDES Associated Capacity Projects Credit Investment MW (106 BRL) (106 BRL)Generation 25,948 198 44,051.0 75,950.5Hydro 18,675 38 29,136.6 50,943.8Thermal (fossil) 3,162 11 4,421.8 9,658.3Small hydro (<30 MW) 1,922 98 6,045.5 8,751.8Biomass 1,517 34 2,395.4 3,128.7Wind 673 17 2,051.8 3,467.9TRANSCOs6 13,839 km 52 7,867.5 14,058.0DISCOs N/A 37 8,793.6 15,100.6ESCOs N/A 6 9.5 12.4Total N/A 293 60,721.6 105,121.5Source: “BNDES and the Electric Sector”; slide presentation prepared in January, 2010.

6 TRANSCO: electricity transmission company DISCO: electricity distribution company


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Small hydro (defined as less than 30 MW) has been the largest RE sector, with BRL 6 billion of credit (around USD 3.5 billion). Biomass, essentially cogeneration from sugarcane, has been the second largest recipient (BRL 2.4 billion/USD 1.4 billion) with wind close behind (BRL 2.1 billion/USD 1.2 billion). Table 1 summarizes the information on the average size and cost per installed kW of projects in different sectors.

Table 6: Average size and investment/kW of generation projects approved by the BNDES during 2003 – 2009

Segments Average Project Size Investment Capacity BNDES Investment per kW MW (106 BRL) (106 BRL) (BRL/kW)Generation 131 222.5 383.6 Hydro 491 766.8 1,340.6 2,728Thermal (fossil) 287 402.0 878.0 3,055Small hydro (<30 MW) 20 61.7 89.3 4,553Biomass 45 70.5 92.0 2,062Wind 40 120.7 204.0 5,153

Source: “BNDES and the Electric Sector”; slide presentation prepared in January, 2010.

Significant RE lending began in 2005. Much of this financing, especially for wind, was a result of the PROINFA program, which is still underway. However, in the case of small hydro and biomass there was significant financing of additional projects outside of PROINFA.

1.3.4 Existing Energy Efficiency Financing Instruments

BNDES’ Risk Sharing Credit Line for ESCOs (PROESCO)

This credit line was created by the BNDES in 2006 with the objective of financing ESCOs and final energy users (it can also be used by electric utilities) with projects using performance contracts. PROESCO’S project financing line is divided into three types: Risk shared by BNDES and accredited financial institutions; indirect operation, where the accredited financial institution is fully liable to bear the financial amount and the credit risks; and direct operation (performed directly with BNDES).

The PROESCO program was designed based on the assumptions that two of the main barriers to the implementation of energy-efficiency projects were (I) lack of commercial financing, and (ii) and the FI’s client risk (either an ESCO or an energy end-users). In 2006, a total of BRL 100 million were made available for this credit line, although very little of this amount had actually been withdrawn by the time of Econoler’s mission in March 2010 to Rio de Janeiro. Since its inauguration only six projects have been financed for a total of about BRL 10 million of loans or roughly USD 5 million. The interviews conducted by Econoler’s expert indicated that one bank waited 18 months for an approval from BNDES, and then gave up after receiving no response. EE projects of BRL 1 million are being lumped together and analyzed the same way as BRL 1 billion loans.


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The interest rate for projects is 6%, plus a management fee of 0.9% plus the spread in relation with the risk that starts at 3%, for a total of 10% or slightly higher (compared to the commercial rate of LFI of about 18%).

Only a few accredited financial institutions have participated in PROESCO. So far, only Banco do Brasil and Itaú have adhered to the partnership with BNDES, to transfer the funds intended to the beneficiaries of PROESCO.

Clearly, PROESCO has not delivered the expected outputs so far and the entire program design and operation has to be assessed to better understand the bottlenecks.

Petrobrás Energy Efficiency Program through an Energy Services Company

Petrobrás BR completed a business plan in March 2007 for the implementation and financing of EE projects in the commercial and industrial sectors of Brazil. The business plan was developed under REEEP funding and technical assistance from Econoler. It includes project investment portfolio preparation, sector selection and a marketing strategy, and several staff members have been trained. The business plan proposes that energy efficiency projects be implemented through private “special purpose companies” (SPCs) of which Petrobrás BR will be the main shareholder7. The proposed financing scheme approach is presented in the following chart.

Figure 3: Financial Scheme of Petrobrás EE Program

That new company will be dedicated to energy efficiency projects development for the benefit of Petrobras BR’s current clients and other targeted clients focusing on clients having annual energy costs of more than BRL 3,000,000 (USD 1,500,000). It was estimated that a total of BRL 4,111 million (USD 2,055 million) will need to be invested in the industrial sector (265 customers) with a payback

7 REEEP, Analytical and Synthesis Study of the REEEP Program, March 2009


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period of 4 years. The major part of the investments will occur in chemicals, food and beverages, pulp and paper, non-ferrous metals, cast iron and steel, and mining11.

More than one SPC could be created after one year of operation, according to the market requirements. Other SPCs could be created for specific markets, e.g. the commercial market, for specific regions or for a specific project.

The project directly contributed to BR’s new SPC with Telemar, which was created in partnership with Ecoluz and LightESCO, with BNDES financing to undertake EE in 35 buildings. The partnership is 33 per cent BR, 33 per cent Light ESCO, and 34 per cent EcoLuz. The financing is 30 per cent partners (at 10 per cent each) and 70 per cent BNDES through the PROESCO program for a total budget of 4.5 million Reals.

One of the challenges identified by REEEP’s analytical study has been that Petrobrás BR is a large state enterprise which moves quite slowly and is accountable to its Board of Directors. This has resulted in a very low level of implementation of the business plans initially projected.

IDB/UNDP/GEF EE Project in Buildings12

The Inter-American Development Bank (IDB) along with the United Nations Development Programme (UNDP) and the Global Environmental Facility (GEF) are deploying an "Energy Efficiency Guarantee Mechanism (EEGM)" to support energy savings projects in privately owned buildings in Brazil. The guarantee program will provide various types of local currency credit guarantees to help commercial banks and other lenders or investors finance energy savings projects for buildings promoted by Brazilian energy service companies (ESCOs). These projects typically include replacing inefficient lighting systems, air conditioning, chillers, motors and pumps with more efficient models or technology, and installing or improving control systems that optimize energy consumption.

The mechanism is a fully independent facility designed to complement PROESCO, a specialized program from Brazil’s national development bank BNDES that finances energy efficiency investments.

EEGM end-users are expected to be mainly private-sector companies or institutions that own buildings in need of retrofitting to become more energy efficient.

The guarantee facility will be a USD 25 million funding including USD 15 million from IDB's capital and a USD 10 million grant from the GEF. The EEGM will be deployed in parallel with technical assistance activities by UNDP.

The EEGM is intended to support over 200 projects developed by up to 40 Brazilian ESCOs over a period of five years, with total project energy savings in excess of USD 100 million.

11 The Business Plan is a Petrobrás confidential document. Banks may approach Petrobrás for more details. 12 IDB, 2009. http://www.iadb.org/projects/searchDocs.cfm?lang=en


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1.3.5 Lessons Learned from Past Activities in EE

While the government initiatives to promote investment in RE market can be viewed as successful, the same conclusion can not be drawn for EE market. The following key lessons can be learned in the EE market:

• PROCEL has been very active in promoting efficient use of energy; but while there are many success stories, market-based mechanisms to stimulate private sector investment in energy efficiency in Brazil are largely absent. Nevertheless, PROCEL remains the main reference for energy efficiency in Brazil, hosting “PROCEL Info” portal (www.procelinfo.com.br), with more than 6,000 registered users and more than 200,000 hits in 2008. PROCEL Info is the main source for information about energy efficiency in Brazil, focusing on electricity. Financial institutions could work in close cooperation with PROCEL in order to be aligned with a federal program and to access the network which has more than 25 years of experience. Although business opportunities are directly created with PROCEL, the capacity of integration is quite relevant. Financial institutions can explore the opportunities of sponsoring seminars and other forms of cooperation, directly reaching other institutions involved in energy efficiency in Brazil.

• It would be convenient for the financial community to work together with CONPET as it is the only governmental organization focused on fuel savings. CONPET does not have a structure and scope that is similar to that of PROCEL (e.g., CONPET does not have any projects oriented to industries). Some level of interaction with banks could be maintained to gather information and monitor the market. As is the case with PROCEL, CONPET faces difficulties maintaining its level of funding. Theoretically, the funding should come from all the oil companies of the Brazilian theoretically competitive market, however in reality Petrobrás is the only contributor.

• PROESCO offers advantages compared to conventional products, especially the absorption of part of the risk by the bank (converted into an increased spread). One of the weaknesses of PROESCO is that it is considered as one product among many others that are commercialized by BNDES. It has no staff exclusively dedicated to it. Projects submitted to PROESCO are still either managed by the Environment or the Energy division, depending on who the client is. Business-to-consumers commercialization was left to the market intermediaries by design but in appearance no business-to-business commercialization was planned between BNDES and the intermediaries – or at least none that is specifically related to the PROESCO product. It should be noted that PROESCO cannot be regarded as a success so far. It is as yet unclear what the causes of this situation are: Is it because of an inappropriate delivery mechanism (i.e., BNDES, the program administrator, the operation, the lack of customization of the product to the market)? or because the assumptions that the design was based on were faulty?

• The fact that the PROESCO program effectiveness is compromised by institutional barriers leaves unchecked the barrier of low creditworthiness of many energy end-users.

• Regarding BNDES operation in EE field, its weaknesses are: (I) BNDES works directly only for large projects, and has a small capacity of business to consumers’ commercialization activities -


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normally, those who go to BNDES are lenders, (ii) the bureaucracy and time spent to close an operation with the bank is also always mentioned.

• BNDES is currently trying to redevelop the PROESCO product, based on discussions with LFI and ABESCO. Nothing should come out of this until many months have passed.

• The private banking sector should position itself as an alternative to PROESCO and collaborate with the IDB/UNDP/GEF guarantee facility. As this mechanism is designed to provide the necessary guarantees for ESCO projects that lend money through PROESCO and taking into account the immobility of PROESCO (which is still non operational), one can think about how to combine private financing with the guarantee facility to push the market.


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2 INVESTMENT OPPORTUNITIES RENEWABLE ENERGY

In the chapter on renewable energy sources we will describe and assess five different basic resources:

i) Small hydro (plants less than 30 MW); ii) Sugarcane biomass for ethanol fuel and for electricity generation (two quite distinct markets); iii) Wind power for electricity generation; iv) Biodiesel to blend with conventional diesel; v) Recovery of energy (electricity) from urban solid waste (as well as some attention to recycling).

In addition, a preliminary survey has been made of the isolated off-grid power systems in the Northern region of Brazil. This was undertaken, after work had begun on the assessments, at the request of the IFC to provide preliminary information for the Amazon Roundtable. As part of this work, the survey has begun identifying possibilities for the generation of electricity from sawmills in the region. This is an attractive option not only to substitute for the diesel oil which is used in almost all these systems, but also to increase the value added by the local industry. This would be part of a broader strategy to diminish deforestation in the region.

The development of the first four resources above (a – d) has been quite rapid in recent years with direct promotion by the government in all cases except for sugarcane ethanol, whose growth has been more market driven. Together they account for almost all the growth in commercial renewable energy in Brazil.

The growth in the recovery of energy from urban solid waste (USW) has been much more modest, even though this segment is the second largest source of carbon credits in Brazil. Methane recovered from landfills has usually simply been flared. Different than the other cases above, there has been no concerted effort to promote energy recovery from USW.

This report has not addressed all the possible sources of renewable energy in Brazil, nor was it intended to given the limit on the number of options which could be studied.

Photovoltaics and solar thermal power generation systems have not been considered because they have not progressed beyond the demonstration stage in this country. There is essentially no commercial development.

Charcoal, produced mostly for the iron & steel industry, is a relatively large sector. However, output has stagnated in recent years and the regulatory framework is undefined. Serious questions regarding deforestation abound. Preliminary reconnaissance suggested it would be a difficult sector for outside investors.

Finally, there is a miscellany of possibilities of generation from other biomass residues, such as rice husks. However, the output from these sources is trivial compared to that from sugarcane residues. In


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addition, the project is looking at, in a preliminary way, the similar case of sawmill residues in the Amazon region.

Projections of investment needs have been prepared for four resources: cogeneration from sugarcane residues, wind power small hydro and urban solid waste. They are summarized in the sections below.

The Sustainable Energy Finance (SEF) program of the IFC is particularly interested in projects smaller than about BRL 10-20 million or approximately 5 MW (at a unit investment of R$ 4,000/kW). Projects in most of the renewable resource sectors covered tend to be considerably larger than this ceiling, as will be described in the sections below. The possible exceptions are:

• Some small hydro projects (though the average is more than 15 MW); • Some projects to generate electricity from landfill gas; • Some projects to generate electricity from sawmill residues.

Estimates of the investment potential for these smaller projects are also outlined.

2.1 INVESTMENT OPPORTUNITIES IN SMALL HYDRO

2.1.1 Recent trends in the market and potential

Small hydro (in Portuguese PCH – Pequenas Centrais Hidreléticas) is defined in Brazil as being between 1 and 30 MW. Below 1 MW (1000 kW), micro hydro plants are referred to as CGHs.

The market for PCHs has been active in recent years. Between 2008 and 2009 installed capacity increased by more than 800 MW, as shown in the next table. Almost 1000 MW are under construction and there is “pipeline” of more than 2,000 MW of projects which have been authorized by ANEEL. However, the market for micro-hydro (CGHs) has been stagnant.

Table 7: Evolution of installed PCH and CGH capacity in 2008-200913

Number of plants Installed Capacity (MW) PCH (1-30 MW) 2008 2009 2008 2009In operation 310 358 2,209 3,018In construction 77 73 1,264 998Authorized (outorgados) 161 145 2,396 2,067Total 548 576 5,869 6,083CGH (<1000 kW) In operation 221 221 117 117In construction 1 1 0.8 0.8Authorized (outorgados) 75 75 51.2 51.2Total 297 297 169 169

This PCH project development activity has had an interesting consequence – a substantial increase in registered inventory of potential in a short time. In 2008, the total inventoried potential was 13 Source: Tiago et alii, 2010


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16,184 MW, of which 13,975 MW remain to be constructed. In 2009 the total potential had jumped to 22,455 MW, of which 19,437 MW remain to be constructed.

Small hydro has had a long history in Brazil and a substantial share has been constructed by self-generators and also for the free market, though there has been modest participation in the auctions and PROINFA was a major stimulus.

2.1.2 Regional aspects of the market

Small hydro development has historically been concentrated principally in the South and Southeast of the Brazil; principally in Rio Grande do Sul, Santa Catarina and Minas Gerais. More recently development has begun to shift to the Middle West (Mato Grosso and Goiás) and southern Amazonas in the North. The potential in the Northeast is relatively small.

2.1.3 Characteristics of typical projects

Most small hydro projects are above 10 MW installed capacity. The average size of plants completed in 2009 was 17 MW. The average capacity of plants which have been authorized or are under construction is about 14 MW, while plants financed by the BNDES averaged 20 MW.

This relative large size of plants being built is due to economies of scale for costs which do not vary much with size, such as studies and executive project designs and O&M. In addition, many sites have relatively low heads (the height the water falls when passing through the turbine). In the South and Southeast, where much of the potential has been developed, such sites tend to be what is left. In the North (Amazonia) and Middle West, where a smaller part of the potential has been developed, sites with lower heads are typical of the potential in general.

Lower heads imply larger water flows to achieve the same output and as a consequence the costs per kW of the civil works and the turbo-generator are greater. Thus in order to achieve economic viability the projects need to be larger, often approaching the 30 MW limit for small hydro.

Smaller plants, between 1 and 5 MW, are viable when the characteristics of the site are favorable. This allows lower costs for the civil works and the turbo-generators. In addition, since the plants are small, it is important to minimize the operating costs. This means that remote control and operation (or at least, semi-remote controlled) is almost a pre-requisite. The best way to improve the viability of these smaller plants, from the perspective of O&M, is for several to be located within a radius which permits the use of a single control center and a single maintenance team.

The cost per kW of installed capacity is sensitive to the site and the scale of the plant. A reasonable range is about BRL 4-6,200/kW. Taking an average of BRL 5,000/kW, the average plant currently under construction or authorized requires an investment of about BRL 70 million (±20%).


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2.1.4 Brief overview of key players in the market

The supply chain can be divided into three major categories for the purposes of discussion. In each category there are a large number of active firms. One sees a broad segmentation in each category between firms targeting larger PCHs and others smaller (roughly less than 5 MW).

• Engineering services - includes all of the initial evaluations of potential and viability, the hydro-energetic inventory, geological and geotectonic studies, the basic design and executive project, socio-economic and environmental studies and finally the execution of the project itself.

• Hydromechanical equipment – besides the turbines, this includes equipment which controls the flow of the water and directs and extracts the hydraulic energy in it.

• Generators and electrical equipment - also includes items such as control panels, meters and transformers, as well as the systems for automation and communication.

Then there are the project developers and economic groups which have specialized in this market segment. Some of these groups are international. Two important examples are:

• The Ersa group, which is a joint venture between Patria Investments, Eton Park (an American asset management group), the Fund BBI FIP (administered by the Banco Bradesco de Investimento), a GMR Empreendimentos Energéticos and DEG (part of the German group KfW). It has three plants in operation and nine under construction which will total about 300 MW.

• The Canadian group Brookfield Energia Renovável (ex-Brascan Energia), owns and operates 30 plants with 536 MW, the largest PCH portfolio in the country. It paused during the financial crisis but is now preparing to embark on new projects.

More information on market players is presented in Appendix 5 of this report.

2.1.5 Overall investment needs and current financing

Table 8 shows estimates of investment needs based on projections in the latest 10 year plan (PDEE-2019) for capacity entering during the period 2012-15.

While most projected expansion will be in plants larger than 5 MW, about 30% of the plants (by number) and 7-8% of the investment may be in plants which are smaller.


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Table 8: Summary of investment potential for small hydro

Energy Generation Potential Increase in installed capacity (MW) 1,400Energy production (GWh/y) a 4,900 - 5,500 Greenhouse Gas Emissions Reduction Annual CO2 emissions reduction (million ton CO2 @0.1842 tCO2e/MWh) b 0.90 - 1.01 Investment requirements Average unit cost ($/kW) g $2,800Typical size range of potential projects (MW) 1 - 30Average size of projects implemented (MW) c 14.3Investment requirements for average project implemented (USD Million) h $40Number of transactions over period 98Total investment requirements over 5 year period (USD Million) $3,920Share of projects below 5 MW (based on number of projects) d 30%Investment requirements projects below 5 MW over period (USD Million) $230 - 290 Financial Aspects Cost of energy (USD/MWh) e $89-97Annual energy sales at end of period (USD million) $436 - 535Annual carbon revenues in USD million (at USD12/tCO2) b $11 - 12Carbon revenues: % revenue from energy sales 2.2-2.5%Foreseen equity - total (USD Million) f $1,176Foreseen equity - projects < 5 MW (USD Million) $69-87Financing need - total (USD Million) f $2,744Financing need - projects < 5 MW (USD Million) $160 - 205

a Range of capacity factor considered is 40 – 45%. b Value at end of the period. c Based on average size of projects authorized by ANEEL at end of 2009. d Based on estimated average size of 3.5 MW for PCH projects with < 5 MW of capacity. e.Estimate of CERPCH f Assumes 30% equity and 70% financing. g Average of a range of BRL 4,000 – 6,200 per kW. h Could be ±20% depending on the site and the scale.

The main source of financing for PCHs has been project financing by BNDES, which provides loans for up to 80% of the investment. No information is available regarding the share of loans made directly by the BNDES versus the share which is lent in “indirect operations” through banks.

Perhaps the most important gap in financing is the lack of instruments, such as performance bonds to mitigate perceived project risks. The terms for loans currently available are also considered to be too short for this kind of project.

2.1.6 Summary of risks and attractions

Recent years have seen something of a boom in small hydro construction, though it was slowed by the general financial crisis of 2009. Nevertheless, while the technology of small hydro is mature, a substantial “project risk” has emerged. Environmental licensing has become a major cause of delays. It typically takes two years. Obtaining authorizations from the power sector regulator – ANEEL – has also been slow. These are the main reasons why the projected expansion by 2015 for small hydro was


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reduced by about 1,500 MW in the latest 10-year plan (PDEE – 2019) compared to the previous edition (PDEE – 2017).

In addition, many small hydro plants have under-performed. Historically, of the PCHs with at least five years of operation (registered in the clearinghouse for energy commercialization, the CCEE - Câmara de Comércio de Energia Elétrica), 46% generated less than 80% of their Assured Energy. The under-performance of so many PCHs is not only a problem for the operation of the power system. It also represents a significant risk for any agent providing financing to these projects. It ultimately goes back to the quality of the engineering services being provided, principally an inadequate analysis of the hydrology of the sites. Geological risk is also significant.

The problem has prompted changes in the regulation of PCHs which should lead to more realistic evaluations of Assured Energy and hence reduced project risk in the future. However, any financial agent should be attentive to the quality of the analysis underlying the parameters of the project.

2.2 INVESTMENT OPPORTUNITIES IN SUGARCANE BIOMASS

Energy from sugarcane biomass provides a substantial share of the energy supply in Brazil – a situation which is unique among the larger countries in the world. There are two basic ways that sugarcane contributes to energy supply:

• The ethanol (both hydrated and anhydrous) which supplies liquid fuel for the transport sector as well as a feedstock for non-energy uses.

• The generation of electricity from residues - chiefly bagasse from milled cane but also, increasingly, field residues - in systems of cogeneration which also produce process heat for sugar and ethanol production.

These constitute distinct, though not entirely separate, markets for investment.

2.2.1 Recent trends in the market and potential for expansion

The sugarcane sector has been growing quite fast since 2003/4, as shown in the following table. This growth has been driven by increased demand both for sugar and ethanol. In the case of ethanol, the main driver has been the growth in domestic demand since the introduction of flex-fuel automobiles. There has also been some growth in exports.


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Table 9: Evolution of sugarcane, sugar and ethanol production from 2003 to 200814

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09Sugarcane (Million metric tons) 359.3 386.1 387.4 425.5 495.7 569.1Sugar (Billions of liters) 24.9 26.6 25.9 29.9 31.0 31.0Ethanol 14.8 15.4 15.9 17.7 22.5 27.5

Electricity generation for sale to the grid has also grown rapidly. Traditionally, sugarcane mills were designed to be self sufficient in electricity, with no surplus for export. They burned their residues in low pressure (~20 bar) boilers and there was little concern about the efficiency of steam use - large amounts of which were used per ton of sugarcane processed. This “wasteful” use of the energy in the residues was a rational response to the low price that could be obtained from the sale either of electricity or the residues themselves.

Things began to change with the PROINFA program launched in 2004. This offered long term contracts with guarantees from Eletrobrás for power sold to the grid at much more attractive prices than heretofore had been available. The prices were fixed by the government.

Almost simultaneously, sugarcane mills began to participate in the general auctions for new thermal capacity which were established as part of the new institutional model created for the power sector in 2004. Experience there showed that electricity generated in sugarcane mills could compete with conventional thermal plants. In auctions between 2005 and 2009 3,779 MW of capacity were contracted.

As a consequence of the new opportunities to sell power at an economically viable price, electricity generation capacity and output have increased dramatically.

This increase has occurred in two ways. Some comes from new mills in “greenfield” sites. These are now installing much higher pressure boilers than the older mills and use considerably less steam to process the sugarcane. Both of these measures result in more electricity being available for sale. Older mills have also been retrofitted using more efficient technology when their boiler systems have come to the end of their useful life, or they undertake an expansion of capacity.

There has been a technological sea-change in what has long been a conservative sector. Yet even today less than ¼ of the sugarcane mills sell power to the grid.

The sugarcane sector entered a profound financial crisis in 2008/2009 as a consequence of over expansion of ethanol capacity and to a lesser extent, of sugar. Electricity sales were unaffected. As the crisis passes it is expected that all segments (except domestic sugar) will continue to grow, as shown in the next table.

14 Source: Unica, 2009


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Table 10: Projected expansion of the sugarcane sector in Brazil until the harvest of 2020/202115

2007/2008 2015/2016 2020/2021Sugarcane produced (million t) 496 829 1.038Cultivated area (million ha) 7.8 11.4 13.8Sugar (million t) 31.0 41.3 45.0 Domestic market & stocks 12.4 11.4 13.8 Export 18.6 29.9 32.9Ethanol (billion liters) 22.5 46.9 65.3 Domestic market 18.9 34.6 49.6 Export 3.6 12.3 15.7Electricity (MW-average) 1,800 11,500 14,400

The future evolution of the sector is expected to result in a significantly larger share of revenue coming from electricity generation – increasing from only 1% of revenues in 2006/2007 to 16% in 2015/2016. The increased share of electricity has the advantage of not being subject to swings in commodity prices since all the contracts are long term.

2.2.2 Regional aspects of the market

As shown in the next table, the production of sugarcane has been concentrated in the Central-South in recent years and this trend is expected to continue. Amazônia (except for the State of Tocantins) is outside the agro-ecological zone for sugarcane. In the Northeast, there is limited land which is apt for the cultivation of sugarcane, except in Bahia, Maranhão and Piauí.

Table 11: Production of sugarcane in Brazil and by regions (thousand metric tons)16

Regions 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09North 670 849 858 1,101 894 1,092Northeast 59,525 56,544 48,869 52,149 63,716 63,008Southeast 234,257 261,469 276,914 299,244 339,737 397,166South 28,580 29,076 24,867 32,087 40,498 44,937Middle West 36,284 38,153 35,933 40,955 50,879 62,860Central-South 299,121 328,697 337,714 372,285 431,114 504,963North-Northeast 60,195 57,393 49,728 53,251 64,610 64,100Brazil 359,316 386,090 387,442 425,536 495,723 569,063

The State of São Paulo alone produces about 60% of the country’s sugarcane and output continues to grow despite the higher cost of land. This is due to the high productivity per hectare, availability of qualified labor, easier access to technical assistance and better infrastructure for commercializing production. However, improvements in transportation infrastructure could lead to an increasing share in the Middle West region, where land is cheaper.

15 Source: UNICA, 2008 16 Source: Unica, 2009


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Of the projects submitted to the BNDES for financing, 62% have had a capacity between 1.5 and 2.9 million tc/yr (tons of sugarcane per year), with an average of 2 million tc/yr. However, today there is tendency to build larger mills, with capacities above 3 million tc/yr. This may have been stimulated by the rapid growth in output projected by the large economic groups entering the sector. Table 14 summarizes estimates for the effect of scale on the investment per unit of capacity. The unit investment falls by 20% as the scale increases from one to 4 million tc/harvest (which corresponds in practice to tc/yr)

Table 12: Effect of scale on approximate investments in new sugarcane plants17

Milling capacity (million tc/harvest)

Industrial investment(million BRL)

Unit investment (BRL/tc/harvest)

1 195 195 2 350 175 3 480 160 4 600 150

On the other hand, this increase in processing capacity will increase the costs of transporting the cane to the mill and the complexity of the logistics of the agricultural operations.

If we consider an average plant with a milling capacity of 2 million tc/yr (12,000 tc/day), with half going for sugar and half going for ethanol18, alcohol output would be 500 m3 per day and sugar, 800 tons per day. With a boiler and turbo-generator system operating at 65 atmospheres (bar) the exportable surplus of power would be about 30 MW or 60 kWh/tc. With a system operating at 100 bar these values would increase to about 45 MW and 90 kWh/tc.


Key elements in the supply chain of the sugarcane sector are the mills and sugarcane producers. There are more than 430 mills operating as well as about 70,000 independent cane producers. On average the mills produce about two thirds of the cane which they process. Independent sugarcane producers supply the other third.

Most sugarcane mills belong to economic groups. In 2008 there were almost 200 groups active in the sector. There has been a marked tendency towards consolidation and it is estimated that within ten years the number of groups will be reduced by about half, even as the output of the sector grows. There are a number of groups with a capacity of more than 10 million tc/yr of sugarcane processing capacity.

17 Source: Dedini, 2010. Complete plant – excludes investments in sugarcane production 18 In a plant of this type the production lines for sugar and ethanol are somewhat oversized to permit some short-term flexibility of production depending on market conditions.


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A marked phenomenon of recent years has been the entry of groups from outside the sugarcane sector (be they Brazilian or foreign). They have been purchasing existing mills, building new “greenfield” sites, forming joint ventures or a combination of all these strategies. This phenomenon has to some extent contributed to the growth and financial strengthening of large groups. For example, the market share of the five largest groups went from 12% in 2004/2005 to 27% in 2009/10. The main new actors in the sugarcane sector are grouped by their sectors of origin (UNICA, 2010):

• Bioplastics: Dow Chemical, Brasken/ETH Bioenergia, Solvay. • Oil: Petrobrás, British Petroleum (BP), Shell. • Agroindustry groups and commodity traders: Louis Dreyfus Commodities, Bunge, Cargill, ADM,

Tereos, Shree Renuka Sugars, Noble Group, Bertin, Adecoagro. • Electricity: Rede Energia, Companhia de Energia Renovável • Other sectors: TGM Turbinas, Construcap, Encalso, Banco Pactual, Grandene, Concessionária

Rodovias SP.

Firms involved in other steps of the supply chain, including capital equipment manufacturers, transport logistics and retail distribution, together with other market players are described in Appendix 6of this report.


The investments expected for the planned expansion of the sector are large. Table 13 shows a relatively conservative projection of investments only for sugarcane cogeneration. It is based on projections for capacity (MW) entering during 2012-15 in the latest 10 year plan (PDEE-2019). These values are probably low given the result of the auctions for alternative energyin August, 2010. Expansion plans in the sugarcane sector also point to somewhat higher values – though they are not disaggregated for cogeneration.


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Table 13: Summary of investment potential for sugarcane cogeneration

Sugarcane cogeneration Energy Generation Potential Increase in installed capacity for sale to the grid (MW) 1,300Energy production (GWh/y) a 2,938 Greenhouse Gas Emissions Reduction Annual CO2 emissions reduction (million ton CO2 @0.1842 tCO2e/MWh) b 0.54 Investment requirements Average unit cost ($/kW) c $1,420 Typical size range of potential projects - installed capacity (MW) 40-70 MWAverage size of projects implemented - installed capacity (MW) c 52 MWAverage size of projects implemented - "export" capacity (MW) 30 MWInvestment requirements for average project implemented (USD Million) $74Number of transactions over period 43Total investment requirements over 5 year period (USD Million) $1,846Share of projects below 5 MW (based on number of projects) 0Investment requirements for projects below 5 MW over period (USD Million) 0 Financial Aspects Cost of energy sold to grid (USD/MWh) d $83Annual energy sales at end of period (USD million) $244Annual carbon revenues in USD million (at USD12/tCO2) b $6Carbon revenues: % revenue from energy sales ~2.5%Foreseen equity - total (USD Million) e $554Foreseen equity - projects < 5 MW (USD Million) 0Financing need - total (USD Million) e $1,292Financing need - projects < 5 MW (USD Million) 0

a Does not include use of field residues which could increase output by 60-70%. b Value at end of period (2015). Excludes credits for ethanol. c Assumes mills processing 2,000,000 tc/year - 90% at 65 bar and 10% at 100 bar. d Average result of recent auctions (BRL 1.80/USD). e Assumes 30% equity and 70% debt.

The dominant ultimate source of financing for the expansion of the sugarcane sector is undoubtedly BNDES. The total lending of BNDES to the sector during 2004-8 was almost BRL 10 billion (USD 5.5 billion at BRL 1.80 per USD), of which about 10% was for cogeneration plants. Approximately a quarter of these loans have been “indirect operations” through other financial institutions.

Although the required amount is large, there appears to be no gap in financing capabilities once firms have recovered from the recent crisis. This appears to be happening. The crisis stimulated a major consolidation of the sector and, associated with this, increased professionalization of management. With the recovery of commodity prices, firms have been rebuilding their balance sheets and are again beginning to invest in new capacity.


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There is very little technical risk in the development of projects. All the technologies are consolidated, including the high pressure (100 bar) generating plants which have begun entering the market.

The perception of credit risk has been quite high, as the sector passed through a severe financial crisis in 2008/2009. However the consolidation which this provoked, as well as the changes in management should strengthen the sector. The main risks concern the vulnerability of economic groups to oscillations in the price of ethanol and sugar. To the extent that ethanol and sugar prices move in different ways, the fact that almost all groups produce both provides some degree of a natural hedge. In addition plants, other than autonomous distilleries, usually have some flexibility in the mix of products. The risk of overexpansion is most acute with ethanol, where output is expanding quite fast and there is uncertainty in the main export markets regarding protectionist measures. In the domestic market the expanding fleet of flex-fuel cars provides a way of expanding sales volume as prices drop, since consumers can shift to ethanol from gasoline. Since the fleet is expanding, this “cushion” should grow over time.

Electricity generation is not subject to these risks, since projects have long term sales contracts (with inflation adjustments) and their fuel is supplied in-house. However, it has been impossible to “ring fence” electricity generation from the wider sugarcane business. Special Purpose Companies to generate power (SPCs) are not an accepted business model in the sector. Thus if the sugarcane mill (or the group owning it) faces financial difficulties, the credit risk extends to the electricity generating component. In the worst case scenario, which is quite rare, the sugarcane mill could shut down completely or work at part capacity with the consequence that there would be a lack of fuel to generate the contracted electricity.

One specific risk for generation projects is the cost of the connection to the grid and the transmission of the electricity, which is usually uncertain at the time when bids are made in the auctions. However, the sums involved are unlikely to be large enough to make an otherwise viable project unviable.

The credit risk for retrofits of existing plants may be less than for “greenfield” plants and the volume of the investment at risk will be smaller. In addition, it may behoove outside investors such as banks to look closely at the technical characteristics of the electricity generation and steam using systems. Sugarcane mills investing in state-of-the art technology are likely to have a higher share of stable revenues from electricity sales than the average.

2.3 INVESTMENT OPPORTUNITIES IN URBAN SOLID WASTE

From the perspective of energy, the handling of urban solid waste (USW) is relevant in two ways. First, it is possible to recover energy from USW in the form of heat, fuel or electricity, due to the large share of organic materials in it (typically more than 80% by weight). Second, the separation and recycling of energy intensive materials such as glass, metals, plastics and paper is possible. Recycling can be regarded as a form of energy efficiency. The emphasis in this report is on energy recovery.


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More broadly, the rational processing and disposition of USW fits with RE and EE into a broader strategy of sustainable development and the environmental impacts of economic development. As such it is likely to be grouped together with RE and EE in the organizational structure of financial institutions.

2.3.1 Recent trends and regional aspects of the market

For energy to be recovered from USW it must be collected, channeled and disposed of in certain ways. Open air dumps and simple landfills, besides being environmentally very inadequate, also mean that energy cannot be recovered. Unfortunately, as the next table shows, much of the USW in Brazil is disposed of in these ways – more than 43%.

Table 14: Destination of urban solid waste, by macro-region19

Macro-Region Open Air Dump Simple Landfill Sanitary Landfill North 38,2% 28,8% 33,0% Northeast 34,2% 32,9% 32,9% Center west 22,9% 49,0% 28,1% Southeast 11,7% 17,1% 71,2% South 12,9% 18,0% 69,1% Brazil 19,3% 23,9% 56,8%

There will probably be significant recycling of many materials, regardless of the destination of the USW, due to a small army of catadores de lixo. But this primitive approach to recycling often exacts a severe social toll. A rational disposition of USW is more likely to be associated with an improved/improving socio-economic context for recycling.

There are clearly important regional differences in the disposition of USW. In the poorer North and Northeast regions open air dumps and simple landfills are more predominant (not to mention the significant amounts of rubbish which aren’t collected at all). However, more significant than regional differences are the differences between municipalities. These have the constitutional responsibility for USW collection and disposition.

In general there are big differences between larger and smaller cities. The average quantity of USW generated per inhabitant is significantly greater in larger cities, as shown in the next table.

19 Source: ABRELPE, 2009. The categories shown are: (1) open dump (vazadouro a ceu aberto); (2) simple landfill without impermeabilization (aterro controlado); (3) sanitary landfill (aterro sanitario); and (4) “other”. The “other” category includes a very wide range of treatment – from composting (2.9% nationwide) and incineration (0.5%) to dumps in water bodies (0.1%) and unfixed sites (0.5%)


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Table 15: Waste generated per capita, by size of municipality20

Size of city → Small Medium Large MegaPopulation (1,000 inhabitants) < 30 30 – 500 500 – 5,000 > 5,000Solid waste per capita (kg/capita/day) 0.5 0.5 - 0.8 0.8 – 1.0 > 1.0

Most of the smaller municipalities, especially those in the poorer regions, have great difficulty in organizing an adequate system of collection and disposal of solid waste. A survey by ABRELPE estimated that only 39% out of approximately 5,560 municipalities have an adequate disposal scheme for their solid waste, ranging from a low of 15% in the North and 25% in the Northeast, to 35% in the Middle West, 47% in the Southeast and 58% in the South (ABRELPE, 2008).


Various technologies are available for the recovery of useful energy from USW. For example, in Europe, where space for sanitary landfills is limited, USW treatment strategies seek to limit the volume of material requiring final disposition. There are also concerns about the longer term impact on groundwater from the leachate of landfills. Thus, various kinds of high temperature combustion or pyrolitic/carbonization technologies are increasingly being deployed. However, this approach to USW treatment is quite capital intensive. In Brazil, the predominant strategy to rationalize USW disposition in the coming years will be to shift increasingly to sanitary landfills.

In sanitary landfills the approach to recover useful energy is to extract the methane which naturally results from the decomposition of organic materials in an anaerobic environment. The best conditions for this kind of energy recovery are found in landfills which have: at least one million tons of USW stocked; still receive waste or were recently closed and which have a depth of at least 12-13 meters.

Energy recovery involves creating a grid of shallow “wells”, then channeling the gas to a central plant to clean and dehumidify the gas. Three routes are then possible:

i) Purify and compress the gas for sale as natural gas. ii) Generate electricity in reciprocating gas engines or small gas turbines iii) Use the gas on-site to produce process heat.

In general, the most viable approach in Brazil will usually be to generate electricity.

It is estimated that an 11 MW facility, would cost about USD 18 million (including the investment in gas collection) and could generate electricity, without considering carbon credits, for about USD 92/MWh (BRL 165) with a 20% internal rate of return (IRR) before taxes21. Carbon credits would add another 60-65% to the revenue stream.

20 Source: IBAM, 2001 21 The estimate assumes a 68% capacity factor (over the life of the plant) and a payment to the landfill equivalent to about $6/MWh for the gas collected (SCS Engineers, 2006).


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A challenge facing projects is the varying output of gas over the lifetime of the landfill. A plant which has the capacity to use a large share of the peak gas output will have a relatively low capacity factor over its lifetime, which increases costs. Another point is that not all the gas can be captured (whether for energy recovery or for flaring).

The generation capacity chosen for a given size of landfill may thus vary. A landfill of 100,000 tons/year might support a generation capacity of between 1.3-2.1 MW of power, with roughly a 70% capacity factor over its lifetime. Given the economies of scale, a landfill much smaller than this may be uneconomic for electricity generation (though capturing and flaring the gas would be another story). The table below summarizes the potential in municipalities where more than 100,000 tons/year are collected. The table discriminates between larger municipalities, with more than 380,000 t/year of USW, and those between 100,000 and 380,000 t/year. The larger municipalities will have a potential higher than 5 MW – even with a low assessment of capacity per ton USW.

Table 16: Approximate potential for electricity generation from landfill gas recovery

Region >380,000 t USW/year 100-380,000 t USW/year USW

t/year Theoretical LFG Potential

MW USW

t/yearTheoretical LFG Potential

MW High Low High LowNorth 1,366,578 29 18 810,444 17 11Northeast 4,846,194 102 63 1,268,376 27 16Center-west 2,077,696 44 27 683,362 14 9Southeast 6,102,163 128 79 4,534,323 95 59South 1,346,931 28 18 650,932 14 8Total 15,739,562 331 205 7,947,438 167 103Source: Based on municipal RSU estimates in ABRELPE, 2009.

Assuming a minimum of 100,000 t of USW per year there are 61 municipalities with a combined potential of 308 to 498 MW, or about 1,900-3,100 GWh/year. Of these, 44 could support plants of up to 5 MW (using the low capacity estimate), with a combined capacity of 103-167 MW.

However, conditions in Brazil until now have not been propitious for the recovery of useful energy from sanitary landfills. There are two basic reasons for this.

• The price which can be obtained for the electricity produced is too low to justify the investment in generation equipment (micro-turbines or gas engines to generate power from the methane in the biogas).

• The strong incentive of carbon credits for eliminating methane emissions has been allowed for projects which merely flare the biogas produced by the landfill. Methane is a much more aggressive greenhouse gas than CO2, by a factor of about 30.

The return on simply flaring gas has been much higher than on generating power, so why bother with the much larger investment and greater risk?


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Thus there have been many CDM projects to capture and flare the methane in the biogas and very few to generate electricity. The table below summarizes CDM projects by sector in Brazil. Projects with sanitary landfills are the second most important in terms of carbon credits and third in number, with 28.8

Table 17: CDM projects by sector22

Projects Approved Number of Projects Reduction in Annual Emissions & in Validation # Share tons CO2 equiv Share Electricity Generation 159 62% 17,305,374 47% Pig farming wastes 40 16% 2,035,369 7% Sanitary landfills 28 11% 8,788,633 24% Manufacturing 11 4% 1,853,002 5% Energy efficiency 10 4% 68,730 <1% Other wastes 2 1% 82,300 <1% Reduction of N2O a 3 1% 6,205,612 17% Chemical industry 1 <1% 80,286 <1% Metallurgy 1 <1% 80,286 <1% Total 255 100% 36,436,082 100%

a Principally projects related to agriculture and nitric acid production

There have been only two projects implemented to generate electricity from landfill biogas: the NovaGerar plant in the Centro de Tratamento de Resíduos in Nova Iguaçu – RJ, and the Bandeirantes sanitary landfill in São Paulo – SP.23 Both landfills are exceptionally large by Brazilian standards, which improved their economics.

Two policy measures could radically change the outlook. First, create a specific auction framework for contracting electricity sales from sanitary landfills – as has been done with small hydro, biomass and wind. This would allow higher prices to be paid on average, thus remunerating pioneering investments, while also encouraging competition and cost-effective solutions. Second, and simultaneously, only allow carbon credits to be granted for biogas collection projects which go beyond flaring to using the energy in a productive way (at least for landfills above a certain size). This would avoid the “cream skimming” which has been occurring.

In the future, once an energy recovery market has been established, there could be a move away from sanitary landfills towards high temperature processing of USW. As already observed, this approach has the advantages of dramatically reducing the area needed for landfills and presents fewer long term environmental risks from leakage of the leachate (chorume) into the water table. The pressure to move in this direction is likely to be felt first in the larger metropolitan areas and should be reflected in higher avoided costs of landfill tipping fees (these benefits are crucial to the economic viability of high temperature processing). There are additional important advantages in moving to this approach: 8 It is expected that the large majority of these CDM projects are in larger landfills – i.e.among the 61 municipalities identified above. That means that almost have the potential projects have lost the opportunity to use carbon credits to help finance energy recovery. 22 Source: ABRELPE, 2008 23 Santander Bank participated in the financing of the Bandeirantes project.


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• The same level of input of USW can result in about 3-4 times more electricity generated. • The annual fuel input to the power plant varies less, which permits a higher life time capacity

factor. • All methane emissions can be eliminated (recovery from landfills is incomplete, as illustrated in

the graphs above). • The cost of treating and disposing of the liquid effluent of a sanitary landfill will be avoided.

The capital cost of a plant with an incinerator and power generation is much greater than for a simple sanitary landfill. However, the difference narrows greatly if we include the energy recovered from the landfill. The capital cost per kW of generation is similar (though, since a given amount of USW will support more power generation, the total capital cost will be considerably higher). This market is still considerably more speculative, so given the shorter time horizon for this study we have not developed estimates. However, it could, in time, be a larger market.


Municipalities are responsible for collecting and disposing of USW, though they may outsource the service to private sector firms either through concessions or PPPs (public-Private Partnerships).

Various government agencies are involved either in the regulation of solid wastes or the development and financing of improved management. Those involved directly in regulation are:

The Ministry of the Environment (Ministério do Meio Ambiente); CONAMA – National Council for the Environement (Conselho Nacional de Meio Ambiente); Ministry for Cities (Ministério das Cidades) and the Ministry of Health (Ministério da Saúde).

The development of projects with sanitary landfills is of considerable interest to some of Brazil’s largest construction companies, which also have much experience with energy projects. Large groups such as Camargo Correia, Odebrecht and Queiroz Galvão have subsidiaries specialized in this market.

There are also many groups specialized in carbon finance and knowledgeable about financing which are active in the area. There are also firms capable of designing and manufacturing the necessary equipment. More information on market players is provided in Appendix 7 of this report.


As already observed, under current policies there is no incentive to develop projects to recover energy from sanitary landfills – only to flare the methane in the gas. Despite this, a small number of projects may be built, mostly in larger landfills.

However, if a new set of policies (such as those described above) were implemented, the perspective could change dramatically. Perhaps 80% of the potential in municipalities with more than 100,000 t/year of USW could be implemented in a five year period. The table below summarizes estimates


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about investment potential under these two scenarios and greenhouse gas emissions reduction, as well as the size of typical projects. It also discriminates between projects which are larger and smaller than 5 MW (based on the low estimate of 1.3 MW per 100,000 t/year of USW collected). The investments shown refer only to the landfill gas collection and energy recovery system (not the landfill itself).

Table 18: Summary of investment potential and GHG reduction

Current Policy Favorable Policies

Energy Generation Potential Potential net installed capacity (MW) 375-605 375-605Market penetration rate over a 5-year period (%) 10% 80%Market potential over a 5-year period (MW) 38-60 300-485Market potential energy production at end of 5-year period (GWh/y) 233 - 368 1,840 - 2,975Greenhouse Gas Emissions Reduction Annual CO2 emissions reduction (million ton CO2 @0.1842 tCO2e/MWh)

1.1 - 1.8 9.0 - 14.6

Investment requirements Average unit cost ($/kW) $1,700 - $2,000 $1,700 - $2,000Typical size range of potential projects (MW) 1.3-25 1.3-25Average size of projects implemented (MW) a 9.5-15 6-10Investment requirements for average project implemented (USD Million)

$16-30 $10-19

Number of transactions over period 4 50Total investment requirements over 5-year period (USD Million) $64 - $120 $510 - $970Share of projects below 5 MW (based on number of projects) 25% 70%Investment requirements for projects below 5 MW over period (USD Million)

$7 - $13 $140 - $266

Financial Aspects Cost of energy (USD/MWh) b $92 $92Annual energy sales at end of period (USD million) $21 - $34 $169 - 274Annual carbon revenues in USD million (at USD12/tCO2) $14 - $22 $109 - $176Carbon revenues: % revenue from energy sales (a) Due to credits from converting landfill gas from CH4 to CO2 60-65% 60-65% (b) Due to credits from sale of electricity ~2% ~2%Foreseen equity - total (USD Million) c $13 - $24 $102 - $194Foreseen equity - projects < 5 MW (USD Million) $1.5 - $2.5 $28 - $53Financing need - total (USD Million) c $52 - $96 $408 - $ 776Financing need - projects < 5 MW (USD Million) $5 - $10 $112 - $213

a Range of values in each scenario based on low and high capacity estimates per 100,000 t/year of USW (1.3 – 2.1 MW). b Excludes carbon credits and includes $6/MWh for landfill gas. Based on a plant with a cost of $1,700/MW. c Assumes 20% equity and 80% financing.

The Caixa Econômica Federal (CEF) and BNDES are the standard sources of credit for improvements in the basic public services of Brazil’s municipalities. These loans have conditions which are well known and are subject to restrictions in the overall debt level of the municipality (contingenciamento),


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which can make planning investments complicated. The use of Public-Private-Partnership arrangements can help overcome this barrier.

Given the unusual level of activity with the CDM, the BNDES and FINEP (Financiadora de Estudos e Projetos – a parastatal linked to the Ministry of Science and Technology – MCT) also provide lines of credit for the development of projects for the CDM. Almost all CDM projects themselves have been developed with the involvement of private resources.


As stated above, electricity generation projects in most sanitary landfills are economically unviable under the current policy framework. If the context were to change, project developers would be able to benefit from the considerable experience which has been gained in past CDM regarding projections of gas flow over time. With long term contracts, revenue streams would be relatively predictable, which should make projects financially attractive.

2.4 INVESTMENT OPPORTUNITIES IN WINDPOWER

2.4.1 Recent trends, potential and regional aspects of the market

Wind energy is the most recent renewable resource to become a significant factor in the supply of electricity in Brazil. In 2005, total installed capacity was only 29 MW. The PROINFA program was the first major stimulus. It offered long term contracts at a fixed purchase price guaranteed by Eletrobrás. This led to a rapid expansion of installed capacity, which had reached 561 MW by the end of 2009 as contracted capacity began to come on line.

The auction for wind power in December, 2009 inaugurated a new approach to promoting wind power. The result was dramatic: 1,806 MW were contracted from 71 projects at an average price of BRL 148/MWh. This average price was less than that in some recent auctions for thermal generation plants. It was also much lower than the price offered by PROINFA.

As a result of PROINFA and the December auction, Brazil should have an installed wind power capacity of about 3,200 MW within three years. The extent to which this represents a change in perceptions can be illustrated by the fact the National Energy Plan for 2030, published in 2006, projected a total of 3,480 MW in 2025.

As a consequence of the success of the December auction, another auction will be held in August, with separate sub-auctions for wind, biomass and small hydro. More than 10,500 MW of wind capacity have been registered to bid in the auction.

A factor which has encouraged the government of Brazil to stimulate the expansion of wind power has been studies which show that the natural variation of wind power output can be relatively easily absorbed by the dominant hydroelectric system, at least until levels are far higher than those that have


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so far been contracted (perhaps in the range of 15-20% of total electricity generating capacity). In addition, the variation in wind output tends to be complementary to that of the natural hydro flows on a seasonal basis and annual variation appears to be considerably smaller than the variation in average annual river flows. Finally, advances in techniques for predicting shorter term (hourly and daily) changes in output are facilitating the dispatch of wind power plants within the power system.

The most favorable areas for developing wind power have average annual wind speeds of 7-7.5 m/second or more. These areas are relatively small, but are sufficient to allow a large expansion, even if only a small percentage (less than 5-10%) is ultimately covered by wind farms. Favorable areas for development are found in the South, the mountainous areas of the north of Minas Gerais and the interior of Bahia and especially near the coast in the Northeast.

The expansion of the market has been especially dramatic in the Northeast region. In the December auction almost 90% of the contracted capacity was in this region, the remainder being in the South. This regional predominance may have been due in part to the favorable terms and easier access to credit offered by the Banco do Nordeste, the development bank for that region. It is likely that the results of the next auction will see a broader regional distribution of projects.


The average capacity of the wind farm projects approved in the December 2009 auction was 25.4 MW. Only five of the 71 projects contracted had a capacity of less than 10 MW, the smallest being for 6 MW. At the same time, only five projects had more than 30 MW, the largest being 50 MW. The large majority of projects are between 20 and 30 MW.

One factor dimensioning projects was the 30 MW upper limit for projects to be eligible for the 50% discount on transmission charges (TUSD/TUST).24 In many cases one finds that projects are geographically contiguous and will in fact be operated as a unit in wind farms of as much as 150 MW.

The average investment per kW was BRL 4,000 or slightly less (all costs included for a commissioned wind farm). It is likely that the investment per kW in the upcoming auction will be slightly lower than in the last. The consolidation of the sector and the increasing volume of business may permit more cost reductions.

The capacity factor of the winning projects in the auction was quite high by the standards of wind power – 43.8%. It is possible that the average capacity factor of winning projects in the next auction will be even higher, perhaps as much as 48%. A higher capacity factor improves the economics of a wind farm by diluting the fixed investment over more MWhs each year.

Taking the nominal size of the winning projects in the December auction as a guide, a typical project of 25 MW would require an investment of about BRL 100 million. 24 This discount was originally given to small hydro and was subsequently extended to wind power projects.


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Some larger firms have now begun to accumulate substantial stakes in the wind energy market. These include traditional energy supply companies, such as Petrobrás, CPFL, Iberdrola, Eletrosul, as well as firms more specialized in wind and (possibly) other renewables, such as Renova, Dobreve. Nevertheless there is considerable capacity in the hands of relatively small developers. Many, having won in the auction, are prepared to sell on their projects for execution. This “secondary market” opens opportunities for larger better capitalized firms to enter or expand their presence in the market.

Most of the principal international wind turbine manufacturers are present in the Brazilian market. Several, including GE, Vestas and Enercon offer turn-key plants and to do this work closely with local firms. Hyundai is preparing to do the same. There is a spectrum of more specialized equipment and service providers. One set of services of great importance is the certification of projects (for example, evaluating the analyses underlying projections of capacity factor). Major international certifiers, such as GL Garrad Hassan and DEWI GmbH are now present in Brazil. More information on market players is presented in Appendix 8 of this report.


Large investments are projected for wind power. Table 19 shows estimates based on projections of the latest 10-year plan (PDEE-2019) for capacity entering during the period 2012-15. These values are probably low given the result of the auctions for alternative energy in August, 2010.


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Table 19: Summary of investment opportunities in wind power

Energy Generation Potential Increase in installed capacity (MW) 3,150Energy production (GWh/y) a 11,600Greenhouse Gas Emissions Reduction Annual CO2 emissions reduction (million ton CO2 @0.1842 tCO2e/MWh) b 2.14Investment requirements Average unit cost ($/kW) c $2,200 Typical size range of potential projects (MW) 6 - 50Average size of projects implemented (MW) 25Investment requirements for average project implemented (USD Million) $56Number of transactions over period 126Total investment requirements over 5-year period (USD Million) $6,930Share of projects below 5 MW (based on number of projects) <3%Investment requirements for projects below 5 MW over period (USD Million) $35 Financial Aspects Cost of energy (USD/MWh) c $83Annual energy sales at end of period (USD million) $963Annual carbon revenues in USD million (at USD12/tCO2) $26Carbon revenues: % revenue from energy sales ~2.5%Foreseen equity - total (USD Million) d $2,079Foreseen equity - projects < 5 MW (USD Million) $11Financing need - total (USD Million) d $4,851Financing need - projects < 5 MW (USD Million) $25

a Assumes capacity factor of 42% (average of December 2009 auction was 43.8%) b Value at end of period (2015). c Average result of December auction (BRL 1.80/USD). d Assumes 30% equity and 70% debt.

It is expected that very few, if any, projects will be as small as 5 MW – at least those connected to the national grid. Given the very low coefficient of CO2 emitted per MWh generated in Brazil, the potential carbon credit is very small relative to the revenue from energy sales.

The two principle sources of credit for project financing are BNDES and the BNB. BNB finances projects in the Northeast Region. As shown in the following table, the terms of the BNB are significantly more favorable for project developers than are those of BNDES.

Table 20: Comparison of the credit terms of the BNDES and the Banco do Nordeste

Development Bank Max share of Interest Depreciation Grace Investment Rate (%) (Years) PeriodBNDES 80% 9-11 14 6 monthsBNB – Banco do Nordeste 90% 7-10 20 Up to 4 years


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Usually the loans from BNDES for wind power projects are “indirect operations” through commercial banks, be they public (Banco do Brasil) or private (Itaú, Bradesco, Santander & HSBC). In the case of BNB, the loans are made directly from the development bank to the borrower.

Wind power is attracting many new equity investors and some banks are active in providing services to help structure finance. Santander has been the most active and even enters into equity partnerships in some cases.


The rapid growth of wind power represents a challenge and poses some project or technical risks for investors. One problem is the quality of many analyses of the output of a wind farm and the resulting certifications of output. Many are prepared by institutions which have little recognition in this area and are of doubtful reliability. These certifications are accepted by BNB (Banco do Nordeste), which was a major financial player in the last auction, BNDES, on the other hand, is more rigorous and requires certifications of output by internationally recognized entities. This situation has resulted in some sloppy analyses. Proper reviews have subsequently found differences of 25% or more in the certifiable output. Projects with this kind of analysis were frequently prepared with the intent of selling them on after winning the bid, hence the original developer was not incurring the risk of not producing the claimed output.

In addition, some of the equipment manufacturers’ technology is not very reliable. Some turbines do not even have a certified power curve with wind speed. Problems have already been encountered with equipment recently installed in the PROINFA program. For example, there have been fires in the rotor hub of some wind turbines due to the improper functioning of the control system.

Another common risk is related to the cost and uncertainties surrounding the connection of the project to the grid. Many projects are located in areas where the existing grid is quite weak and are “at the end of the line”, which exacerbates the problem. In these cases significant investments will be needed to connect the new wind farm to the grid and project developers are faced with great uncertainty regarding collection arrangements. Under the existing arrangements, the wind farm developer must evaluate the cost of an isolated connection. Since criteria should be conservative in order to be prudent, this tends to increase the viable price for selling electricity. If a number of wind farms are in the same neighborhood (which is often the case) it would be cheaper to create a feeder system for the projects as a group, instead of doing so individually. One possibility is an ICG (“Instalações de Transmissão de Interesse Restrito para Conexão Compartilhada de Centrais de Geração”). This approach has so far been avoided by project developers due to uncertainties about rules and allocations of costs.

Finally, the intense competition in the auction may have prompted some project developers to make over-optimistic assessments of costs. There may be inadequate provisions for project contingencies.


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On the other hand, measures are being taken to reduce the technical risk. Rules for certifying projects are becoming stricter. For example, the period of measurement required at a site to register for the auction will soon increase to two years and then three.

2.5 INVESTMENT OPPORTUNITIES IN BIODIESEL

2.5.1 Recent trends in the market and potential

The National Program for the Production and Use of Biodiesel (PNPB - Programa Nacional de Produção e Uso de Biodiesel), which began in 2005 to substitute for diesel oil. Legislation in that year established a chronogram for minimum % mixtures in diesel. This chronogram was subsequently revised to what is shown in the following table:

Table 21: Evolution of the required blend of biodiesel in diesel from fossil fuel25

2005-2007 From Jan 2008 From July 2008 From July 2009 From January 2010 2% authorized 2% obligatory 3% obligatory 4% obligatory 5% obligatory

Since production effectively began in March of 2005, biodiesel output has grown quickly, as shown in the next table. The regional profile has changed. In 2007, the Northeast was the largest producing region, but output there has actually fallen since.

Table 22: Evolution of the production of pure biodiesel (B100, in m3)26

Region↓ Year→ 2005 2006 2007 2008 2009North 510 2,421 26,589 15,987 41,821 Northeast 156 34,798 172,200 125,910 163,905 Middle west 0 10,121 125,808 526,287 640,077 Southeast 44 21,562 37,023 185,594 284,379 South 26 100 42,708 313,350 477,871 Brazil 736 69,002 404,329 1,167,128 1,608,053

There are now 48 biodiesel plants with a capacity of 11.9 thousand m3/day which have been authorized to produce and commercialize biodiesel. There are also 5 new plants authorized for construction and 7 existing plants authorized to expand; resulting in capacity expansion of 2.6 thousand m3/day.

With the current (since January, 2010) obligatory mix of 5% (B5), the tendency is for production to grow. Diesel consumption in 2008 was 44.2 million m3, which implies a minimum of 2.2 million m3 of biodiesel, growing at about 5% per year. The market is being adequately supplied and the installed processing capacity greatly exceeds demand. Indeed, the nominal annual processing capacity, including authorized expansion, is about 4.8 million m3 (assuming a 90% capacity factor).

25 Source: Ministério das Minas e Energia 26 Source: ANP as stipulated in ANP Resolution n° 17/2004.


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The average prices in the auctions for supply in January-March 2010 were BRL 2,319-2,329 per m3 of biodiesel and BRL 2,218-2,242 for April-June.


Although there is much interest in “mini-processing” plants of 1,000 to 5,000 liters per day (l/day), the average capacity of existing plants is much larger – 248,000 l/day. There are substantial economies of scale in the processing plants. Assuming a plant of 185,000 l/day, the total investment in the processing facility will be about BRL 27 million.27

By far the largest component of costs is the feedstock material – typically 80% or more. By far the most important feedstock is soybean oil (82%), followed by animal fat from slaughterhouses (12%). The recent and projected prices of different sources of oil in natura are shown in the next table. One ton of feedstock produces approximately one ton of biodiesel.

Table 23: Prices of oil & fat feedstocks for biodiesel (USD/ton)28

Year Soybean Sunflower Palm Oil Mamona Mamona Animal Recycled (international) (Domestic) Fat Frying Oil2008 $1,097 $1,543 $1,046 $2,005 $908 $771 $6582013 $1,337 $1,548 $1,110 $2,443 $1,107 $940 $802

Although recycled frying oil is the cheapest feedstock, difficulties in collection have made it as yet unviable on a commercial scale. The availability of animal fat is also limited and competition with tradition uses is pushing prices up. The projected tendency is for the prices of the feedstock from oilseeds to also increase.

Assuring a reliable supply of feedstock is of crucial importance and feedstock supply has often been a problem.


Biodiesel is sold exclusively through quarterly auctions which are coordinated by the National Agency for Petroleum, Gas and Biofuels (ANP).29 Petrobrás is the only buyer in these auctions. It defines the size of the lots of biodiesel for each of the distributors of conventional diesel (e.g. BP, Shell, etc) based on the average share of the market of each one. The lots are then sold on to each distributor at the average purchase price of the auction.

Other public sector agents include:

27 This includes the trans-sterification unit, the laboratory, utilities and equipment for preparing the raw oil, treating water and effluents, weighing and unloading/loading shipments. 28 Source: EPE 29 The ANP also monitors quality control and the commercialization of biodiesel.


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• The Ministry of Mines and Energy (Ministério das Minas e Energia – MME) which structures the overall program and defines the targets for the volume of biodiesel to be blended.

• The Ministry of Agriculture (Ministério da Agricultura – MAPA) is responsible for structuring the agricultural supply chain and for the agro-climatic zoning of possible crops.

• The Ministry of Agrarian Development (Ministério do Desenvolvimento Agrário – MDA) is responsible for monitoring the inclusion of small farmers in the biodiesel program and issuing the “Certificate of Social Fuel”. This certificate is required for most of the volume auctioned as well as to obtain the PIS/COFINS tax exemption worth about BRL 218/m3.

Key players in the market include the owner/operators of the processing plants. There are seven groups with the capacity to produce more than 600 m3/day each. Together they have a capacity of about 7,500 m3/day, more than half the total, in 14 plants. The smallest of the plants operated by these firms have 300 m3/day of capacity. There is a marked tendency towards consolidation of producers in the sector.

There is a variety of producers of specialized equipment and services for processing biodiesel. Finally, given the need to find a viable alternative to soybeans in the longer term, the public support of R&D is crucial. This effort is led by EMBRAPA (the agricultural research arm of the government) and Petrobrás. More information on market players is provided in Appendix 9 of this report.


It is difficult to project future investment needs, especially since the existing and authorized processing capacity is almost double the short-term market for B5.

Brazil’s public sector and development banks – BNDES, Banco do Brasil, Banco do Nordeste and Banco da Amazônia – offer credit for the construction of processing plants, the agricultural production of the raw material (investment and operations), the purchase of the feedstock by the plants and the commercialization of the biodiesel product. BNDES focuses more on the processing, while the Banco do Brasil, besides intermediating loans from BNDES (“indirect operations”), also provides credit for investment in agricultural production.

In principle, the BNDES’ interest terms are quite concessional, especially for small/medium producers with the “Social Certificate” (TJLP + 1% in “direct operations”). Indirect operations add the remuneration of the financial intermediary. We do not have information regarding the share of BNDES operations which are direct, indirect or mixed. However, the participation of private sector banks in intermediating indirect operations appears to be very small, if there is any at all.

Apparently the IDB has provided credit since 2009 which includes resources for biodiesel. However, no information is as yet available on this operation and how it is structured.


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Unlike the auctions for the sale of electricity from renewable resources, which result in long term contracts which provide a relatively secure future revenue stream, the auctions for biodiesel are only for supply during a three month period.

In addition, if the producer is unable to deliver at least 80% of the contracted amount in the quarter that it is due, it faces penalties.

Securing adequate supplies of feedstock can be a problem, especially if the feedstock is not soybeans. Organizing small farm producers, a precondition for the “Social Certificate” can be a problem, especially in the Northeast where there is little tradition of agricultural cooperatives. Meanwhile, soybeans are subject to commodity price fluctuations.

Finally, in the longer term, there may be political risk as the volume of subsidies grows. The level of subsidy is currently BRL 250/m3, though this may be an underestimate. The risk of reducing the subsidy would grow if there were sustained upward pressure on the price of a sensitive basic food commodity, such as soybean oil.

2.6 OVERVIEW OF SMALLER ISOLATED OFF-GRID SYSTEMS IN AMAZÔNIA

In this section we provide a brief overview of off-grid power systems currently serving smaller communities in the interior of Brazil’s Amazon region30. Figure 4 shows the geographic distribution of the plants serving these smaller isolated systems. Public service plants and their capacities are listed in Appendix 10.

30

At a meeting with IFC on April 8 it was agreed to conduct a survey of existing isolated off-grid systems in Amazônia in order to provide useful background information for the Amazon Roundtable. It was emphasized from the beginning that the nature of this study component would be distinct from the assessment of the five renewable market segments presented earlier in this chapter. It is intended only as a very preliminary market reconnaissance to provide a basis for further studies which might be undertaken for the Amazon Roundtable.


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Figure 4: Isolated power plants in the Amazon region

The vast majority of isolated systems are supplied by thermal plants using diesel oil, as shown in Table 24. The only state in the region with a significant contribution from small hydro is Rondônia.

Table 24: Number of generating plants by resource

State Diesel Small/micro hydro a Wood residues TotalAcre 14 0 1 15Amapá 7 0 0 7Amazonas 72 0 0 72Pará 35 5 0 40Rondônia 14 18 0 32Roraima 73 1 1 75Total 215 24 2 241 89% 10% 1% 100%

Source: Based on information from utilities in these states. a Small hydro (PCH) includes plants from 1-30 MW. Micro hydro (CGH) less than 1,000 kW.


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Most of the isolated systems are quite small. Table 25 shows the size profile of thermal plants. Out of a total of 217 isolated systems, 85% are smaller than 5 MW. This profile is particularly interesting given the orientation received on June 17 regarding the approximate upper limit of project size that could be financed with the financial instrument most immediately contemplated by IFC.

Table 25: Profile of installed capacities of thermal plants in isolated systems

State < 1 MW 1-5 MW 5-20 MW > 20 MW TotalAcre 8 6 0 1 15Amapá 3 1 2 1 7Amazonas 20 33 16 3 72Pará 8 22 5 0 35Rondônia 6 4 4 0 14Roraima 68 6 0 0 74Total number 113 72 27 5 217Percentage 52% 33% 12% 2% 100%

The capacity factor of most isolated systems is quite low, which increases the cost of service31. Figure 5 shows the relation of system size and capacity factor for a sample of municipalities in Pará (described below). There is in fact very little correlation and the large majority of systems have capacity factors in the range of 15-30%.

31 Not only does a low capacity factor mean that fixed costs are spread over fewer kWh of output, the efficiency of diesel engines at partial load is quite low, which increases fuel costs.


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Figure 5: Capacity Factor vs Installed Capacity

Regarding the size of the isolated systems, Roraima is an interesting case. In that state 63% of the plants (47 units) have a capacity of less than 100 kW. Some are as small as 5-10 kW. This may be due to the fact that the utility supplies many villages in the Indian reservations, which is unusual. This raises an important point. The survey considers plants providing a public service, not self-generators.32 The number of self-generators may be substantially larger (and the plants usually smaller). However, systematic information on self generators in the region is not available.

Many of the smallest communities and much of the rural population in the region are not yet supplied with electricity by a public service. Providing this service is a priority of the Federal electrification program Luz para Todos (Light for Everyone). Amazônia is the most challenging region for achieving the goal of universal access given the very small size of many loads and the long distances. The dominant approach has been to extend transmission and distribution lines.

• One variant is to link small isolated systems with each other (or with a larger system, for example in the capital city), as well as extending lines to communities as yet unserved. This has been going on steadily for years, notably around Manaus, in Rondônia or in Amapá. The systems are still isolated, but there are economies of scale.

• At the southern and eastern edges of Amazônia the tendency is to link the isolated systems to the National Grid (SIN – Sistema Interconnectado Nacional). This is now occurring in southern

32 In fact a number of the plants surveyed are owned and operated by the government agency CINDACTA IV for stations providing signals for airplane navigation systems. It is not clear whether they also serve local neighborhoods.


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Marajó and much of Rondônia (which will be connected to the SIN due in part to the construction of the large hydro plants on the Madeira River).

In both cases, most of the local diesel plants are deactivated.

In addition to the survey of existing public systems serving smaller communities in the region, an initial reconnaissance was made of the possibilities of using sawmill residues in Pará (see Figure 6). Two sub-regions of Pará state were considered for preliminary review: the island Marajó and Baixo Amazonas.

• In Marajó there are 19 isolated systems with a total of 32 MW. • In Baixo Amazonas there are 12 municpalities, of which 8 have isolated systems totaling 51 MW.

The use of sawmill residues to supply power, especially when linked to cogeneration systems to provide steam for drying wood, appears to be of particular interest to the Amazon Roundtable. This approach not only substitutes for expensive diesel generation, but helps the sawmill industry add much more value locally to the wood being extracted. This can be helpful as part of a broader strategy to reduce deforestation in the region.


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Figure 6: Sawmill clusters in Pará (Baixo Amazonas Region not shown)

The number of municipalities identified in these two sub-regions with clusters of sawmills was in fact quite small – four – though a more detailed assessment might identify more. Of these, two municipalities in Marajó (Breves and Portel) are due shortly to be connected to the national grid (SIN). This does not mean that investments in cogeneration from sawmill residues are necessarily uninteresting or inviable in these municipalities, though the cost reduction would be much smaller than if they substituted for the existing diesel plants.

One consideration is the fact that these municipalities will be connected to Tucuruí by a line of at least 260 km. Under such circumstances some local generation could be helpful in maintaining the stability and reliability of the electricity supply. This is important to bear in mind when evaluating the possibilities for exploiting the considerable biomass potential in sawmill residues for electricity generation.33 Most wood processing in Pará is done in clusters which are in fact already connected to the national grid – albeit precariously at times. A similar situation seems to prevail in the north of Mato Grosso, though it was outside this survey.

33 Just in the state of Pará, officially registered wood consumption was 7.6 million m3 of which about half is residues.


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Thus, it would appear that the possible contribution of sawmill residues to diminishing the dependence on diesel use in isolated systems is rather limited, though not to be dismissed. However, their potential contribution to distributed generation in a large area of Brazil with loads spread over large distances, be they connected to the grid or not, could be substantial. Even more significant could be the benefits from stimulating the sawmill industry to increase its productivity (in terms of value added per m3 of wood processed). The high road to achieving this objective would be investment in controlled drying technology associated with cogeneration. Though many sawmills use residues to generate power in very inefficient (but low cost) plants, cogeneration associated with drying is quite rare. It is considerably more capital intensive than rudimentary generation systems without drying.

A first step has been taken by government policy towards promoting this potential. In April, 2010, the first auction of renewable energy supply for isolated systems was held. The auction was small. There were winning bids (both from sawmills) for only two sites – there was no winning bid for a third site. The prices were about BRL 149/MWh, which is very competitive with the prices expected for renewables in the August, 2010 auction for the national grid. The concept of this auction might be expanded to plants on the national grid as well, at least within the Amazon region – and require cogeneration (or very efficient generation) as a pre-requisite to compete. The reason for expanding the scope of the auctions to include plants on the grid is that the sawmill sector is very disorganized and too fragmented to compete in the broader renewable market for electricity generation. Most firms in the sector are much smaller than those in, say, the sugarcane sector, and have little tradition of optimizing energy use, selling electricity or financing energy investments with banks. Today, most would not even dream of competing with the “big boys”. Once a successful track record is established and the market is consolidated, this attitude could well change – opening a whole new (and relatively neglected) sector for energy investment. There is a parallel with the dramatic changes which have occurred in Brazil’s sugarcane sector over the past 5-6 years with regard to electricity generation.9

Sawmills are not, of course, the only possible basis for renewable energy generation to substitute for diesel – though small hydro tends to be very limited in the Amazon sedimentary basin and wind resources appear to be unpromising except along the coast. For the smallest settlements (and the hardest to reach with distribution lines), with loads of a few kilowatts, attention needs to be given to photovoltaics and micro “hydro-kinetic” plants. The latter are close to commercial and can be quite interesting for loads of 5-50 kW. No dam is required, only a small relatively fast flowing course of water.

Photovoltaics have gone almost nowhere in Brazil in recent years. Amazônia is not ideal for solar energy because of the frequent cloud cover and humidity. However, the seasonal variation of insolation is quite small, which is a significant advantage. Other more speculative approaches which use local biomass resources on a small scale and may be uneconomic elsewhere also merit attention. Examples are small gasifiers or Stirling engines. However, in all these cases someone besides a commercial financial agent must take the lead to begin to create a market. Ultimately it must be

9 A list of sawmills in the State of Pará is shown in Appendix 10


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recognized that the consumption of diesel oil receives large automatic subsidies. This has been a longstanding national policy to assist the development of the region. Until there is a concerted policy to “level the playing field”, diesel will reign supreme.


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3 INVESTMENT OPPORTUNITIES IN ENERGY EFFICIENCY

This chapter on opportunities in energy efficiency hopes to provide information on the potential of investments by local financial institutions in EE projects. The energy efficiency potential depends on several factors that need to be assessed in a more comprehensive way:

• Actual and forecast energy consumption of the targeted sectors, including public and commercial buildings (offices buildings, public schools, universities, hotels, hospitals).

• Eligible buildings to private sector financing (size and bundling potential, savings potential and acceptable pay-back period).

• Energy saving potential for each sector (technical, economical, and financial). • Analysis of the tariff structure for each sector. • The investment context including market players, policy and regulatory framework, barriers and

risks. • Available implementation options: outsourcing (including engineering firms and ESCO) or do-it-

yourself approach.

As a minimum result, the assessment of EE investment opportunities is supposed to provide the following information to investors: the segmentation of sectors, the type of EE measures, the energy and cost savings, the investments needed for each segment, the number of transactions, financial indicators on the cost-effectiveness and benefits analysis. In this study, the main challenge was to find/generate the needed data for a full and comprehensive assessment of the energy efficiency market in the different economic sectors of Brazil. Most studies have been developed from the government programs perspectives and lack factors that could justify and motivate the participation of the private banking sector and create a real market push initiative.

As an alternative, the present assessment was based on some basic assumptions listed hereafter:

• Energy consumption patterns are used as starting points for identifying relevant sectors to be focussed on while taking into account the taming of the available technologies by the market actors and the complexity of dealing in the sector. Three sectors were selected: existing public buildings, commercial buildings, and industries. Four industrial subsectors were particularly targeted; chemical, ceramics, food and beverages, and pulp and paper.

• Based on the selected sectors and available data, the end-use energy is broken down per end usage. The energy savings potential is then set on the conservative side along with a projected penetration rate for a 5-year period. The CO2 emissions reduction potential is derived from the saved energy using an emission factor.

• For each EE measure/technology, the energy savings potential as well as the penetration rate of the proposed measures for the 5 coming years is assumed on the conservative side based on the technical potential and a reasonable estimate of market acceptance.


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• The total investment is calculated based on the cost investment required to save one unit. It was further assumed that the project owners will secure only 20% of the total investment from its own equity while 80% will be sought from financial institutions.

• The energy cost savings is based on the energy price for each target sector and the energy mix used.

3.1 OVERVIEW OF EXISTING STUDIES ON EE POTENTIAL IN BRAZIL

Several energy savings potential studies have been conducted by the government, by associations and by academics using different methodologies and assumptions. However, it needs to be mentioned that none of the studies currently available in Brazil can provide a comprehensive picture of the market for all energy sources.

EPE’s Energy Savings Potential Estimate – National Energy Plan 2007 - 2030

As the National Planning Company, the EPE has published the National Energy Plan 2007-2030 (PNE) which provides an estimate of savings potential for the overall economic sectors in Brazil using different scenarios and assumptions. For all energy sources, the PNE estimated that there is an energy savings potential of 8.7% by 203034, as shown in the following table:

Table 26: Energy savings by sector (base year: 2005), reference scenario

Sector 2010 2020 2030 Agriculture 0.8% 3.3% 6.0% Commercial / public 0.6% 5.1% 5.8% Transportation 4.2% 6.9% 12.1% Industrial 2.1% 5.8% 7.9% Residential 1.2% 3.4% 4.1% TOTAL 2.5% 5.7% 8.7%

In the table, it appears that the main energy savings potential lies in transportation (12% in 2030), where the investment potential for small- and medium-scale EE projects is quite low. The energy savings potential in the industrial and commercial and public sectors is interesting too, even in short and medium terms perspective (respectively almost 6% and 5% has been forecasted by 2020).

In terms of electricity only, one of the first and probably most important electricity savings potential studies was published by EPE and defined the basis of the National Energy Plan for 2007-2030. The EPE assessment resulted in the following figures for the main market segments:

34 Source: EPE (2007), Plano Nacional de Energia 2030


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Table 27: Energy efficiency potential, by level and sector35

Sector Technical Savings Potential

Economic Savings Potential

Market Savings Potential

Industrial 20% 10% 6%Commercial and public 13% 6% 4%Residential 7% 3% 1%

EPE considered for 2030 a potential for electricity conservation of 10%, consisting of a combination of two scenarios: a) a business-as-usual scenario with a continuation of current improvement rates using existing programs and mechanisms until 2030; and b) a more aggressive change with the introduction of additional mechanisms in Brazil. This number – 10% in 2030 – guided the recent efforts from the Ministry of Mines and Energy to establish a “Strategic Energy Efficiency Plan”.

As part of the Ten-Year Power Expansion Plan 2010-2019, EPE presented the forecast of electricity savings in the residential, industrial, and commercial sectors. According to this document, Brazil will avoid the consumption of 23.3 TWh in 2019 due to energy efficiency, or more than 3% of final electricity consumption. The following table presents a breakdown of these savings, by consuming sector.

Table 28: Savings in electricity consumption (TWh) by sector36

Sector 2010 2014 2019 2019 (% of total consumption)

Residential 0.3 2.2 6.0 3.7%Industrial 1.6 4.6 9.2 2.5%Commercial 0.4 2.3 5.1 4.1%Other 0.3 1.4 3.0 3.5%Total 2.7 10.5 23.3 3.2%

The Ministry of Mines and Energy’s Useful Energy Balance (Balanço de Energia Util – BEU)

The MME published in 2005 the final energy balance including a comprehensive estimate of the energy savings potential based upon technologies available in the market. The MME’s 2005 BEU has a breakdown of the energy savings into seven different end uses. BEU results for the year 2004 are presented in the table below.

35 Source: EPE (2007), Plano Nacional de Energia 2030 – Eficiencia Energetica – The (B1) scenario. 36 Source: EPE (2010), Plano Decenal de Expansão de Energia 2019


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Table 29: Savings potential by sector and end-use (1,000 toe)37

End uses: Motor-Driven Systems

Process heat

Direct Heat Refrigeration Lighting Eletro-

chemic Total

Residential 20 48 1,818 309 773 0 2,968Commercial, Agriculture, Public 267 82 166 169 494 0 1,178Transportation 4,456 0 0 0 0 0 4,456Industrial 540 1,511 2,347 84 68 208 4,758Energy 440 490 29 0 22 0 980Total 5,723 2,131 4,359 562 1,357 208 14,340

BEU estimates, thus, a savings potential of 7.5% per year of final energy consumption in Brazil, which is way above the slow ramp up of 0.5% per year of the EPE’s 2007 electricity savings potential study.

Despite the precision of the estimates provided by the study, MME’s 2005 BEU has two main disadvantages: (i) not all the energy efficiency measures were considered equally, for instance, measures related to optimization, or “operational” measures, were left aside, (ii) the real disadvantage of the BEU is that it only considers the technical potential in the market.

Discussions on the Energy Savings Potential

Two main points can be drawn from the Government publications. First, the energy efficiency potential does not provided any information on the needed investments to tackle the estimated savings. Second, the potential of energy savings seems to low compared to what is currently observed in developing countries. One attempt to explain these values is that the payback period for the targeted projects (no cost, low cost projects) may be very short, less than 2 years as in most government interventions in EE.

The Eletrobras Procel, in partnership with the National Industry Confederation (CNI), has prepared a recent study titled “Energy Efficiency in Industry: What has been done in Brazil, opportunities for cost reduction and international experience”. The study indicates a technical potential for a reduction of 25.7% of total energy consumption can be achieved in Brazilian industry. Of all that potential, 82% is in fuel, predominantly for furnaces and boilers. The potential of electricity savings is concentrated in drive systems (motors), accounting for 14% of the total energy consumption. The value of the energy savings for the industry was estimated at BRL 6.8 billion (USD 3.4 billon) per year, just for electricity38. The study analyzed the main opportunities for energy savings in 13 selected sectors including mining (metallic and non metallic), steel, chemicals, metals, food and beverage, pulp and paper, leather, textiles, automotive, ceramic, casting, etc.

37 Source: MME (2005), Balanco de Energia Util 2005 38 CNI. 2009. eficiência energética na indústria: o que foi feito no Brasil, oportunidades de redução de custos e experiência internacional. Electrobars PROCEL Industry.


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In the same vein, the technical energy savings potential in the public and commercial sector found in various literature and from Econoler’s experience is much higher. For existing buildings, the technical savings potential varies from 20% to 50% using commercially available technologies. Work from the Energy Efficiency in Buildings Laboratory of the Federal University of Santa Catarina concluded that savings potential of 22% to 40% in two buildings of about 10,000 m² of floor area for lighting and air conditioning systems were possible. The payback was too long, ranging from 4 to 8 years, due to the cost of technologies in 1998. Today, the payback would certainly fall to around 1-4 years39.

3.2 INVESTMENT OPPORTUNITIES IN COMMERCIAL AND PUBLIC BUILDINGS

The commercial sector in Brazil encompasses more than 1.6 million companies, of which 1.3 million are retail enterprises, and employ 8.4 million people. Compared to 2006, the number of employees increased by 11% and operating income, by 16% (IBGE data).

3.2.1 Energy Consumption Profile in Public and Commercial Buildings

In 200640, the total energy consumption in the commercial sector was estimated to be about 18 TWh, including 84% in the form of electricity, 8% petroleum products (diesel oil, fuel oil, liquified petroleum gas) and 5% natural gas.

The commercial sector includes the following:

• Hotels and restaurants • Hospitals • Financial institutions’ buildings and other office buildings • Wholesale trade of food products, beverages and tobacco and personal articles • Wholesale trade of personal articles; • Retail trade - supermarkets and hypermarkets, and specialized stores.

Public buildings are defined as the Federal, state and local government office premises. According to the MEE data of 200641, these buildings consumed an equivalent of 40 TWh from all energy sources in 2006; predominantly electricity (82%) as in most buildings.

The breakdown by usage is presented below:

39 Lamberts, R., Westphal, F. Energy Efficiency in Buildings in Brazil, Energy Efficiency in Buildings Laboratory - Federal University of Santa Catarina 40 Source: MME (2006), Brazilian Energy Balance 2006 41 Source: MME (2006), Brazilian Energy Balance 2006


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Table 30: Energy Breakdown per End Usage in Commercial and Public Buildings

Commercial Buildings Public Buildings End Usage Electricity

(GWh) Oil

products and gas (GWh)

Total (GWh)

Electricity (GWh)

Oil products and gas (GWh)

Total (GWh)

Driving force (motors) 8,064 - 8,064 9,222 - 9,222 Cooling and AC 18,392 - 18,392 5,950 - 5,950

Lighting 23,087 23,087 16,428 - 16,428 Process and space

heating 4,639 8,584 13,223 826 7,098 7,925

Other 1,049 - 1,049 661 - 661 Total 55,232 8,584 63,816 33,088 7,098 40, 186

In the commercial buildings, it is worth noting that the share of the total energy consumption per sub segments is as follows:

Commercial & financial buildings

24.6% Other (ports, hospitals, etc)

26.4%

Communication & transport

9.2%

Hotels and restaurants

13.4% Wholesale & retail

26.4%

Figure 7: Energy Share in the Commercial Sector


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3.2.2 Energy Savings Opportunities and Characteristics of Typical Projects

The first step in identifying the energy savings opportunities is to focus on end-use with the largest energy consumption share.

Table 31: Energy Consumption per Usage in Public and Commercial Buildings

End Usage Commercial Buildings Public Buildings Driving force (motors) 14.6% 27.9% Air conditioning and refrigeration systems 33.3% 18.0%

Lighting 41.8% 49.7% Heating 8.4% 2.5% Other 1.9% 2.0%

The percentage of energy use per end usage is indicated in the above table which calls for the following remarks and conclusions: i) space cooling and lighting systems represent by far the most electricity end use in both commercial and public building, ii) driving force systems which include all systems with separate motors (pumps, fans for air handling system, elevators) are also a significant energy consumption usage. In both commercial and public buildings, the main use of electricity is lighting with 41.8% and 49.7% of the total electric energy consumption respectively. Air conditioning and refrigeration rank second in the commercial buildings with one third of the total electricity consumption split as almost 20% for air conditioning and 13% for refrigeration. Motor systems consume one quarter of the electricity, while heating systems (hot water, laundry) represent a not negligible 8.4% of the electric energy consumption in these buildings. In public buildings, air conditioning represents 18% of the total electricity consumed behind motor systems with almost 28% of the electricity consumption.

Based on the above conclusions, the following energy savings measures/technologies have been focused on reducing the energy requirements of motor systems, air cooling and refrigeration systems (chillers, cooling towers, and refrigeration), lighting systems and domestic hot water mainly included in heating.


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The proposed EE measures and technologies are the following:

EE Opportunities Description

Efficient lighting systems

The main energy conservation measures are: • De-lamping to comply with standards, but not more. • Change lamps to more energy-efficient alternatives (incandescent to

CFL, 40WT12 to 32WT8 or T5 fluorescent lamps with electronic ballasts, LED based lighting, etc.).

• Changing fixtures to reflective fixtures with greater performance. • Control systems using scheduling, dimming, as well as presence

and/or light sensors. In this segment, the FI would have to do business with the technical directors of all sorts of public organizations and institutions, and/or third party project developers. This market segment is generally fertile ground for ESPC projects.

Efficient air conditioning and refrigeration systems

The energy conservation measures in buildings air conditioning and refrigeration systems are too many to be all listed here, but the main investments are going to be:

• Replacement of inefficient compressors. • Retrofits of condensing systems (including cooling towers and

evaporative condensers). • Replacement of existing chillers by more energy-efficient alternatives. • Installation of premium or high efficiency motors on pumps and

blowers. • Various control modifications on centralized systems, such as

conversion to variable volume ventilation systems, use of free cooling and installation of local electronic temperature sensors.

• Replacement of inefficient portable air conditioning systems by energy-efficient window units or split systems.

• Replacement of localized air conditioning units by a centralized system.

Measures are often bundled to make a viable project. Project size will be between USD 50,000 and USD 1 million. The typical simple payback period for these measures is usually 2 to 5 years. In this segment, the FI would have to do business with the school or hospital technical directors, and/or third party project developers. This market segment is generally fertile ground for ESPC projects.

Efficient motors and driving systems

This measure consists of retrofitting existing motors and driving systems using variable speed drives in systems with variable loads and premium motors with higher efficiency and in elevators, pumping systems, water circulating system, fans for ventilation and air handling systems, correctly sizing motors and pumps as well as pipes and ducts. Depending on the type of the motors, this measure can result in significant energy savings and is easy to implement.


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Solar water heating Solar energy for water heating is a technically and economically attractive opportunity for the Brazilian commercial and institutional sector. Solar panels, tanks, and the required plumbing job are implemented on the roof of the commercial or institutional facilities to use the energy of the sun to heat domestic water. Typically, 40% to 70% of the domestic water can be heated by using Solar Water Heating (SWH). SWH is more cost-effective when and where there is more demand for domestic hot water. The FIs would have to do business with real estate investors and property managers.

Control systems and energy management

Energy management combined with a building management system with central control of the lighting and the air conditioning system is among best practices for continuous energy savings. Typically, this measure may accompany all other measures to ensure the sustainability of the implemented measures.

It is worth noting that other EE measures in buildings could include efficient windows, insulation and absorption systems for the cooling and refrigeration systems.

3.2.3 EE Investment Potential in Public and Commercial Buildings

The following two tables summarize the investment requirements for EE projects to be implemented in the commercial buildings and public building based on the aforementioned assumptions.


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Table 32: EE Investments Estimate in Commercial Buildings

Efficient Lighting

Air conditioning

&Refrigeration

Solar Water

Heating

Driving Systems42

Control and energy

management

Total

Energy Savings Potential Total EE potential (GWh/y)

4,617 3,678 2,645 1,210 1,276 13,426

Technico Economical Savings Potential - 5 years (GWh/y)

1,847 920 661 302 319 4,049

CO2 emissions reduction in tCO2

340,209 169,392 121,789 55,701 58,775 745,867

Investment requirements Investment cost for reduced unit (USD/MWh)

$ 70 $ 240 $ 340 $ 160 $ 75 $ 160

Investment requirements (USD Million)

$ 129 $ 221 $ 225 $ 48 $ 24 $ 647

Typical size of potential projects (USD Million)

-- -- -- -- -- $0.05 - $5

Number of transactions over period

-- -- -- -- -- 324

Financial Aspects Energy Cost Savings (USD Million/year)

$ 149 $ 74 $ 53 $ 24 $ 26 $ 326

Payback (years) 0.9 3.0 4.2 2.0 0.9 2.0 Carbon revenues in USD Million (at USD 12/tCO2)

$ 4.1 $ 2.0 $ 1.5 $ 0.7 $ 0.7 $ 9.0

Foreseen equity (USD Million)

$ 26 $ 44 $ 45 $ 10 $ 5 $ 129.4

Financing need (USD Million)

$103 $177 $180 $39 $19 $518

The investment estimate for commercial buildings suggests the following conclusions:

• Investment requirements. It has been estimated that a total of USD 647 million is required to save about 4,000 GWh per year or 6.4% of the total energy consumed in commercial buildings over a 5-year period. Based on a debt ratio of 80%, the financing needed from the banks amounts to USD 518 million. Taken by technology, the major projects will be structured around lighting projects, improvements of air conditioning systems and water heating. The investment in water heating systems seems big because of the assumed high investment cost per reduced unit. Measures such as energy management, automation, and building management systems should not be stand-alone projects, at least from bank financing.

42 Driving systems include all electric motor-driven equipment and related devices, including electric motors, fans, pumps, variable speed drives (VSD), etc.


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• Number of transactions. The required investment represents a total of 324 financial transactions, if a total project cost of USD 2 million is assumed per transaction for a packaged project involving several EE measures. It is more likely that projects will target specific end-usage and EE measures. That is to say the number of transactions will be much larger than the value shown here. Depending on the nature of the measures and partial or complete retrofits, a typical projects cost may range from USD 50,000 to USD 5,000,000, but banks may not be willing to invest in projects with an investment requirement of less than USD 200,000 because of higher transaction costs. Strategies for banks to reduce transaction costs include the focus on projects with high investment requirements, project bundling and EE programs.

From the building sub-segments angle, it is important to note that the EE measures to invest in will depend upon the energy consumption profile. For example, hot water systems are more precious in hotels than in office buildings and retail stores.

• Benefits for end-users. From the end users’ perspectives, the total energy cost savings are estimated at USD 326 million per year with an overall payback of about 2.0 years. Depending on the type of project, the payback will vary from 1 year (or less) to 5 years. In terms of GHG emission reduction, about 745,000 tCO2 will be avoided from the national grid which has a very low emission factor due to the predominance of hydropower. The sale of the carbon reduction will earn a total of USD 9.0 million per year (USD 90 million for a CDM crediting period of 10 years). The main challenge from CDM registration will rely on the demonstration of additionality and monitoring requirements which are more difficult for EE projects that RE projects.


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Table 33: EE Investments Estimate in Public Buildings Efficient

Lighting Air

conditioning &Refrigeration

Solar Water

Heating

Driving Systems43

Control and energy

management

Total

Energy Savings Potential Total EE potential (GWh/y)

4,107 1,190 792 1,383 804 8,277

Technico Economical Savings Potential - 5 years (GWh/y)

821 178 158 208 121 1,486

CO2 emissions reduction in tCO2

151,306 32,879 29,194 38,222 22,207 273,808

Investment requirements Investment cost for reduced unit (USD/MWh)

$70 $240 $340 $160 $50 $130

Investment requirements (USD Million)

$57 $43 $54 $33 $6 $193

Typical size of potential project (USD Million)

-- -- -- -- -- $0.05 - $3

Number of transactions over period

-- -- -- -- -- 193

Financial Aspects Energy Cost Savings (USD Million/year)

$66 $14 $13 $17 $10 $120

Payback (years) 0.9 3.0 4.2 2.0 0.6 1.6 Carbon revenues in USD Million (at USD 12/tCO2)

$ 1.8 $ 0.4 $ 0.4 $ 0.5 $ 0.3 $ 3.3

Foreseen equity (USD Million)

$11 $9 $11 $7 $1 $39

Financing need (USD Million)

$46 $34 $43 $27 $5 $155

As with commercial buildings, the following comments could be made on the investment requirements in public buildings:

• Investment requirements. . A total of USD 193 million has to be invested in public buildings to save about 1,500 GWh per year or 3.7% of the total energy consumed in public buildings per year over a 5-year period. The financing needed from the banks amounts to USD 155 million when a debt ratio of 80% is used. Taken by technology, the major projects will be structured around lighting projects, improvements of air conditioning systems and water heating. The implementation of control systems and energy management should be associated with other measures, particularly lighting systems and air conditioning systems.

• Number of transactions. The required investment represents a total of 193 financial transactions, if a total project cost of USD 1 million is assumed per transaction for a packaged project involving several EE measures. It is more likely that projects will target specific end-

43 Driving systems include all electric motor-driven equipment and related devices, including electric motors, fans, pumps, variable speed drives (VSD), etc.


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usage and EE measures. That is to say the number of transactions will be much larger than the value shown. Depending on the nature of the measures and partial or complete retrofits, a typical projects cost may range from USD 50,000 to USD 3,000,000, but banks may not be willing to invest in projects with an investment requirement of less than USD 200,000 because of higher transaction costs. Strategies for banks to reduce transaction costs include focusing on projects with high investment requirements, project bundling and EE programs.

• Benefits for end-users. From the end users’ perspectives, the total energy cost saving is estimated at USD 120 million per year with an overall payback of about 2 years. Depending on the type of project, the payback will vary from 1 year (or less) to 5 years. In terms of GHG emissions reduction, almost 275,000 tCO2 will be avoided from the national grid which has a very low emission factor due to the predominance of hydropower. The sale of the carbon reduction will earn a total of USD 3.3 million per year (USD 33 million for a CDM crediting period of 10 years).

3.2.4 Stakeholders Analysis

The key market players in EE in commercial and public buildings include public institutions and programs, industry associations, equipment and technology suppliers, and service providers. Most of the key government institutions and programs have been outlined in Section 1.2. The other main players are discussed in the following table.

Table 34: Key Market Players in Building Sector

Key market players Description/Role Interaction with IFC initiatives The Department of National Solar Heating ABRAVA (DASOL) (http://www.dasolabrava.org.br)

DASOL's mission is to develop sustainable applications for solar heating through the creation of best practices in the industry, encouraging research and development, supporting the establishment of public policies and financial incentives, as well as through the removal of key barriers to the growth of this technology in Brazil.

Monitoring of policies on solar heating systems.

INMETRO’s Labeling Program (Programa Brasileiro de Etiquetagem, PBE)

This program aims to provide consumers with information to enable them to evaluate and optimize the energy consumption of electrical appliances, choose products with higher efficiency and better use appliances, thus enabling cost energy savings (PBE, 2010).

It will be important to monitor all national labels (PROCEL endorsement label for higher energy efficient appliances and INMETRO comparative label) and standards in the building sector. A variety of EE products to be offered by banks could build on the label and standards.


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Key market players Description/Role Interaction with IFC initiatives The Solar Cities initiative (Cidades solares)

"Solar Cities" is a partnership between NGOs and socio DASOL/ABRAVA, whose goal is to mobilize Brazilian society toward taking environmental and social advantages of decentralized energy generation, mainly from solar heating. This partnership prepared a report on public policies to promote the use of solar heating systems in Brazil.

Monitoring of policies on solar heating systems.

ABRASCE – Associação Brasileira de Shopping Centers (Brazilian Association of Shopping Centers, www.portaldoshopping.com.br)

Association of the main shopping center networks in Brazil. Its mission includes: identify and certify shopping centers in accordance with international standards, disseminate information, knowledge and best practices, and reward excellence. Create and develop a business network for developing new markets.

Marketing channel for project identification and implementation

ABRAS – Associação Brasileira de Supermercados (Brazilian Association of Supermarkets, www.abrasnet.com.br)

Association of leading supermarket chains in Brazil. Its mission is to represent the supermarket sector to the society and government institutions.


ABADI - Associação Brasileira de Administradores de Imóveis (Brazilian Association of Real Estate Management, www.abadi.com.br)

Association that brings together real estate management companies, including commercial building management companies. Its mission is mainly to represent such companies, adding value to this activity and disseminating knowledge and ethical values.


ABIH (Associação Brasileira da Indústria de Hotéis)

ABIH is the association of the Brazilian hotel industry. This market segment is most important for water heating, air-conditioning and lighting systems.


Government Programs (PROCEL and CONPET)

As presented in Section 1.3, PROCEL and CONPET are government initiatives for electricity and fuel conservation. PROCEL has resulted in many success stories particularly in the marketing of technical capacity buildings in EE.

In the particular case of private sector investment in public building, it will be critical to lean on a government program to facilitate the intervention. Private sector intervention in public buildings can only be through a public-private partnership to overcome barriers related to public regulations.


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Key market players Description/Role Interaction with IFC initiatives BNDES’ PROESCO At its creation, PROESCO was announced

as a major initiative to address the financing needs that could urge private firms to invest in EE projects. The very low uptake, if not the total failure, astonished everyone. However, the assessment of the reasons for such failure will be a very useful lesson learned for future initiatives.

The PROESCO case suggests the following comments. PROESCO is a good financing mechanism to boost the ESCO market. However, the operation of PROESCO may lack some dynamism and orientation towards the actual market needs instead of trying to get the market to adapt to PROESCO. There is no clear management team for PROESCO and its functioning is a replication of BNDES’ current rules. The lFC and local banks EE program should be adapted to the market structure (small ESCO, small projects when taken as a piece), need for a management team with technical knowledge of EE, etc. The PROESCO fund can be used by the local bank. They need to be accredited as partners. However, arrangements should be found with BNDES to avoid the same ineffective rules and bureaucracy.

Associação Brasileira das Empresas de Serviços de Conservação de Energia (ABESCO)

ABESCO is the Brazilian ESCO association with about 50 associated members. ABESCO is very active in promoting EE business in Brazil. It has a cooperation agreement with PROCEL and PROESCO as well as with other EE programs in Brazil.

ABESCO is an important partner for marketing banks’ products among the ESCO and the professionals. ABESCO can also advise on the kind of products needed to boost the ESCO market.

Petrobas and other utilities As part of the ANEEL’s Energy Efficiency Program, utilities have implemented energy efficiency projects using the wire charge. Some utilities have created ESCO, like Light ESCO to implement EE projects in their clients’ premises. Petrobras’ EE program works along the same lines.

Involving utilities in EE project implementation can facilitate reimbursement mechanisms, particularly when the project repayment is based on energy saved (ESCO model). Banks may have utilities as project partners. Moreover, bank intervention can help the relationship between the utilities and their clients and invest in their project portfolio.

IDB/GEF EEGM Energy efficiency guarantee mechanism to facilitate lending to ESCO

The fund has to be approached to initiate a partnership and make the necessary arrangements for the ESCO market in other segments.


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For reference, several cooling system and solar water heater providers are to be found in Appendix 1 and Appendix 2.

3.2.5 Barriers and Risks

Energy efficiency in general, faces a number of barriers that can be found everywhere, in developing countries, but also in developed countries. The differentiation is how these barriers could influence the stakeholders’ interventions. From the Brazilian financing institutions investment in EE view point, the following barriers are to be considered:

Institutional and cultural barriers

• The building managers are unable to implement EE projects because of various operation rules. There are no energy management practices and no accountability for the energy cost paid.

• Besides, the public regulatory framework has not been streamlined for ESPC yet. It should be unclogged before financing starts to be offered.

• IN THE BRAZILIAN PUBLIC SECTOR: Financial institutions and ESCOs have been very reluctant to invest directly in energy efficiency projects in the public sector44. This perceived risk can be explained by institutional barriers. There are difficulties with tendering and contracting EE projects in the public sector. Contracts with the public sector in Brazil are regulated by public tendering processes which are usually slow and very bureaucratic (Law 8666). There are also risks in multi-year projects and the budgeting process of public entities45.

• Issues with the regulation of the wire charge scheme which led to an inefficient use of ratepayers money by financing each energy efficiency investment with 100% of ratepayers money (leaving virtually no space for other sorts of financing in the mix).

Consequently, in the short term, almost all opportunities for commercial financing in the public sectors are inaccessible. There is not much that Brazilian financial institutions can do to by-pass or mitigate these institutional barriers, which are generally regarded as being very difficult to resolve. It is up to the policymakers and those who write and oversee the public procurement rules in Brazil to tackle these problems. One way is to work directly with government programs like PROCEL and CONPET to establish a framework for commercial financing.

44 There have only been two projects performed by ESCOs under publically tendered ESPC contracts. In neither case was a financial institution involved. 45 Nexant 2004 Nexant Ltda: Contratos de Desempenho para Serviços de Eficiência Energética no Setor Público do Brasil: Questões Jurídicas e Possíveis Soluções; report for the U.S. Agency for International Development and Brazil’s Ministry of Mines and Energy, Brasília DF, 2004


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Informational barriers

• The managers are not aware of EE opportunities and benefits. They might not figure out the positive impacts of EE projects as energy savings are immaterial and the measurement and verification is a challenge.

• Performance contracting is still unfamiliar in Brazil. • Energy end-users as well as local financial institutions are not familiar with the existing energy

valuation standardized concepts and methodological approaches. • IN THE BRAZILIAN PUBLIC SECTOR: Limitations on the ability of most public sector organs to

identify and develop projects, as well as incentives for them to do so. • The local financial institutions have difficulties in assessing the technical nature of energy

efficiency projects.

Any EE financing program in Brazil should include a strong technical assistance to continue awareness raising activities, capacity building and knowledge transfer to the local FIs. The necessary tools including the Measurement and Verification (M&V) plan (working with ABESCO), project evaluation criteria (for banks), financial proposals preparation (for end-users, ESCO, consultants and engineering firms) have to be developed or adapted.

Technical barriers

There are few major technical or technological barriers or risks in EE projects as most technologies are well known and there are skilled human resources to diffuse the technologies. The relatively large investments in energy efficiency due to the wire charge during the last decade had the important result of creating a pool of relatively qualified human resources and engineering companies in Brazil. The PROCEL and ANEEL’s EE programs have created a qualified niche of professionals.

However, the ESCO market as promoted till now has to prove and confirm its maturity on the technical and project management side using performance contracting.

Market barriers

Most end-users have a budgetary disconnect between capital projects and operating expenses (energy and maintenance) if they do not consider energy costs as a non manageable fixed expenses. Low-investment cost is mostly considered when the decision has to be taken to change equipment. This observation also applies to banks intervention where the emphasis is put on capital projects rather than in operation cost reduction projects.

Another noticeable feature of the market is the small size of EE projects, at least those presented by private service providers like ESCOs. An option for banks is to work in this field on a programmatic basis or through project bundling.


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A discussion has to be conducted on how local banks can customize a special product for EE financing. Learning from PROESCO, the operation of such products and the marketing approach have to be designed properly to address issues like heavy bureaucracy, lack of a management team, lack of adapted evaluation criteria, nature of collaterals, etc.

Financial barriers

• Low creditworthiness of many energy end-users for direct loan. • Brazilian ESCOs are not willing to take technical risks – the savings not being achieved by the

project that they implement – which greatly limits the development of energy services performance contracts.

• With BNDES, the interest rate spread available to the financial intermediaries (i.e., the commercial banks) is very small (especially by Brazilian standards).

• Typically, FIs do not accept the EPC as collateral (at least not the way EPCs are written now in Brazil). The ESCOs are too small to be able to provide any other interesting collateral for financial institutions. BNDES is not allowed, except on an exceptional basis, to finance the acquisition of foreign equipment, which is often used by ESCOs for EE projects.

• IN THE BRAZILIAN PUBLIC SECTOR: Limits on public sector lending has restricted states and municipalities access to credit.

3.3 INVESTMENT OPPORTUNITIES IN INDUSTRIAL SECTOR

According to the IBGE46, the Brazilian industrial sector is made up of a total of approximately 160,000 enterprises, employing 7.3 million workers. In 2008, the value added by industry accounted for 25% of the Brazilian total, corresponding to almost USD 400 billion.

3.3.1 Energy Consumption Profile in Industries

In energy terms, the industry in Brazil represents 40% of total final consumption, and electricity is approximately 45% of this amount. The following graphic presents the energy balance of industries in Brazil, as per the main industrial sectors and regardless of energy sources:

46 Annual Industrial Survey - Company, 2007 edition


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PAPER AND PULP10%

CERAMICS5%

MINING / PELLETIZATION

4%

NON-FERROUS AND OTHER METALS

7%

PIG-IRON AND STEEL22%

FOODS AND BEVERAGE

26%

OTHER INDUSTRIES8%

CHEMICAL10%

CEMENT4%

TEXTILES2%

FERRO-ALLOYS2%76 757 ktoe (2006)

Figure 8: Energy balance per industrial sector (2006)47

In accordance with the data shown so far and with the analysis conducted on the Brazilian industrial market, four key sectors have been identified for investment in energy efficiency due to their high respective energy savings potential and to the size and number of possible transactions. These industrial sectors are as follows:

i) Food and Beverage ii) Pulp and Paper iii) Chemical Industry iv) Ceramics

The total energy consumption of these four industries accounts for more than 50% of the total energy consumption of the Brazilian industrial sector46, including almost 35% of the overall industrial electricity consumption and nearly 45% of the industrial fossil fuel and natural gas consumption. The following sections provide more details on the specificities of each target industrial sector.

Food and Beverage

According to the 2008 annual report of the Associação Brasileira da Indútria de Alimentos (ABIA), the national income of the Brazilian food industry totaled BRL 270 billion in 2008 (approximately USD 150 billion), which represents an increase of 16% compared to the previous year48. That year,

47 Brazilian Energy Balance, EPE, 2006 data. 48 ABIA, Anuário ABIA 2009, http://www.abia.org.br/


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38,000 food companies employed 1.4 million people. Most of the companies are small ones (85%), with less than 19 employees; only 0.9% of them have more than 500 employees. The main food sector is food processing, followed by coffee, tea, cereals, oil and grease products. Noteworthy is that while oil and grease, coffee, tea and cereals sectors recorded large growth (more than 20%), the sugar sector recorded the lowest growth rate of the Brazilian food industry.

With regards to the beverage industry, the Associação Brasileira de Bebidas (ABRABE) states that the main alcoholic beverages produced are beer (88.8%) and a local product called cachaça (6.6%)49. It is worth noting that Brazil is also a large producer of various sodas, mineral water and orange, lemon, and grape juices50.

While more than one quarter of the total energy consumption of the Brazilian industrial sector is related to food and beverage processing activities, said industrial sector presents a high potential for investment in energy conservation projects. And considering that most of the food companies are small ones, there is an opportunity for developing a programmatic approach to energy efficiency projects. By bundling several small energy efficiency initiatives in the food and beverage sector, the program would amount to a viable investment opportunity. On the other hand, ABIA’s 2008 annual report shows that there are more than 1,500 food companies with more than 100 employees, where energy conservation projects could be developed without bundling with other companies.

The main energy sources of food and beverage industries are sugarcane bagasse (slightly more than 75%), electricity and firewood (which both account for almost 10% of total energy consumption). Consequently, the EE measures with the highest energy savings potential are those related to boilers, dryers, motor-driven equipment and refrigeration systems.

Paper and Pulp

In 2009, there were 220 pulp and paper companies, spread across 450 municipalities throughout the country51. That year, this industry accounted for 14.4% of the Brazilian Trade Balance, i.e. approximately USD 3.7 billion. In the last ten years, the total investments in this sector are estimated to be USD 12 billion. Currently, almost 115,000 jobs are directly related to forestry and pulp and paper; it is also estimated that half a million jobs would be indirectly related to this industry. The average annual growth is currently estimated at 7.5% for pulp production and 5.7% for paper production.

Regarding the pulp processing, most companies produce chemical and semi-chemical pulps. In fact, mechanical pulps and other high performance pulp products account for less than 1.5% of total income related to pulp production. Almost 95% of the chemical and semi-chemical pulps are

49 ABRABE, http://www.abrabe.org.br/mercado.php 50 http://www.brazilbrand.com/brazil_industry_import_export_food_beverages.htm 51 BRACELPA, Pulp and Paper Industry Performance, June 2010, http://www.bracelpa.org.br/eng/estatisticas/pdf/booklet/booklet.pdf


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processed in the States of Espírito Santo (28%), São Paulo (23%), Bahia (18%), Minas Gerais (14%) and Rio Grande do Sul (11%).

The paper industry is mainly located in the southern part of the country. In fact, almost 75% of national paper production activities come from the states of São Paulo (53%) and Paraná (20%). As per the next figure, the main uses of the paper produced are packing and printing and writing in terms of tons of paper produced:

Packing46% Printing and

Writing26%

Special Purposes

5%

Sanitary Purposes

11%Paperboard

12%

Figure 9: Breakdown of paper production in Brazil

The main energy sources used in the pulp and paper industries are fossil fuels (mainly black liquor), biomass (firewood and other wastes), and electricity. The main energy end-uses are process heating, pumps, fans and processing equipment.

Chemical Industry

After the food & beverage and the energy production sectors, the chemical industry is the third most important transformation activity in Brazil in terms of GDP52. The chemical industry is largely dominated by manufacturers of industrial chemical products, whose net sales represent 48% of the total sales of this market sector53. As shown in the next figure, pharmaceuticals, perfumes and cosmetics, as well as fertilizers, are the other main chemical segments in Brazil:

52 IBGE - PIA Companies, 2007 data. 53 ABIQUIM, A indústria química brasileira, http://www.abiquim.org.br/


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Pharma$15.9

Perfumes and cosmetics

$11.6

Crop protection$6.3

Soaps and detergents

$6.1

Industrial chemicals$48.3Fertilizers

$9.8

Others$1.5

Fibers$1.0

Paints and varnishes$6.1

* Estimated Ethanol not includedSources: Abiquim and Sectoral Trade Associations

Total USD 106.6 billion

Figure 10: Main segments in Brazilian chemical industry

More than 1,000 chemical plants are operating in Brazil. They are mainly located in the Southeast Region (751 plants, including 602 plants in the State of São Paulo). The South Region (167 plants well-distributed over all three states) and the Northeast Region (116 plants, mostly located in the State of Bahia) are the other areas where most of the chemical producers are based.

With regards to energy consumption, it is worth noting that the main energy sources are petroleum products (41%) and natural gas (30%). Electricity accounts for only 25% of total energy consumption. Therefore, the main energy savings potential lies in retrofitting boilers and furnaces, and optimizing steam networks.

Ceramics

According to the Brazilian Association of Ceramic Tile Manufacturers (ANFACER)54, the ceramic tiles sector encompasses nearly 100 companies, which operate 117 plants located in 18 states throughout the country. Most of the plants are located in the South and Southeast regions, especially in the states of São Paulo and Santa Catarina. This industrial activity is nevertheless growing fast in the Northeast region of Brazil.

In terms of employment, it is estimated that roughly 25,000 people work directly for this industry, while approximately 200,000 jobs would be indirectly related to ceramic activities. From a global point of view, Brazil ranks second in both ceramic production and consumption, with more than 700 million square meters produced in 2008.

54 ANFACER, Panorama Overview 2009, http://www.brasilceramictiles.com/


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With regards to energy consumption, the main energy sources used are firewood and natural gas; they account for 75% of the overall energy consumed by this industry. While the ceramic production process requires a lot of heat, electricity is less than 8% of the energy balance.


The first step for identifying the energy savings opportunities is to focus on end-uses with the largest energy consumption share. The following table presents the energy balance in the four industrial segments identified as having the best investment potential for energy conservation initiatives:

Table 35: Breakdown per energy source in Brazilian industries55

Industrial Segments Biomass Coal Electricity Fossil fuels Natural gas Ceramics 50.8% 1.2% 7.8% 14.7% 25.5% Chemical 2.3% 0.9% 25.5% 41.0% 30.4% Food and Beverage 84.8% 0.2% 9.2% 3.1% 2.8% Pulp and Paper 24.3% 1.0% 16.6% 51.1% 7.0% TOTAL 53.7% 0.6% 13.7% 21.2% 10.9%

According to the above table, biomass (mainly firewood in all sectors and sugarcane bagasse in food and beverage) is the largest energy source used. The best energy efficiency measure to reduce the consumption of biomass is the implementation of a cogeneration plant, especially in the food and beverage, ceramics, and pulp and paper industries. Section 3.4 is fully dedicated to the assessment of cogeneration potential in the Brazilian industrial sector.

In the four targeted industrial sectors, fossil fuels (e.g. fuel oil and black liquor) and natural gas are mostly used for process heating. Consequently, the largest energy savings potential for these energy sources lies in retrofitting and optimizing furnaces, dryers, boilers, and steam networks. On the other hand, electricity is used for various purposes, depending on the processes and requirements of each industrial segment as shown in the table below56:

Table 36: Energy balance per end usage in four Brazilian industries

Industrial Segments Pumps Fans Compressed

air system Refrigeration Handling and

process equipment

Process and direct

heating Lighting Other

Ceramics 18% 12% 14% 0% 38% 6% 3% 9% Chemical 21% 9% 22% 2% 20% 4% 3% 20% Food and Beverage 14% 7% 7% 14% 28% 13% 4% 14% Pulp and Paper 29% 18% 4% 1% 26% 3% 1% 19% TOTAL 20% 11% 12% 6% 25% 7% 3% 17%

55 Brazilian Energy Balance, EPE, 2006 data. 56 Source: EPE (2007), Plano Nacional de Energia 2030


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According to the above table, equipment driven by electric motors, such as pumps, fans, compressors, and handling systems, accounts for most of the electricity consumption (73%). Well-known energy efficiency measures can be implemented on most of those systems, except for the handling and process equipment. In fact, said equipment is used for very varied purposes and it would be difficult to estimate their energy savings potential. Moreover, some of them are directly related to the process line and could have an impact on production.

Based on the above discussion, the following energy savings measures and technologies have been focused on reducing the energy requirements of furnaces and boilers, pumps and fans, motors, refrigeration systems (chillers, cooling towers, refrigeration), and lighting systems.

The proposed EE measures and technologies are described as follows:


Energy efficiency measures on furnaces, boilers, and steam networks

The main energy conservation measures are: • Replacement of boilers and furnaces by more energy-efficient

alternatives. • Installation of economizers, heat exchangers, flash steam recovery

systems, etc. • Fine-tuning of the controls in the furnace or boiler room. • Optimization of heat or steam distribution systems. • Retrofitting and installing insulation material on furnaces, boilers, hot

water tanks, and steam pipes. Energy savings potential to be generated by furnace, boiler and steam system optimization was estimated at 25% in Brazilian industries, but could be as high as 40% on old and poorly maintained systems. For instance, heat recovery measures, such as the installation of an economizer or flash steam recovery system, could reduce the energy consumption of the boiler by 10% to 30%.

Efficient motors and driving systems

This measure consists of retrofitting existing motors and driving systems using variable speed drives in systems with variable loads and premium motors with higher efficiency and in elevators, pumping systems, water circulating systems, fans for ventilation and air handling system, correctly sizing motors and pumps as well as pipes and ducts. Depending on the type of the motors, this measure can result in significant energy savings and is easy to implement. In terms of electricity, pumps and fans in Brazilian industries account for 32% of total consumption. This percentage rises to 39% when only the four targeted industrial sectors are considered.


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Energy efficiency measures on compressed air systems

Typical energy conservation measures in compressed air systems are: • Replacement of the air compressor(s) by others that are more energy

efficient • Optimization of controls and receiver tank in the mechanical room • Leak reduction campaigns • Compressed air distribution system optimization • Use of the compressors’ dissipated heat.

The overall efficiency of a compressed air system is usually 5 to 10%. There are heat losses on each main component of the system, including motor, compressor, cooler, dryer and filter. Moreover, air leaks on poorly maintained networks could cause as high as 20 to 30% of energy losses in air capacity and power57. In Brazilian industries, the electricity consumption of compressed air systems amounts to approximately 15%58 of total consumption; this percentage remains the same when only the four target industrial sectors are taken into account.

Efficient lighting systems

The electricity savings potential from lighting system is very low compared to that on other systems such as pumping, fans and compressed air systems. However, EE measures for lighting systems could easily be included in a bigger energy efficiency project and hence generate low-risk energy savings with small incremental costs. The main energy conservation measures are:

• De-lamping to comply with standards, but not more. • Change lamps to more energy-efficient alternatives (incandescent to

CFL, 40WT12 to 32WT8 or T5 fluorescent lamps with electronic ballasts, LED based lighting, etc.).

• Changing fixtures to reflective fixtures with greater performance. • Control systems using scheduling, dimming, as well as presence

and/or light sensors. Control systems and energy management

The implementation of an energy and electric demand control system could allow facility managers to perform Monitoring and Targeting (M&T), which helps to assess energy use and related costs. Energy management systems support the manager’s decision-making process toward reducing energy costs through improved energy efficiency and energy management control. Typically, this measure is part of a project with several other measures to ensure the sustainability of the project’s implementation.

In addition to the EE measures presented in the last table, the implementation of a cogeneration plant is another energy conservation project in the industrial sector whose potential energy savings could be

57 US Department of Energy, Improving Compressed Air System Performance, 2003 58 Brazilian Energy Balance, EPE, 2006 data.


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very high. While such projects require high investment, cogeneration opportunities in Brazilian industries are presented in a separate section (refer to 3.4).

For reference, the National Industry Confederation (CNI – Confederação Nacional da Indústria) estimated the energy efficiency potential to be about 25% of final consumption in the Brazilian industrial sector. 59 Main results of CNI’s study are presented in the following table.

Table 37: Best Available Technologies savings potential for Brazilian industry (2007)60

End-Uses Savings potential (1,000 toe)

Savings potential (% of total)

Industrial sectors with highest potential

Furnaces 9,104 62.1 Iron & steel, ceramics, cement Dryers 416 2.8 Ceramics, food & beverage, textile Boilers 2,358 16.1 Pulp & paper, textile, food & beverage Other fuel uses 75 0.5 Chemicals Sub-total fuels 11,952 81.5 Drivers 2,032 13.9 Iron & steel, mining, food & beverage Refrigeration 47 0.3 Food & beverage, chemicals, textile Furnaces 371 2.5 Iron & steel, non-ferrous metals, ferro-alloys Processes 191 1.3 Non-ferrous metals, chemicals, pulp & paper Lighting 60 0.4 Food & beverage, textile, pulp & paper Other electricity uses 2 0.0 Mining Sub-total electricity 2,704 18.5 GRAND TOTAL 14,656 100.0

59 In partnership with PROCEL, CNI published a summary of findings for energy efficiency in industry, considering the “BAT – Best Available Technologies” concept – a comparison of technologies in use in Brazil with the most efficient ones available worldwide. It is expected that complete reports will be published in 2010. 60 Source: CNI (2009), Eficiencia energetic na industria


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3.3.3 EE Investment Potential in Industries

The following table summarized the investment requirements for EE project implementation in the four targeted industrial segments, based on the aforementioned assumptions and on the assessment conducted on the Brazilian industrial sector:

Table 38: Investments Estimate in Industrial Market Sector

Compressed air systems

Pumping systems

Fans Refrigeration systems

Lighting Boilers and

steam systems

Heat recovery

Energy management

& process control

Total

Energy Savings Potential Total EE potential (GWh/y) 1,467 1,881 995 688 90 18,103 12,068 4,151 39,443 Technico Economical Savings Potential -

5 years (GWh/y) 293 376 199 138 27 2,715 1,810 415 5,974

CO2 emissions reduction in tCO2 54,053 69,289 36,659 25,331 4,987 500,175 333,450 76,467 1,100,412Investment requirements Investment cost for reduced unit ($/MWh) $160 $150 $125 $160 $70 $200 $120 $50 $156 Investment requirements (USD Million) $47 $56 $25 $22 $2 $543 $217 $21 $933 Typical size of potential project (USD

Million) -- -- -- -- -- -- -- -- $0.5 - $5

Number of transactions over period -- -- -- -- -- -- -- -- 373Financial Aspects Energy Cost Savings (USD Million/year) $36 $46 $24 $17 $3 $102 $68 $26 $322 Payback (years) 1.3 1.2 1.0 1.3 0.6 5.3 3.2 0.8 2.9 Carbon revenues in USD Million per year

(at USD 12/tCO2) $0.6 $0.8 $0.4 $0.3 $0.1 $6.0 $4.0 $0.9 $13.2

Foreseen equity (USD Million) $9 $11 $5 $4 $0 $109 $43 $4 $187 Financing need (USD Million) $38 $45 $20 $18 $2 $434 $174 $17 $747


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Based on the above table, the main conclusions on investment potential in the industrial sector can be summarized as follows:

• Investment requirements. It has been estimated that a total investment of almost USD 1 billion in the four targeted industrial segments would generate nearly 6,000 GWh of savings per year, which corresponds to 2.9% of the total energy consumed in those sectors per year over a 5-year period. The financing required from the banks amounts to USD 747 million if a debt ratio of 80% is used. Broken down by technology, the major projects would include EE measures on furnaces, boilers, and steam systems and electric motor-driven equipment (pumps, fans, compressed air systems…). The implementation of control and energy management systems should be bundled with other measures within an energy efficiency project. Lastly, it is noteworthy that most of the EE projects to be undertaken will not be directly related to industrial processes; they will only affect auxiliary systems, including compressed air or refrigeration systems, steam networks, etc.

• Number of transactions. The required investment represents a total of 373 potential financial transactions when an average EE project cost of USD 2.5 million is assumed per transaction. Depending on the nature of the measures and partial or complete retrofits, the typical project cost may range from USD 50,000 to USD 5,000,000, but banks may not be willing to invest in projects which require investment of less than USD 500,000 because of the high transaction costs and risks involved. Strategies for banks to reduce transaction costs include focusing on projects with high investment requirements, project bundling and EE programs.

• Benefits for end-users. From the end users’ perspectives, the total energy cost savings are estimated at USD 322 million per year with an overall payback of approximately 3 years. Depending on the type of project, the payback may vary from 1 year (or less) to more than 5 years. In terms of GHG emissions reduction, about 1.1 million tCO2 might be avoided from the national grid, which has a very low emission factor due to the predominance of hydropower. The sale of the carbon reduction would earn a total of USD 13 million per year (USD 130 million for a CDM crediting period of 10 years).


The key market players in EE in the industrial sector include public programs, industry associations, equipment and technology suppliers and service providers. Most of the key government institutions and programs have been presented in Section 1.2.

Other key stakeholders for EE projects have already been presented in section 3.2.4 on EE opportunities in the commercial and public building sectors. These key players include government programs (e.g. PROCEL and CONPET), BNDES’ PROESCO financing scheme, ABESCO and Petrobras’ initiatives.

The other main stakeholders specific to the industrial market sector are discussed in the table below:


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Table 39: Key Market Players in Industrial Sector

Key market players Description/Role Interaction with IFC initiatives

CNI – National Confederation of Industry Brazil (www.cni.org.br)

The CNI organization is active in defense of the industrial sector with a mission to boost Brazilian Industry competitiveness. It represents 27 Industry Federations in the states and Federal District.

Marketing channel for project identification and implementation. This association could also help to disseminate technologies and best practices, and to disseminate awareness of EE opportunities and benefits.

ABIA – Associação Brasileira da Indútria de Alimentos (http://www.abia.org.br/)

ABIA was created with the aim of bringing together companies involved in the food industry and to serve as interlocutor with the Government, acting as technical and advisory body. ABIA collaborates with public authorities and public or private entities in studying and addressing problems that involve not only the food industries in Brazil, but also with international entities.


ABIQUIM – Associação Brasileira da Indústria Química (www.abiquim.org.br)

Entity that brings together small, medium and large chemical manufacturers and service providers to the industry, such as carriers and logistics operators


ABRABE – Associação Brasileira de Bebidas (http://www.abrabe.org.br/mercado.php)

ABRABE represents beverage processing companies. It acts as a representative to the government and as a reference center for officials, lawmakers, other professional associations, regulatory bodies, media and public opinion;


ANFACER – Brazilian Association of Ceramic Tile Manufacturers (http://www.brasilceramictiles.com/)

ANFACER represents the Brazilian ceramic tile industry, which is made up of almost 100 companies located throughout the country.


BRACELPA – Associação Brasileira de Celulose e Papel (www.bracelpa.org.br)

Represent cellulose (100%) and paper (approximately 80%) producers in the country. Its mission is to promote competitiveness and sustainable development in the sector.



Energy efficiency in general faces a number of barriers that can be found everywhere, in developing countries, but also in developed countries. The differentiation is how these barriers could influence the stakeholders’ interventions. From the Brazilian financing institutions’ point of view, the following barriers should be considered:


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Institutional and cultural barriers

• EE projects could be perceived as risky, especially when the EE measures proposed could have an impact on the industrial process or assembly line, and consequently on company’s productivity and income.

• Issues with the regulation of the wire charge scheme which led to an inefficient use of ratepayers money by financing each energy efficiency investment with 100% of ratepayers money (leaving virtually no space for other sorts of financing in the mix).

As for EE in public and commercial buildings, one way to foster the commercial financing in the industrial sector is to work directly with government programs like PROCEL and CONPET to establish a tailored framework.

Informational barriers

• Lack of awareness of facility managers toward energy conservation practices and positive benefits related to them.

• Low availability of facility staff to manage EE projects. • Performance contracting is still unfamiliar in Brazil. • Energy end-users as well as local financial institutions are not familiar with the existing energy

valuation standardized concepts and methodological approaches. • The local financial institutions have difficulties in assessing the technical nature of energy

efficiency projects. • Some industrial processes have to remain secret. The involvement of a private company

(ESCO, engineering firm) within the framework of an EE project would thus be more difficult in the plant. Moreover, it would obviously be harder to obtain a good understanding of the processes and the required documents explaining the facility’s activities. Equipment manufacturers/suppliers are more accepted in the industrial sector.

Any EE financing program in Brazil should include strong technical assistance to continue awareness raising activities, capacity building and knowledge transfer to the local FIs. The necessary tools include the M&V plan (working with ABESCO), project evaluation criteria (for banks), financial proposals preparation (for end-users, ESCO, consultants and engineering firms) have to be developed or adapted.

Finally, there are often various behavioral barriers built into the organizational structure of the plant operation and maintenance teams: double-agent barriers, informational barriers.

Technical barriers

• Lack of knowledge and technical skills of engineers and consultants to implement the project in an industrial context. In fact, all industrial processes are different and a good knowledge of one


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is required before starting to develop EE measures for it. On the other hand, it is noteworthy that industrial staff are often more skillful than public or commercial buildings’ maintenance teams. This situation could help to overcome the services providers’ lack of technical capacity in the industrial market sector.

• Most EE measures in industries are implemented by equipment manufacturer rather than by engineering firms, consultants and ESCOs. In fact, manufacturers have a better understanding of their equipment and they are already collaborating with industries on various other projects.

• EE projects must be installed when the process and assembly lines are shut down, for instance due to maintenance activities, holidays or during non-operating hours.

• Some of the energy efficiency technologies in the industrial sector could be perceived as more risky than similar technologies in an institutional building.

Market barriers

• Most end-users have a budgetary disconnect between capital projects and operating expenses (energy and maintenance) if they do not consider energy costs as a non manageable fixed expenses. Low-investment cost is mostly considered when the decision has to be taken to change equipment. This observation also applies to banks intervention where the emphasis is put on capital projects rather than in operation cost reduction projects.

• While energy costs account for a small part of operation costs in most industrial companies, additionally EE is normally not considered a priority. There are plenty of potential process improvement projects with a payback of less than 5 years in most industries. Priorities are more in increasing the market share of a products and increasing the production capacity. EE projects must compete with those projects to obtain the commitment of the top management.

Financial barriers

The problem is not a lack of available funds, but how to access to available funds at Local Financial Institutions. This situation is caused by a disconnect with LFIs’ current “asset-based” lending practices and lack of the industry top management buy-in of EE culture.

Projects initiated by services providers like ESCO encounter other barriers as they have too small and EPC is not currently accepted as collateral by FIs in Brazil.

Besides, investments need to be paid back in less than 2 to 5 years because of the instability of the market for transformed goods due to several concerns, such as competition or the risks related to a decrease in the production rate or bankruptcy of the plants, inherent in every industrial segment.


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3.4 INVESTMENT OPPORTUNITIES IN INDUSTRIAL COGENERATION

3.4.1 Energy Consumption Profile for Cogeneration in Industries

In addition to the information provided in section 3.2.1 on the Brazilian industrial sector, it is worth noting that industrial processes used require a lot of heat. As shown in the next figure, biomass, fossil fuels, natural gas and coal account for almost 80% of the total energy consumption of this market sector:

Electricity21%

Fossil fuels28%

Natural gas10%

Coal5%

Biomass36%

Figure 11: Energy source balance in industrial sector

From the above statistics, it appears that energy conservation from the main heat generation equipment, including boilers and steam systems, represents an interesting potential to generate energy savings. The implementation of a cogeneration plant could be an attractive opportunity to retrofit existing aged boilers and thus reduce operation costs thanks to the generation of low-cost electricity in addition to heat (steam).


In Brazil, cogeneration development in the industrial sector is growing at a rapid pace. In fact, PNE indicates that the participation of self-production (considering especially cogeneration, but also other arrangements) will be approximately 9% of electricity consumption in 2030, compared to 6% of the total recorded in 2006. The regulations have recently been straightened up and streamlined so the operators of cogeneration plants can sell their surplus power to the grid. There is currently a movement by utility companies to invest in distributed power generation including cogeneration.

Looking just at the State of Sao Paulo, COGEN-SP61, it estimates the cogeneration potential in the industrial sector to be more than 2,700 MW, which could result in a reduction of daily natural gas 61 COGEN-SP: Associação Paulista de Cogeração de Energia, www.cogensp.com.br


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consumption by almost 17 million m3 per day. Targeted industrial sectors include chemicals, pulp and paper, steel and iron, and cement since these offer the largest cogeneration potential. For the state of Rio de Janeiro, the cogeneration potential is somewhat lower as shown in the following table:

Table 40: Potential for Cogeneration Projects in Industrial Sector - Rio de Janeiro62

Activity Potential (MW)Beverages and Food Products (15) 73,1 Textiles (17) 19,2 Pharmaceutical and chemical products (24) 95,0 Publishing and printing (22) 19,6 Metallurgy (27) and metal products, except machinery and equipment (28) 48,5 Pulp and Paper (21) 162,0 Products from non-metallic minerals (26) (Red Ceramics)

36,0 54,0

Market Potential Estimated 507,4

Three perspectives should be considered in assessing the market potential for cogeneration in the industrial sector:

• Adding cogeneration plants in new projects where this feature was not initially planned. • Installing cogeneration plants in industrial plants in operation. • Upgrading existing cogeneration plants, and thus increasing their efficiency and the steam and

electricity surpluses to be sold either to other industrial plants or directly to the grid (for electricity only).

More technical details on cogeneration technology and potential projects in the industrial sector are provided in Appendix 3.

3.4.3 EE Investment Potential in Industries

Considering that section 2.2 already assessed cogeneration projects using sugarcane bagasse as a renewable energy, the current EE investment evaluation covers only projects whose combustible fuel for process heating is not biomass. Moreover, only the cogeneration projects whose generation capacity was lower than 15 MW were considered in the assessment. In fact, most of the projects whose generation capacity is higher than this threshold tend to be larger and stand-alone projects.

Almost 100% of the projects that were found compliant with the two aforementioned specificities are cogeneration plants using natural gas to produce heat and power (or cold).

The table below presents the investment potential established for cogeneration projects in the Brazilian industrial sector:

62 INEE - National Institute for Energy Efficiency


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Table 41: Energy generation and investment potential for cogeneration projects in industries

Energy Generation Potential Potential for installed capacity <15MW 114.0 Energy production (electricity+heat) GWh/year 721.7Greenhouse Gas Emissions Reduction Annual CO2 emissions reduction (million ton CO2) 0.27Investment requirements Average unit cost (USD/kW) $3,000 Total Investment Requirements – for capacity <15MW (USD Million) $342 Number of transactions 18Financial Aspects Cost of energy (USD/MWh) $64 Annual energy costs savings (USD million) $46 Payback (years) 7.4 Annual carbon revenues in USD million per year $3.2 Foreseen equity - total (USD Million) $68 Financing need - total (USD Million) $274

Based on the above table, the main conclusions on investment potential in the industrial sector can be summarized as follows:

• Investment requirements. It has been estimated that it would be possible to invest USD 274 million in the industrial sector to implement cogeneration projects with a capacity of less than 15 MW. The total potential for installed capacity would then be 114 MW. The main energy source targeted by these projects is natural gas. Approximately 720 GWh of heat and electricity (and maybe cold) would be produced by these cogeneration plants on an annual basis. The financing required from the banks amounts to almost USD 275 million if a debt ratio of 80% is used.

• Number of transactions. The required investment represents a total of 18 potential financial transactions, with an average EE project costing USD 19 million per transaction. Depending on the generation potential and on the characteristics, the typical project costs may range from USD 2.5 million to USD 40 million.

• Benefits for end-users. From the end users’ perspectives, the total energy cost savings are estimated at USD 46 million per year with an overall payback of approximately 7.5 years. In terms of GHG emissions reduction, about 0.27 million tCO2 might be avoided from the national grid. The sale of the carbon reduction would earn a total of USD 3.2 million per year (USD 32 million for a CDM crediting period of 10 years).

The list of cogeneration projects used to conduct this assessment can be found in Appendix 3 for reference.


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The key market players for cogeneration projects in the industrial sector include public programs, industry associations, equipment and technology suppliers, and service providers. Most of the key government institutions and programs have been presented in Section 0.

Other key stakeholders for EE projects have already been presented in the sections on EE opportunities in the commercial and public building sectors (section 3.2.4) and in the industrial sector (section 3.3.4). These key players include government programs (e.g. PROCEL and CONPET), BNDES’ PROESCO financing scheme, ABESCO, Petrobras’ initiatives and consumer associations, such as ABIA, ABIQUIM and BRACELPA. Moreover, key players for sugarcane cogeneration projects have been introduced in section 2.2.4.

The other main stakeholders specific to the industrial cogeneration are discussed in the following table:

Table 42: Key Players for Cogeneration Projects in Industrial Sector

Consumer associations Description Interaction with IFC initiatives

COGEN – Accociação da Indústria de Cogeração de Energia (www.cogen.com.br)

The COGEN Association is a non-profit group that aims to promote integration and cooperation among its members in order to establish and strengthen industry's energy cogeneration in Brazil.

Marketing channel for project identification and implementation. This association could also help to disseminate technologies and best practices, and to disseminate awareness of EE opportunities and benefits.

ABIT – Associação Brasileira da Indústria Têxtil (www.abit.org.br)

Entity that brings together companies in the textile and garment sector, organized into technical committees (corresponding to manufacturing activities, and have no energy committee or similar).


ÚNICA – União da Indústria de Cana de Açúcar (www.unica.com.br)

UNICA's mission is to lead the transformation of the traditional sector of sugarcane into a modern agricultural industry capable of competing in a sustainable way in Brazil and around the world, in the production of ethanol, sugar and bioelectricity.



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Consumer associations Description Interaction with IFC initiatives

Instituto Aço Brasil (www.ibs.org.br)

Entity that represents steel producers in Brazil, defending its interests and promoting its development. The Institute carries out activities to promote its members’ interests, such as conducting various researches and studies, collecting data and statistics, participating in product standardization and developing programs and policies for each subsector.


In addition to the abovementioned stakeholders, lists of steam turbine and cogeneration integrated system suppliers are provided in Appendix 4.


Almost all barriers to cogeneration projects in industries are the same as those presented in sections 2.2.6 on cogeneration using sugarcane bagasse and 3.3.5 on EE in industrial sectors. No other relevant barriers have been identified within this study for this EE opportunity.

3.5 INVESTMENT OPPORTUNITIES IN OTHER MARKET SEGMENTS

There are many other market segments where EE investment can be oriented. Although, these segments could be interesting for commercial financing, the authors suggest focusing first on the segments discussed in previous sections and dealing with the segments presented in this section on a case by case and one deal opportunity basis.

3.5.1 Green Buildings

There is an opportunity for more green building projects, through a new targeted marketing strategy. Green building projects have larger initial investments, and are worth more after construction completion because of lower operation cost, and co-benefits such as the comfort of occupants, fancier architecture, renown of the building, etc. It is estimated that by acting at the building design stage, a green and sustainable building can save from 50% up to 90% of the energy used in standard buildings depending on the country using latest available design practice, premium equipment and renewable energy. The incremental investment costs to make a new building a green building is about 22% in the case of Brazil as compared to a cost increase of 16% in the USA, 28% in China or 12% in France63.

The opportunity is to look forward to more green building projects, through a new targeted marketing strategy. Green building projects have larger initial investment, and are worth more after construction completion because of lower operation cost, and co-benefits such as comfort of occupants, fancier architecture, renown of the building, etc.

63 WBCSD. 2007. Energy Efficiency in Buildings: Business realities and opportunities


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The level of technical risk really depends on the level of innovation; however project performance is not much of an issue in this case because of the collateral available: the building. These projects are going to be larger than the conventional ones because of investments in top of the line electro-mechanic systems, improved architecture and superior quality of building materials (or recycled building materials that are often more costly). Investment size is on the high side as these are full construction projects. This is a market most LFIs are already in and know very well. The LFIs would have to do business with real estate investors and property managers.

It is worth noting that double-agent barriers might be an issue. New policies such as building labeling and green certification are being developed to tackle this issue.

3.5.2 Street Lighting

The energy conservation measures are: i) changing lamps for energy efficient alternatives (e.g. replacing mercury vapor lamps with metal halide lamps with pulse-start ballast, or by low-pressure sodium lamps or LED lighting), ii) change the fixtures to more energy efficient fixtures that concentrate the light toward the ground, iii) sectioning circuits and automatic sensor controls.

The utility companies have been exploiting this market segment using monies from the wire charge scheme for the last 10 years. These are generally low-risk technical investments (for a & b) and they are reasonably cost-effective. In addition, the program RELUZ was intended to tackle the barriers in this segment. There would be potential for substituting with commercial financing.

However, the funding of RELUZ has been drastically reduced since 2004. In addition, recent limits imposed on public sector lending (contingenciamento in Portuguese) have restricted states and municipalities access to credit. This sector is going to be clogged by regulatory barriers for a while.

The LFI would have to do business with the municipalities (facing public sector creditworthiness issue), along with the utility companies and/or third party project developers because this market segment is generally fertile ground for ESPC projects.

3.5.3 Water Pumping and Sewage Treatment

The energy conservation measures are: a) replacing or modifying oversized and inefficient pumps and motors by energy-efficient pumps and motors, b) installation of variable speed drives and demand-control systems, c) pipe network optimization and control, and d) water loss reduction.

These are generally low- to high-risk technical investments and they have fair to high cost-effectiveness. In addition, the SANEAR program of PROCEL was intended to tackle the barriers in this segment. Similar observations could be made as in street lighting.


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3.5.4 Residential Solar Water Heating

The market potential is large, and the site-wise potential is medium. These systems are relatively inexpensive (around USD 1,000 for a one-family system); but still expensive enough that home owners and landlords need financing. Technical risk is relatively low – if assumptions taken to estimate the savings are sufficiently conservative. There are local manufacturers and local contractors that are accustomed to SWH. Various policies were launched concerning SWH: standards and labeling, awareness and communication, and so on.

However, the systems for homes are much smaller than those for commercial and institutional facilities, which makes them less cost-effective. The commercialization is also more challenging than for the commercial sector. The approach will be similar to micro-credit or a dedicated program if favorable regulations are in place. There is not going to be regulation forcing home owners to install these systems. In the case of high-rise multi-residential buildings, the double-agent barrier might be an issue.


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4 CONCLUSIONS AND RECOMMENDATIONS

There are major investment opportunities in renewable energy for Brazilian banks and equity investors. Wind power and energy from sugarcane are expanding rapidly under the auction system. Small hydro, a more traditional investment segment, is expected to grow more slowly due to delays in licensing, higher costs and issues of technical risks. Biodiesel is also expected to grow, but private sector third party participation in financing has been very limited.

Without policy changes prospects for energy recovery from urban waste are very limited. It is much easier and more profitable to flare landfill gas and capture the resulting carbon credits. However, a change in policy context (an improved market for energy sales and new additional requirements for carbon credits) could make it an interesting market with important and very visible socio-environmental impacts. However, this potential could only be achieved in the future and is now speculative.

All segments present risks. In the case of wind, small hydro and urban solid waste the expected performance (e.g., MWh per year) needs careful assessment. There have already been problems with small hydro and the relatively short time of many wind measurements could result in problems there. There can be significant risks for wind, small hydro and sugarcane cogenerators regarding the cost of connection to the grid. In many projects, there is little room for contingencies.

Environmental licensing is already a measure problem for small hydro. So far it has not been such a barrier for wind but there are already cases of poorly sited wind farms. A backlash could develop as projects become more common. It is important to think not only in terms of individual projects but also in terms of the cumulative impact of wind farm or hydro plant groups.

Today, there is substantial overcapacity in biodiesel and supply contracts are short term. In addition, securing feedstock can be a problem (especially at a time of rising commodity prices).

Only a small share of the renewable energy market reviewed in this report is in projects defined as small (i.e., less than 5 MW or USD 10 million) which are of most interest to IFC. There are some possibilities for small hydro and plants to recover energy from urban solid wastes. There are also some opportunities with agricultural and forestry residues. There is interesting potential for small projects in some isolated off-grid systems (as well as in the sparsely settled frontier areas which are on the grid) with biomass residue resources – especially from sawmills.

There are relevant EE investment opportunities in three market sectors, namely commercial buildings, public installations and various industrial segments. In the commercial and public sectors, most of the EE saving potential lies in retrofitting lighting, air conditioning systems and electric motors. There is also a relevant opportunity in installing solar water heaters. However, there are some issues related to performance contracting and existing bureaucratic procedures which make the implementation of EE projects more difficult. Additionally, the regulation of the wire charge scheme, (which finances each energy efficiency investment with 100% of ratepayer money), the low creditworthiness of many energy


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end-users and the fact that energy costs are often considered as non-manageable fixed expenses are as many other barriers to commercial investments in EE projects.

In the industrial sectors, four key segments have been targeted due to their high energy saving potential and the average size of potential EE transactions not large enough to be standalone projects without IFC involvement. These industrial segments are as follows: food and beverage, pulp and paper, chemicals and ceramics. Most of the energy and cost saving potential lies in retrofitting process heating equipment (boilers, furnaces, dryers, etc.), handling and process equipment, pumps, fans and compressed air systems.

In addition to several barriers which also exist in the commercial and public sectors, investors in industrial sector EE projects could have to overcome some barriers related to industrial secrets, lack of knowledge and technical skills of engineers, professionals and consultants in specific industrial processes. Moreover, the fact that EE projects could be perceived as risky, especially when the EE measures proposed could have an impact on the process or the assembly line, could constitute an additional potential barrier. Furthermore, EE investments need to be paid back within 2 to 5 years because of the instability of the industrial market sector. Regardless of all inherent risks and barriers, the EE investment potential in the industrial sector still remains larger and more attractive than in the commercial and public building sectors.

Another relevant EE opportunity in industries is the implementation of cogeneration plants. In fact, cogeneration development in the industrial sector is growing at a rapid pace in Brazil. Several natural gas and diesel oil projects whose individual capacity was lower than 15 MW have been identified in Brazil. Three perspectives should be considered to assess the market potential for cogeneration in the industrial sector:

• Adding cogeneration plants in new projects where this feature had not been initially planned. • Installing cogeneration plants in industrial plants in operation. • Upgrading existing cogeneration plants, thus increasing their efficiency and the steam and

electricity surpluses to be sold either to other industrial plants or directly to the grid (for electricity only).

Cogeneration projects could be considered as risky in some industrial segments and could be slowed by usual EE barriers in industries. Moreover, typical paybacks for cogeneration projects are much longer than those of other abovementioned EE measures in this market sector. The projects targeted and assessed in this part of the study have lower investment requirements than typical sugarcane bagasse cogeneration projects, as presented in the RE section. However, the benefits related to cogeneration projects of less than 15 MW of capacity could make them attractive enough for both industries and investors. This would thus create a sustainable investment window for commercial financial institutions.

Other EE initiatives, such as the Green Building standard for new construction, the retrofitting of street lighting and water pumping systems, as well as the installation of residential solar water heaters, could


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be considered as interesting commercial financing opportunities. Nevertheless, it is suggested not to prioritize such projects over those previously presented in the commercial, public and industrial market sectors.

APPENDIXES

Econoler A-95 REF: 5574

APPENDIX 1 SERVICE PROVIDERS AND SUPPLIERS IN AIR CONDITIONING AND REFRIGERATION SECTOR

Service providers

ABESCO - Brazilian Association of Companies for Energy Conservation Services

www.abesco.com.br

It brings together consultants and developers of energy solutions for a total of approximately 80 member companies. Its mission is to foster and promote actions and projects for the growth of the energy market, benefiting not only its members but also the Brazilian society and the country as a whole.

ABRAVA - Brazilian Association of Refrigeration, Air Conditioning, Ventilation and Heating

www.abravanet.com.br

It brings together designers and manufacturers of air conditioning equipment and refrigeration, as well as the sponsors and companies that install these systems.

SINDRATAR - Industry Union of Refrigeration, Heating and Air Treatment (organized in several states, the main ones being in Rio de Janeiro and Sao Paulo).

www.sindratar.com.br (SINDRATAR - Rio de Janeiro)

http://www.fiesp.com.br/sindicato/sindratar_08/default.aspx

It brings together manufacturers and installers of air conditioning and central cooling. Whose mission is to represent member companies, and coordinate efforts to develop the sector.

Product suppliers and manufacturers

Trane of Brazil

www.trane.com.br

Site of the company in Brazil, with information about offices, products and services offered by the company. Gives no information about customer financing.

York from Brazil

www.yorkbrasil.com.br

Site of the company in Brazil, presenting information on offices, products and services offered by the company. Section presents specially targeted financing of their products, indicating the possible modalities of financing:

• BNDES: FINAME, BNDES Card


• PROGER (Bank of Brazil)

• Vendor Program (Citibank)

• Consumer crédito

• Leasing

Carrier in Brazil

www.springer.com.br

Site of the company in Brazil, presenting information on offices, products and services offered. Gives no reference to funding.


APPENDIX 2 SOLAR WATER HEATING SYSTEM SUPPLIERS

The following list presents the main suppliers and manufacturers of solar water heating products:

• Atual Indústria e Comércio de Aquecedores Solares Ltda, located in Mogi-SP, is in the market offering solar heating systems for the residential, industrial, hotels, motels, clubs, hospitals, gyms, amongst others.

• Alpina Alo Solar, located in Sao Bernardo do Campo, manufactures plate heat sinks and tanks. The company installed more than 150,000 square meters of SWH plates in the last 15 years.

• Alternativa Solar, located in Ponte Nova, Minas Gerais, mainly produces panels for water heating tanks for its storage and distribution, and systems for heating pools. Its mission is "to provide the best solution for use of solar energy, according to the needs of each client and the most suitable technology, providing you with comfort, safety and economy.”

• Aquasolis Tecnologia Solar e Construções Ltda, located in Belo Horizonte, works in construction and manufacturing systems for heating water from solar energy.

• Aquecedores Cumulus S.A Indústria e Comércio, whose current production facility is located in Guarulhos - SP, is a 100% Brazilian company, owns the widest line of equipment for water heating in the domestic market, being the only company able to offer alternative solutions in hot water.

• Arkson Indústria e Comércio Ltda, located in Belo Horizonte-MG, manufactures of stainless steel thermal tanks and solar panels made of extruded aluminum profiles and coil with copper tubes.

• AstroSol Aquecedores, installed in São Paulo-SP, manufactures solar water heaters for showers, kitchens, pools, etc.

• Soletrol, in San Manuel-SP, is the largest manufacturer of solar water heaters in the Americas. The company serves the entire country, with hundreds of merchants equipped with complete infrastructure for marketing, installation and servicing of solar water heaters produced by the company.

• Heliotek, located in Barueri, SP, manufactures solar water heaters and heat exchangers for swimming pools. The company has a wide range of representatives and dealers located across five continents.

• Mastersol, 100% national company located in Sorocaba-SP, is company with over than 13 years of experience in the solar heater market, and whose distribution network covers the entire country directly or through their representatives.

• Transsen, located in Birigui-SP, is a manufacturer of solar water heaters. All company products are tested and approved by INMETRO and has a wide range of thermal reservoirs with seal Procel.


APPENDIX 3 TYPICAL COGENERATION PROJECTS

For CHP, means the simultaneous use of electricity and heat generated from a single fuel source. This is a solution for energy optimization in view of the possibility of using a greater amount of energy contained in fuel, combining electricity generation with an aim temperature.

Thus, the overall energy performance is enhanced. The figure below shows a comparison between an arrangement of conventional generation, where electricity and heat are produced from different sources, and a solution for cogeneration.

Figure 12: Comparison and Solution for Cogeneration

To be observing the thermal and electrical demands, the CHP needed 100 units of energy, with losses of 15 units. The conventional arrangement would require 165 units of energy, with losses of 71 units. Although power generation in Brazil was largely of hydraulic origin, the contribution of the thermal is rising.

There are several commercially available technologies, and systems based on cogeneration are widely used in several countries, especially those where the generations of electricity from thermal sources are the majority. It is estimated that only the United States have more than 100 GW of electric generation (approximately the total installed capacity in Brazil) from CHP, and that these systems will account for 20% of the total capacity of that country in 2030.

In Brazil, some industries use cogeneration widely arrangements, especially those in the manufacturing process causes fuel products such as sugar and alcohol industries, pulp and steel. In the commercial sector, its use is fairly limited, focusing the assistance of separate thermal and electrical needs.


In a simplified form, can be described two arrangements for cogeneration:

• The burning of fuel initially generates steam, which will be used for thermal applications and power generation;

• The burning of fuel initially generates electricity, with heat recovery for thermal purpose.

The best solution from the technical point of view depends on a number of factors, but mainly:

• The size of the facility (demand); • From the balance between the needs of electricity or heat; • The conditions for supply of backup power (backup), if the demands are not met by the

cogeneration system.

For industries, given the diversity of processes involved, it is impossible to define an arrangement "typical." However, one can consider that the usual form includes the initial production of steam, and subsequently the generation of electricity. In this arrangement, there are two possible technologies:

• Steam turbines backpressure; • Condensing steam turbines, using part of the steam produced to generate electricity.

Besides electricity, especially relevant for use in drives in the industry, originated in the heat cogeneration can be used in various forms:

• In the form of steam for heating at low temperatures (relative); • In direct heating, with use of hot air directly into furnaces and ovens; • For hot water production.

In some industries, such as the beverage industry, even if the CO2 produced from combustion can be used in processes of carbonation (addition of carbon dioxide in beverages such as soft drinks).

According to the Bank Information Generation ANEEL, are in operation the following ventures with qualified cogeneration in Brazil, for the industrial sector.


Table 43: Ventures with Qualified Cogeneration in Brazil Plant Potencial (kW) Fuel

Açominas 102.890 Blast furnace gas Cogeração International Paper (Fases I e II) 50.500 Fuel oil Colombo 65.500 Sugar cane bagasse Energy Works Kaiser Pacatuba 5.552 Natural gas Copesul 74.400 Process gas Suape, CGDe, Koblitz Energia Ltda. 4.000 Natural gas Suzano 38.400 Natural gas Celpav IV 139.424 Natural gas São José 84.805 Sugar cane bagasse Barra Grande de Lençóis 62.900 Sugar cane bagasse LDC Bioenergia Leme (Ex.Coinbra - Cresciumal) 42.300 Sugar cane bagasse Energy Works Kaiser Jacareí 8.592 Natural gas São Francisco 25.200 Sugar cane bagasse Lucélia 15.700 Sugar cane bagasse Santa Adélia 42.000 Sugar cane bagasse Brahma 13.080 Natural gas UGPU (Messer) 7.700 Natural gas Mandu 25.000 Sugar cane bagasse Guarani - Cruz Alta 40.000 Sugar cane bagasse São José da Estiva 19.500 Sugar cane bagasse Unidade de Geração de Energia -Área II 6.000 Natural gas Rhodia Paulínia 12.098 Natural gas Bayer 3.840 Natural gas CTE Fibra 8.812 Natural gas Cerradinho 75.000 Sugar cane bagasse Pioneiros 42.000 Sugar cane bagasse EnergyWorks Corn Products Mogi 30.775 Natural gas EnergyWorks Corn Products Balsa 9.199 Natural gas Colorado 52.760 Sugar cane bagasse Santa Terezinha Paranacity 52.500 Sugar cane bagasse Santa Elisa - Unidade I 58.000 Sugar cane bagasse Santo Antônio 23.000 Sugar cane bagasse Stepie Ulb 3.300 Natural gas Inapel 1.120 Natural gas Eucatex 9.800 Natural gas Campo Florido 30.000 Sugar cane bagasse Coruripe Iturama 24.000 Sugar cane bagasse Bunge Araxá 23.000 Sulfur Millennium 4.781 Natural gas Veracel 126.600 Black liquor Pamesa 4.072 Natural gas Imcopa 7.000 Natural gas Quirinópolis 40.000 Sugar cane bagasse Goodyear - Divisão Spiraflex 972 Diesel oil Alumar 75.200 Mineral coal Levori 4.110 Natural gas

These projects are totalling 1,595 MW of electricity, with an average of 34.7 MW of electric power. It is observed that most projects use sugar cane bagasse or natural gas as primary fuel source.

Assuming an average cost of USD 3,000/kW, only the component of electricity generation would require a value of USD 104 million for a project average. Assuming that the use of heat demand same


value, an average of qualified cogeneration project in industry represents an investment of USD 200 million.

A broader base refers to the self-production, including other settings that are not based on cogeneration. For 2008, data from BEN - National Energy Balance (EPE / MME) have the following values (in GWh):

Table 44: Values Data - 2008

Regarding the development of projects, the initiative is usually the owner’s, in search of greater security in electricity supply and reduce costs. When the owner takes the initiative, are usually contracted the services of a consulting firm to a preliminary examination of the viability of cogeneration system.

In this initial study, a basic question concerns the supply of fuel - both as a guarantee quanidades price. Logically, if the cogeneration scheme aims to use waste from the industrial process - sugar cane bagasse, black liquor, waste gas (in chemistry or steel), the analysis of supply become part of the analysis of the business, industrial.


APPENDIX 4 SUPPLIERS IN COGENERATION MARKET SECTOR

The following list presents the main steam turbine suppliers in the Brazilian industrial sector:

• Dresser - Rand do Brasil Ltda • EG Turbinas Consultoria e Serviços Especiais Hass - Csi Ar Industrial • IBM Indústria de Bronzinas e Mancais Ltda • Inatech Indústria Ambiental e Tecnologia Ltda • MTM Métodos em Tecnologia de Manutenção Ltda • NG Metalúrgica Ltda • Salgueiro Indústria e Comércio de Aço Ltda • Siemens Ltda • Stemac S/A Grupos Geradores • Texas Turbinas a Vapor Ltda • TGM Turbinas Indústria e Comércio Ltda • Turbimaq Turbinas e Máquinas Ltda • Turbocare Serviços de Turbomáquinas Ltda • Uni Systems do Brasil Ltda • Usimaq Usinagem e Máquinas Ltda • Usimec Usinagem e Mecânica Ltda • Usitec Serviços e Comércio Ltda • Voith Siemens Hydro Power Generation Ltda • WS Automação Industrial Ltda • TGM Transmissões Indústria e Comércio de Redutores Ltda

Suppliers of integrated solutions could be found easily through COGEN association (Associação Paulista de Cogeração de Energia, www.cogensp.com.br)

COGEN is an entity that brings together companies in the state of Sao Paulo, participants in the sectors of sugar industry (which has traditionally adopt CHP), natural gas distribution and electricity and manufacturers and service providers in that area. Its purpose, as established by statute, to promote integration and cooperation among its members to implement and strengthen the cogeneration market in São Paulo. The COGEN fit, yet:

• Represent the common interests of its members; • Represent the common interests of its members; • Combine and coordinate initiatives and efforts of its members, promoting the optimization of the

pooling of their goods and services; • Monitoring and suggesting adjustments of legislation and regulation applicable to cogeneration,

monitor technological developments, changes in economic relations of exploitation activities related to the cogeneration;


• Collaborate and advocate with government agencies on matters of common interest related to the promotion of cogeneration;

• Participate in action oriented research and development of methods and technologies for cogeneration of interest of members;

• Promoting the technical and technological training in specialized cogeneration; • Provide technical cooperation and give opinions on its own initiative or when requested, in its

specialty; • Encourage, develop and participate in market research projects and technological development

in the area of cogeneration and interest of members; • Collaborate with other associations, institutes or organizations with similar interests and in this

case, partnering, covenants, agreements and / or cooperation with these associations, institutes or entities.


APPENDIX 5 SMALL HYDRO MARKET SECTOR

Recent trends in the market and potential

Small hydro (in Portuguese PCH – Pequenas Centrais Hidreléticas) is defined in Brazil as being between 1 and 30 MW. Though the category has been explicitly defined since the early 1980s, the current upper limit of 30 MW was established as recently as 1998. Prior to that the upper limit was 10 MW. Below 1 MW (1000 kW) small hydro plants are referred to as CGHs.

The market for PCHs has been active in recent years as is shown by Figure 13 and Figure 14. Figure 13 summarizes the number of basic project designs (projetos básicos) which have been registered with ANEEL since 1998, as well as the associated capacity in MW. Figure 14 shows the number and capacity of projects which have been authorized by ANEEL over the same period.

Projetos Básicos de PCH's Aprovados entre 1998 e 2009

0

200

400

600

800

1.000

1.200

1.400

Potê

ncia

Apr

ovad

a (M

W)

0

10

20

30

40

50

60

70

80

90

Potência (MW) 34 173 71 344 546 961 1.265 537 744 664 815 778

Quantidade 7 22 6 28 37 61 82 41 45 49 74 63

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 13: Basic project designs for small hydro approved by ANEEL, 1998-200910

10 Source: Hubner, 2010


Evolução da Outorga de PCH (1998-2009)

0

20

40

60

80

100

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-

200400

600

8001.000

1.200

1.4001.600

1.800

Quantidade Potência (MW)

Figure 14: Small hydro projects authorized by ANEEL, 1998-200911

At the end of 2008 there were 310 PCHs in operation with a capacity of 2,209 MW, another 77 plants with 1,264 MW were under construction, while 161 with 2,396 MW had received their authorization from ANEEL.

By the end of 2009 the number of PCHs in operation had grown to 358, with a capacity of 3,018 MW. The capacity under construction was somewhat smaller – 998 MW – while those with authorizations also fell slightly to 2,067 MW. Table 45 summarizes this information for PCHs, as well as for the smaller CGHs. There was no evolution in either the number or capacity of CGH plants.

Table 45: Evolution of installed PCH and CGH capacity in 2008-200912

Number of plants Installed Capacity (MW) PCH (1-30 MW) 2008 2009 2008 2009In operation 310 358 2,209 3,018In construction 77 73 1,264 998Authorized (outorgados) 161 145 2,396 2,067Total 548 576 5,869 6,083 CGH (<1000 kW) In operation 221 221 117 117In construction 1 1 0.8 0.8Authorized (outorgados) 75 75 51.2 51.2Total 297 297 169 169

This PCH market development activity has had an interesting consequence – a substantial increase in registered inventory of potential in a short time, as shown in Table 2.1.2. In 2008, the total inventoried potential was 16,184 MW, of which 13,975 MW remain to be constructed. In 2009 the total potential had jumped to 22,455 MW, of which 19,437 MW remain to be constructed.

11 Source: Hubner, 2010 12 Source: Tiago et alii, 2010


Table 46: Evolution of small hydro potential in 2008-200913

Status of development Number of plants Installed Capacity (MW) 2008 2009 2008 2009In operation 310 358 2,209 3,018In construction/authorized 238 218 3,660 3,065Inventory in preparation 759 1,047 4,984 10,344Executive project in preparation 527 1,535 5,331 6,028Total potential 1,834 3,158 16,184 22,455

Regional aspects

An idea of project development activity by region can be had from Table 47, which shows the number of Executive Projects (Projeto Básico) and inventory studies of sites by region.

Table 47: Number of Executive Projects and Inventory Studies by Region14

Region Executive Projects Inventory Studies Southeast 330 190 South 361 351 Northeast 35 89 North 29 102 Center-West 94 205 Total 849 937

The values are not restricted to small hydro, but they serve to illustrate regional differences. The historic dominance of the South and Southeast are shown, as is the increasing development in the Center-West.

Characteristics of typical projects

Most small hydro projects are above 5 MW installed capacity. A register of 285 operating small hydro plants at ANEEL shows that 60% are larger than 5 MW (Table 48). When one takes account of the fact that most of the older PCHs (built before PROINFA and other programs to promote small hydro) were smaller than 5 MW, it is clear that more recent developers have preferred to build larger plants.

Table 48: Small hydro plants in operation15

< 1 MW 1-3 MW 3-5 MW 5-10 MW 10-20 MW 20-30 MW Total31 51 31 49 65 58 285

11% 18% 11% 17% 23% 20% 100%

The average size of plants completed in 2009 was 17 MW. The average capacity of plants which have been authorized or are under construction is about 14 MW.

13 Source: Tiago et alii, 2010 14 Source: Banco de Informações de Geração, ANEEL. Excludes projects and studies which have not yet begun or have been stopped. 15 Source: CERPCH, from www.aneel.gov.br


This preference is due to the lower financial attractiveness usually associated with smaller PCHs. There are economies of scale for costs which do not vary much with size, such as studies and executive project designs and licensing. One source estimates that there are costs on the order of BRL 6 million (USD 3.3 million) to develop a PCH, almost regardless of the size of the project.16 This represents a heavy burden for smaller projects.

In addition, many sites have relatively low heads. In the South and Southeast, which are quite developed, such sites tend to be what is left. In the North (Amazonia) and Center-West regions, which have had less of their potential developed, sites with lower heads are typical of the potential due to the topography. Lower heads imply larger water flows to achieve the same output and as a consequence the costs per kW of the civil works and the turbo-generator are greater. Thus in order to achieve economic viability the projects need to exploit economies of scale larger, often approaching the 30 MW limit for small hydro.

Figure 15 illustrates the effect of lower heads, using data from real projects. The horizontal axis shows the “power ratio” which is a ratio of power to head. A low head site will tend to have a higher power ratio.

Figure 15: Small hydro costs/MW as a function of the “power ratio”17

Smaller plants, between 1 and 5 MW, are viable when the characteristics of the site are favourable. This allows lower costs for the civil works and the turbo-generators. In addition, since the plants are small, it is important to minimize the operating cost. This means that remote control and operation (or at least, semi-remote controlled) is almost a pre-requisite. The best way to improve the viability of these smaller plants, from the perspective of O&M, is for several to be located within a radius which permits the use of a single control center and of a single maintenance team.

16 Estimate of Fábio Dias, Executive Director of the Association of Small and Medium Energy Producers (APMPE - Associação dos Pequenos e Médios Produtores de Energia – APMPE). 17 Source: CERPCH. The power ratio, shown on the horizontal axis, is defined as


The cost per kW of installed capacity is sensitive to the site, as shown in the graph above, as well as the scale of the plant. A reasonable range is about BRL 4-6,200/kW based on the recent experience (with smaller plants tending towards the higher end of the range). At this range of unit costs, the average plant currently under construction or authorized requires an investment of about BRL 56-70 million.

The construction costs of small hydro plants have grown substantially in recent years. This is due in part to the fact that the heads in available sites have diminished and the water flows have increased, which increases project costs as discussed above. Also, the increase in demand led the manufacturers to increase the price and to lengthen the delivery time of equipment.

The cost of electricity generated evidently depends strongly on the site, but projects which have been implemented in recent years generally sell their power for BRL 160-175/MWh (USD 89-97/MWh).

The small number of PCHs registered to participate in the upcoming auction for alternative energy and A-3 (scheduled for the third quarter of 2010) has been a motive of much discussion in the sector. Out of a total of 478 projects with 14,500 MW, only 18 projects are small hydro with a capacity of 255 MW. One explanation is the delays and difficulties in obtaining authorizations from ANEEL and environmental licenses. Another is the alleged lack of some tax exemptions (ICMS) granted to wind power projects. Finally, the maximum price allowed for PCHs in the auction is BRL 155/MWh – which is below the economically viable price for most projects. Curiously, the ceiling for wind power and biomass projects was set higher at BRL 167/MWh.

While PROINFA and earlier alternative energy auctions have been an important factor in promoting the development of small hydro, PCHs have a long history in Brazil and a substantial share has been constructed by self-generators and also for the free market. Given the difficulties with the auction, these markets continue to be attractive for part of the 149 PCHs with 2.3 GW which have received authorizations from ANEEL (the power sector regulator) but have not yet started construction.

Overview of the regulatory framework

Small hydro (PCH) is subject to the same basic legislation as larger hydro, with simplifications and some exemptions to reduce costs.

For the development of larger hydroelectric plants government agencies (principally EPE) prepare the inventory of river basins and obtain the preliminary environmental licenses for individual sites. These sites then go in auctions to the lowest bidders, who develop them.

In the case of small hydro (PCH) it is the interested developer(s) who prepare(s) the inventory study. In addition, there is no formal auction of sites.


An inventory study is an analysis which is intended to identify sites along a given river basin that optimize the division of the fall line in order maximize energy generation, minimize costs and environmental impacts and permit multiple uses of the water when appropriate. In 2008 ANEEL changed the regulation for this activity in Resolution 343. Among the changes compared with the previous regulation (Resolution 395 of 1998):

• It requires a deposit as a guarantee to register the inventory study - which would be returned on completion.

• It fixes a time limit for the completion of the study, which previously had been left for the developer to define.

• The acceptance (aceite) of the analysis of the basic project designs (projetos básicos) of the sites defined in the inventory now defines a single winner (criteria are in the Resolution) whereas before it permitted more than one.

• In order to receive the authorization to begin construction of the plant, it is now necessary to make a deposit guaranteeing commitment to the specified chronogram. Such a deposit was not needed before.

• At least 40% of the inventoried potential is reserved for whomever prepared the inventory study, it being the responsibility of the other entrepreneurs to cover the costs of the inventory study. Since the publishing of this Resolution, ANEEL has encouraged those groups interested in developing a given hydrographic basin to work together to share the costs of collecting and analyzing the needed field data and aerial surveys.

• The new Resolution also requires the preparation of an Integrated Environmental Evaluation (AAI- Avaliação Ambiental Integrada) of the basin being inventoried together with the relevant agent for environmental licencing. This is in order to define, before the elaboration of the basic project designs (projetos básicos), which of the sites really are likely to be authorized. With this measure it is hoped to reduce the conflicts which have frequently occurred when the time comes to obtain the environmental licence for the project from the relevant Environmental Council.

In order to avoid these new more demanding rules, there was a large increase in the registration of basic project designs (projetos básicos) for small hydro plants with ANEEL in 2008. More than 700 applications were made in the three months prior to the publication of Resolution 343, falling to almost zero afterward.

There have been two other recent changes in the regulatory framework for smaller hydro plants:

In the interest of promoting the development of hydro by self-generators and independent power producers, the upper limit for exemptions from the standard auction process for hydro was extended to 50 MW (Law nº 11,943/2009 amending article 26 of Law nº 9.427/1996).

In addition, there were important changes in the compensation of PCHs’ guaranteed energy in the Market for Reallocating Energy (MRE - Mercado de Realocação de Energia). The MRE, was established in 1998 (Decree 2.655/1998 and Resolution 169/2001 of ANEEL) to share the hydrological risk between hydro plants, including those which are not centrally dispatched - which is the case for PCHs.


The MRE is intended to minimize the impacts of the occasional unavailability of power from a plant. If the availability is lower than that used in the calculation of Assured Energy (AE) of the plant, the energy lacking will be reallocated by the market, using surpluses from other plants. However, it was understood that the MRE should not cover that part of the unavailability which exceeds the value established by ANEEL when calculating the plant’s Assured Energy. In the case of plants which are not centrally dispatched, there should be the physical guarantee that the “firm energy” attributed to the plant is consistent with its generating capacity and that shortfalls would only occur occasionally.

However, over the years problems have emerged regarding the guarantee of small hydro plants’ assured energy, such as:

• Historically, 46% of the PCHs with at least five years of operation (registered in the clearinghouse for energy commercialization, the CCEE - Câmara de Comércio de Energia Elétrica) generated less than 80% of their Assured Energy;

• This poor performance was not detected by the mechanism to reduce assured energy (MRA - Mecanismo de Redução de Energia Assegurada) – not even in extreme cases.

• Many plants sought retroactively to expunge the value for Assured Energy attributed to them, alleging lack of water flow. This suggests that there had been an overestimate of the hydrological resource at the time of the original calculation of Assured Energy.

These and other problems led ANEEL to propose new rules for the calculation of the physical guarantee (NT 039/2009-SRG/ANEEL) as well as for the participation of PCHs in the MRE (Portaria 049/2009). In addition, the Ministry of Mines and Energy (MME) published Portaria nº 463/2009, with some modifications of the rules.

The initial calculation of Assured Energy continued to be based on the hydrology of the site and the availability and efficiency of the turbo-generators as declared by the project developer. However, over the first 48 months of commercial generation of the plant (60 months total since the first 12 months are not counted), the average generation may not be less than 80% nor more than 120% of the value of the Guaranteed Energy. After the 60th month of commercial operation, the average may not be less than 90% nor more than 110% of the Physically Guaranteed level of output.

The historical problem of the under-performance of so many PCHs being addressed by the changes in regulation are clearly not only a problem for the operation of the power system. They also represent a risk for any agent providing financing to these projects. “Project risk” was highlighted in one of the interviews with commercial banks participating in this market assessment. It ultimately goes back to the quality of the engineering services being provided. Hopefully the rule changes will lead to reduced project risk in the future.

Finally, a deposit (caução) is required by ANEEL to reserve the concession for a site. It varies between BRL 100,000-500,000. This deposit and the costs of environmental licensing can weigh heavily on smaller projects.


Policies and programs to promote development

One approach to promoting small hydro is the simplifications of procedures to reduce the transaction costs and the granting of some exemptions. For example, PCHs are exempt from the normal payment of 6% of revenue to compensate local municipalities for the inundated areas in reservoirs. However, this exemption has become a common source of conflict in approval hearings where its constitutionality is frequently challenged. Rather than being a factor promoting small hydro, this exemption may represent a complication.

An important area of policy support has been in technology research and development. Since the passage of Law 9.991 in 2000, all utilities are required to invest a percentage of their gross revenue in R&D - generating companies must invest 1%. These funds may be spent internally or in grants to research institutions and universities. As a result of the resulting programs there have been significant advances in technologies for generation, with improvements in environmental impacts. 18

Currently, research is underway to improve the quality of hydraulic turbines using quantitative techniques to simulate flows in the turbines and the distribution of losses in the generators. In addition, there are improvements in systems of automation and control of turbo-generators and the use of generators with varying speeds of rotation.

There is also interest in the development of new turbine technologies to exploit low head sites and very small generators with low rotation speeds. Regarding the dams, there is attention to new configurations where the dam is integrated to the powerhouse, the concept of mobile dams and new construction materials – ranging from metallic dams to the use of tubes with composites of fiberglass and resins.

There is also research in environmental issues, such as ways to reduce the impact on fish populations, studies of methane emissions from reservoirs and the impacts of retaining sediments in the reservoir.

The supply chain and key market players

The supply chain can be divided into three major categories for the purposes of discussion

• Engineering services • Hydromechanical equipment • Generators and electrical equipment

Engineering services include all of the prospection phase of the hydro site, the initial evaluations of potential and viability, the hydro-energetic inventory, analyses of hydrology, geological and geotectonic studies, the basic design and executive project, socio-economic and environmental studies and finally the execution of the project itself.

18 There do not appear to be any obvious opportunities for IFC venture capital investment to leverage these R&D grants. However, the range of R&D is very broad and diverse. If the IFC wants to seriously evaluate possibilities for venture capital a separate review of the energy R&D program would be needed.


There are many firms providing this kind of service in Brazil. In some cases their primary experience is with the design and construction of large hydro plants and need to adapt themselves to the conditions of smaller plants. The same distinction between suppliers for larger and smaller plants can be made in the other two categories of suppliers described below.

Hydromechanical equipment is that which controls the flow of the water and directs and extracts the hydraulic energy in it. These include the grates, stop-logs, gates, pipes, valves and above all the hydraulic turbines. The turbine manufacturers normally supply the other hydromechanical equipment as part of a single package. However, there are other manufacturers who produce this kind of equipment, such as: Confab, Vilares, Badoni-ATB, Serme, Coemsa, Bardella, CEM, CatLeo and Saint-Gobain. For smaller plants the list of suppliers could expand greatly since the fabrication is quite straightforward.

Table 49: Hydromechanical equipment for small hydro projects

Firm Site Contact Confab www.tenaris.com/TenarisConfab (12) 3644 9000 Vilares www.villares.com.br (11) 3094 6600

For the turbines as such, suppliers can be divided into two groups. In the first group are large international companies with a presence in Brazil, such as Alstom, Voith and Vatech. These manufacturers are competitive for turbines larger than about 5 MW. In the second group are domestic companies such as Wirz, Hisa, Hacker, MCA, Rischbieter and Framaq. These firms have the capacity to supply turbines of up to about 6 MW.

Table 50: Tubine suppliers for small hydro projects

Firm Site Contact Dedini www.dedini.com.br (11) 3371 9900 Bardella www.bardella.com.br (11) 2487 1111 Alstom www.power.alstom.com (11) 3612 7000 Voith www.voith.com.br (11) 3944 5100 Andritz www.andritz.com.br (11) 4133 1260 Wirz www.turbinaswirz.com.br (51) 3712 1677 HISA www.hisa.com.br (49) 3551 9000 Hacker www.hacker.ind.br (49) 3441 8000 Rischibiter www.rischbieter.com.br (41) 2104 1717 SEMI www.semi.com.br (11) 3079 7343 Mecamidi www.mecamidi.com.br (11) 3063 5710

Generators and electrical equipment: As with the turbines it is possible to divide manufacturers into two groups. The larger manufacturers are competitive only in the larger size range, where at times it is necessary to use generators with vertical axes. Voith-Siemens and Alstom are examples.

For smaller plants with conventional generators, up to about 4 MVA, there various other manufacturers who can supply the market for PCHs. These include Toshiba, WEG, Gevisa, Negrini, Equacional, Bambozzi and Kolbach.


Electrical equipment also includes items such as control panels, meters and transformers, as well as the systems for automation and communication. The same suppliers of the generators, as well as many other firms, can provide this equipment – which is widely used in industries and electrical substations. The same can be said for transmission lines. There is a large diversity of suppliers of cables, structures, posts and accessories.

Table 51: Generator and electrical equipment supplier for small hydro projects

Firm Site Contact Toshiba www.toshiba.com.br (31) 3329 6650 WEG www.weg.com.br (47) 3337 1000 Gevisa www.gevisa.com.br (11) 3614 1930 Negrini www.negrini.com.br (11) 2020 9999 Equacional www.equacional.com.br (11) 2100 0777 Bambozzi www.bambozzi.com.br (16) 3383 3800 Siemens www.siemens.com.br 0800 -119484 ABB www.abb.com.br (11) 3688 9111 Balteau www.balteau.com.br (35) 3629 5518 Orteng www.orteng.com.br (31) 3399 6600 Grameyer www.grameyer.com.br (47) 3374 6300

A crucial set of agents are the project developers and economic groups which have specialized in small hydro. Many are quite small, but there are some larger groups which are active. Two important examples are:

• The Ersa group, which is a joint venture between Patria Investments, Eton Park (an American asset management group), the Fund BBI FIP (administered by the Banco Bradesco de Investimento), a GMR Empreendimentos Energéticos and DEG (part of the German group KfW). It has three plants in operation and nine under construction which will total about 300 MW.

• The Canadian group Brookfield Energia Renovável (ex-Brascan Energia), owns and operates 30 plants with 536 MW, the largest PCH portfolio in the country. It paused during the financial crisis but is now preparing to embark on new projects.

Developers often outsource the operation of the plants to specialized firms.

Overview of sources of financing used until now

The main source of financing for PCHs has been project financing by the BNDES, as shown on next table. Up to 80% of the plant and accompanying transmission can be financed with an amortization period of up to 14 years.


Table 52: BNDES financing for PCH projects

BNDES Line TJLP19 a BNDES Fee BNDES Credit Risk

Finance Intermed

Credit Risk20

Collateral required21

FINEM 6.0% 0.9% Up to 3.75% --- 100%Direct Operations Project Finance 6.0% 0.9% Up to 3.75% --- 130%Indirect Operations FINEM 6.0% 0.9% --- Up to 3.50% 100%

There is no information on the share of financing which is done directly by the BNDES and the share lent in “indirect” operations through financial intermediaries. Almost all projects are large enough to be financed directly by the BNDES. Private commercial banks appear to be wary of the technical risks which have appeared. Many small hydro plants have under-performed due to inadequate hydrological analyses, while geological risk is also a common concern.

The main difficulties encountered by many project developers in obtaining financing have been:

• Amortization periods which are too short for hydro plants (though this suggests that these plants are only marginally economic.

• Lack of capital for the initial development and definition of the projects as well as a lack of equity for the project financing itself;

• Inadequate credit ratings; • Guarantees required to obtain loans; • Perceptions of project risk and the lack of instruments to mitigate them (e.g. performance

bonds). Some kind of certification procedure, as exists for wind power projects, could mitigate this barrier. However, the more stringent requirements for project design may simply make smaller projects unviable.

One approach to mitigating the project risk is to purchase insurance in the form of a “completion bond” which guarantees the completion date, the capacity and contracted energy (MWh/year) or a project. The BNDES allows up to 50% of the value which has been financed to be covered by this kind of insurance.

Insurance firms in Brazil specialized in guarantees are interested in this market. The principal Brazilian re-insurers are:

• ACE Resseguradora S/A • IRB Brasil Resseguros S/A • JMalucelli Resseguradora S/A • Mapfre Re do Brasil Companhia de Resseguro • Munchener Ruck do Brasil Resseguradora S.A • XL Resseguros Brasil S.A

19 The TJLP (long term interest rate) is the underlying cost of capital for the BNDES loan–rate in July 2010 20 Spread for the credit risk of the authorized financial intermediary. 21 Garantias reais in Portugese.


However, there are no large insurance firms in Brazil which are active in this market. Normally, specialized firms active in this market negotiate the reinsurance with IRB Brasil-Re and with large foreign reinsurers. Sometimes they establish partnership links with them. Typically the domestic insurer assumes 30% of the contracted risk and passes on 70% to the foreign reinsurer. There are other, less comprehensive, types of insurance available to mitigate risks in energy projects. An example is contracts for engineering risk, which covers items such as the civil works and the proper functioning of the equipment.


APPENDIX 6 SUGARCANE BIOMASS MARKET SECTOR

Energy from sugarcane biomass provides a substantial share of the energy supply in Brazil – a situation which is unique among the larger countries in the world. There are two basic ways that sugarcane contributes to energy supply:

• The ethanol (both hydrated and anhydrous) which supplies liquid fuel for the transport sector as well as a feedstock for non-energy uses.

• The residues - chiefly bagasse from milled cane but also, increasingly, field residues - which are used for process heat in sugar and ethanol production, as well as to generate electricity in systems of cogeneration.

Scale of the market and recent trends

Brazil is by far the largest producer of sugarcane in the world and the sugarcane sector has considerable weight in Brazil’s economy. The below table illustrates this point. It presents the GDP of the sugarcane sector broken down by different markets – with and without taxes included. Energy products (ethanol and electricity) already account for 56% of total sales.

Table 53: Estimate of the GDP of the sugarcane sector by product and market (millions of USD)g

Product Domestic Market Exports Total (Domestic + Exports) Includes Without Exempt Includes Without Taxes f Taxes from Taxes Taxes TaxesEthanol - Hydrated 11,114.5 a 9,105.1 23.8 11,138.3 9,128.9Ethanol - Anhydrous 2,972.9 b 2,250.9 2,366.3 5,339.2 4,617.2Ethanol - Nonenergy 438.8 c 351.6 -- 438.8 351.6Sugar 5,297.1 d 4,455.8 5,483.0 10,780.1 9,938.8Electricity 389.6 e 242.87 -- 389.6 242.9Byproducts 21.4 19.4 42.2 63.6 61.6Carbon credits -- -- 3.5 3.5 3.5Total 20,234.4 16,425.7 7,918.8 28,153.1 24,344.4a Sales by retail gasoline stations (formal and informal markets) b Sales of distilleries to distributers (formal and informal markets) c Sales to drinks and cosmetics industries d Sum of sales to industries and to retail e Sales of the mills in the auctions for electricity f Taxes are IPI, ICMS, PIS e COFINS g Sum of all the sales in the supply chain less the costs of intermediate goods used in production Source: Neves, Trombin e Consoli, 2009

Note that ethanol output is divided into two categories: hydrated ethanol and anhydrous. Anhydrous ethanol is an additive for gasoline which enhances the octane of that fuel. It is used in proportions between 20% and 25% (the blending percentage of ethanol in the gasoline is determined by the government, based on analysis of supply/demand scenario). Hydrated ethanol is somewhat cheaper to produce and has traditionally been used in pure form as a substitute for gasoline since it was introduced some 30 years ago. In 2003 Brazilian automobile manufacturers began to sell “Flex Fuel” vehicles which can use hydrated ethanol mixed in any proportion with gasoline (which in Brazil is always mixed with 20-25% anhydrous ethanol).


Sugarcane was processed in more than 400 sugar mills and distilleries in 2008. The evolution of sugarcane production and sugar and ethanol output is summarized in Table 2.3.2.

Table 54: Evolution of sugarcane, sugar and ethanol production from 2003 to 2008

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Sugarcane1 359.3 386.1 387.4 425.5 495.7 569.1 Sugar1 24.9 26.6 25.9 29.9 31.0 31.0 Ethanol2 14.8 15.4 15.9 17.7 22.5 27.5

Notes: 1 Million metric tons, 2 Billions of liters Source: Unica, 2009

The sector’s expansion began to accelerate in 2004. The principal factor was the growth in the internal market for ethanol. This acceleration was stimulated by:

• The introduction of “Flex Fuel” vehicles and the rapid growth in that fleet, which passed the 8 million mark in 2008 and has now reached about 10 million.

• The increase in the price of gasoline over much of this period, which encouraged drivers to use more ethanol and less gasoline.

The large and growing fleet of Flex Fuel vehicles guarantees a growing domestic market for ethanol so long as oil prices maintain their current levels.

Overview of potential

The potential for expansion of ethanol production (beyond the normal expansion of sugar) and of electricity generation is very large in Brazil. In the short and medium term it is limited by market growth and investment rather than by natural resources.

There are various factors which contribute positively to the prospects for the growth of the sector in the shorter and longer term.

Brazil is highly competitive in world markets as a sugar producer, ensuring gradual growth in this export oriented segment.

Brazilian ethanol production is also competitive with gasoline, without subsidies. In the International Energy Agency’s (IEA) price projections for gasoline, Brazilian ethanol will continue to be cheaper than gasoline.

The technology for producing and processing sugarcane is both mature and cutting-edge, which helps insure lower costs in the future. This technological sophistication and dynamism of Brazil’s sugarcane sector includes the genetic improvement of sugarcane (more than 500 varieties of cane have already been developed) and improvements in agronomy and crop management which will continuously increase yields per hectare.

Ethanol from Brazilian sugarcane was recently classified by the U.S. Environmental Protection Agency as an “advanced biofuel” which in principle opens the door for future exports to that country, though tariff barriers still remain (see below). Similarly, Brazilian ethanol also satisfies the prerequisites of the


Renewable Energy Directive (RED) of the European Union in terms of greenhouse gases (GHG) reduction.

The recent auctions for electricity organized by ANEEL have shown that electric power can be generated for sale to the grid at prices which are competitive with other thermal generation resources based on fossil fuels. The use of field residues is increasing as field burning is reduced and this will further increase the potential. All of this will aggregate more value to the cane being processed in the mills.

An estimate of the expansion of the sector through the harvests 2015/2016 and 2020/2021 prepared by UNICA (União da Indústria de Cana de Açúcar) is shown in Table 55. In this scenario of the sector, the sugar output will become even more dominated by exports (going from 60% to 73% in 2020/2021) while output will grow at respectable but relatively modest rates. Much greater expansion is projected for ethanol and electricity generation.

Table 55: Scenario of expansion of the sugarcane sector in Brazil until the harvest of 2020/2021

2007/2008 2015/2016 2020/2021Sugarcane produced (million t) 496 829 1.038Cultivated area (million ha) 7.8 11.4 13.8Sugar (million t) 31.0 41.3 45.0 Domestic market & stocks 12.4 11.4 13.8 Export 18.6 29.9 32.9Ethanol (billion liters) 22.5 46.9 65.3 Domestic market 18.9 34.6 49.6 Export 3.6 12.3 15.7Electricity (MW-average) 1,800 11,500 14,400Source: UNICA, 2008

In this scenario, the ethanol market would continue to be dominated by domestic demand (still 76% in 2020/2021) though exports would grow fourfold. This projection of exports assumes the continuation of existing trade barriers. The fastest growing segment would be electricity generation, which would grow eightfold over the period.

The dramatic growth in electricity sales would contribute to a significant shift in the profile of sales of the sector, as shown in Table 56. The share of energy products in income from sales would increase from 43% in 2006/2007 to 67% in 2015/2016, with the greater part of the increase in revenues due to growth in electricity (the value in this table is different from Table 53 because it only includes sales at the sugarcane mill’s gate, not the gross internal product of the supply chain). It is interesting to observe that, even today, less than ¼ of the sugarcane mills sell power to the grid.

Table 56: Projected change in the revenue profile of sugarcane mills

Products 2006/2007 2015/2016 Electricity 1% 16% Ethanol 42% 51% Sugar 56% 32%

Source: UNICA, 2008


One characteristic of income from electricity sales is very significant from a financial point of view. Unlike sugar (and to a lesser extent ethanol) the price of electricity sold in long term contracts is quite stable. This will be helpful to reduce the volatility of income of the sector.

The technical potential to dramatically increase the sale of surplus power to the grid certainly exists, as will be discussed in the section below on the characteristics of typical plants.

An attractive aspect of using cogeneration from sugarcane for electricity supply is that, in the South-Central macro-region of Brazil, the sugarcane harvest period coincides with the drier part of the year. This provides a natural complementation to the river flows in the region and hence the dominant hydroelectric system, as shown in Figure 16. As a consequence the volume of hydro reservoir capacity required for a given level of “firm” energy is reduced. This is helpful because many environmental and social impacts are usually associated with large hydro reservoirs. In addition, the ratio of hydro reservoir capacity to hydro generation capacity has steadily declined in recent years and will continue to fall.

Figure 16: Complementation of the natural flow hydropower by seasonal sugarcane mill

generation22

Despite this attractive complementation of the natural cycles of hydro and sugarcane, there has traditionally been a certain resistance in the electricity market to buying “seasonal” power. This resulted in deep discounts for sales from sugarcane mills. The recent auctions have begun to mitigate this problem.

A question which faces the use of sugarcane residues for electricity generation is their future availability if “second generation” liquid biofuels take off. “Second generation” biofuels in this case refers to liquid fuels produced from ligno-cellulosic materials such as sugarcane residues. These are the subject of massive R&D investments, especially in the United States. It is anyone’s guess when (or if) a commercially viable solution to this challenge will emerge. However, in the United States the

22 Source: Castro et al., 2009


Energy Independence and Security Act of 2007 (Renewable Fuel Standard 2 or RFS2) requires that at least 60 billion liters of “second generation” alcohol (or equivalent) be used in 2022.

The development of liquid biofuels from ligno-cellulose is likely to be slow (the IEA believes that “second generation” will play no significant role until the 2020s). This could open an export opportunity for Brazil. As already observed, Brazilian ethanol has already been qualified as “advanced”, that has a market share targeted by the RFS2 of 15 billion liters by 2022. Of course, the practical opening of this potential market will be eminently political since the customs tariffs on Brazilian alcohol are still there. In addition, RFS2 does not allow advanced biofuels (such as Brazilian ethanol), to substitute for cellulosic ethanol.

But what if there is a breakthrough faster than expected? Given the dynamism of bioengineering, that is not impossible.

First, conventional Brazilian ethanol from sugarcane is still very likely to be cheaper. In the US (and elsewhere) the “second generation” is competing against more expensive alternatives, such as ethanol from corn. This perspective is reinforced by an analysis of the International Energy Agency (IEA) which concludes that ethanol from sugarcane is the only “first generation” liquid biofuel which can survive in the longer term, as illustrated in next figure.

Figure 17: Biofuels consumption and land use in a global scenario to reduce greenhouse

gases by 50%23

Within Brazil the transition to “second generation” biofuels is likely to be quite gradual. If the new technology begins to enter the market it will create a price for sugarcane residues. For sugarcane mills which have invested, say, ten years before in electricity generation (and hence amortized much of the investment), it is very unlikely that this price could compete with that for electricity generation. The impact will be felt in new “greenfield sites”. However, the new technology should not make previous investments unviable (at least those made a few years earlier, which means at least the next 5 years). Another point is that the sector is growing accustomed to producing three major products: sugar,

23 Source: IEA, 2008. Biodiesel BtL means “Biomass to Liquid”; it refers mostly to biodiesel fuels from the Fischer-Tropsch process.


ethanol and electricity. This approach has proven to be helpful to reduce the economic risks of producing commodities in a globalized market.

Characteristics of typical projects – choices of scale and investment

When the sugarcane sector began its new phase of expansion, technical studies were made of the optimum size for new “greenfield” plants. The reason for such studies arose from the fact that, on the one hand, there is a strong economy of scale in investment which favors larger mills. On the other hand, the increase in processing capacity will also increase the costs of transport of the cane to the mill and the complexity of the logistics of the agricultural operations (e.g. number of fronts for harvesting cane, movement of workers and machines). The result of these studies suggested that the optimal scale for a new plant would be on the order of 2 million tons of cane per year (tc/yr) – equivalent to about 12,000 tc/day.

In fact, 62% of the projects submitted to the BNDES for financing have had a capacity between 1.5 and 2.9 million tc/yr, with an average of 2 million tc/yr. However, today there is tendency to build larger mills, with capacities above 3 million tc/yr. This may have been stimulated by the rapid growth in output projected by the large economic groups entering the sector. Table 57 summarizes estimates for the effect of scale on the investment per unit of capacity. The unit investment falls by 20% as the scale increases from one to four million tc/harvest (which corresponds in practice to tc/yr).

Table 57: Effect of scale on approximate investments in new sugarcane plants24

Milling capacity (million tc/harvest)

Industrial investment(million BRL)

Unit investment (BRL/tc/harvest)

1 195 195 2 350 175 3 480 160 4 600 150

If we consider an average plant with a milling capacity of 2 million tc/yr (12,000 tc/day), with half going for sugar and half going for ethanol,25 the typical parameters of a modern plant would be as shown in Table 58. In an autonomous distillery, there is no sugar production and ethanol output would increase from 500,000 to 1,000,000 litres per day – the remaining parameters would remain approximately the same.

24 Source: Dedini, 2010. Complete plant – excludes investments in sugarcane production. Assumptions:

A. Turn-key plants; boilers of 66 bar/520 ºC; condensing/extraction turbo-generators (CEST) or separate condensation and back pressure turbogenerators. B. Process steam consumption between 340 and 400 kg per ton of cane (kg/tc).

25 In a plant of this type the production lines for sugar and ethanol are somewhat oversized to permit some short-term flexibility of production depending on market conditions.


Table 58: Typical parameters of sugarcane mill with a capacity of 2 million tc/harvest a

Daily milling capacity 12,000 tc/day (divided between 6 crushing mills) Ethanol production 500,000 liters/day Sugar production 800 tons/day Bagasse production 260-280 kg/tc Process steam consumption 340-400 kg/tc Boilers 2 of 150/ton steam/hour @ 66 bar/520˚ C Turbo-generator Condensing/extraction with 47 MW Total capacity to generate electricity 47 MW Surplus capacity available to export to the grid 40 MW Capacity of mechanical equipment driven by steam 9 MW a Here and elsewhere, when referring to a capacity of 2 million tc/harvest, a standard harvest period is assumed of 167 days. More accurate would be to refer to the hourly milling capacity which would be 500 tc/hour.

The amount of electricity generated per ton of cane processed can vary widely, depending on:

• The pressure and temperature of the steam produced; • The consumption of process steam; • The choice between simple back pressure turbo-generators and extraction/condensing turbo-

generators; • The choice between drives for the equipment which prepares and crushes the cane (basically

mechanical, using steam, and electrical or electrical/hydraulic); • The fibre content of the cane.

The next table illustrates the differences between some alternatives.

Table 59: Broad alternatives for generating surplus electricity for sale

Steam Conditions

Type of turbogenerator

Fuel status Surplus generation (kWh/tc) a

Surplus capacity (MW) a b

22 bar/300 ºC Back pressure Bagasse in excess 0-10 0-5 65 bar/480 ºC Back pressure Bagasse in excess 40-60 20-30 100 bar/520 ºC Extraction/condensation All bagasse used c 70-90 d 35-45

100 bar/520 ºC Extraction/condensation Bagasse+50% field residues d 130-150 35-45 e

Source: The consultant (Regis Leal) based on Lamônica, 2009. a The lower end of the range in each alternative reflects the conditions in older plants, while the higher values assume optimized energy configurations normally used in new plants (eg the use of electrical or electric/hydraulic drives in the preparation and crushing of cane). b Assumes a milling capacity of 500 tc/hour or a nominal 2 million tc/harvest. c All available bagasse is consumed, assuming only 5% held for shut downs and start-ups of the plant. d All available bagasse is consumed, complemented by 50% of the field residues. Electricity is generated thoughout the year and not only during the harvest, unlike the other options. e Average values for period during the harvest and between harvests

A more detailed view of the impacts of different technological options on the generation of surplus electricity to sell to the grid is provided by a study of Dedini, the largest equipment manufacturer for the sector (Dedini, 2008). Table 60 summarizes a series of alternatives ranging from the 21 bar boilers which were prevalent in the 1990s, through 65 bar boilers which have predominated in more recent years to the state-of-the art 100 bar boilers with efficient use of steam in the processing of the sugarcane.


Table 60: Surplus electricity for sale with alternative energy configurations26

Steam Conditions

Scenario Steam consumption

Total generation

In plant consumption MW

Surplus for sale

bar/ ºC kg/tc MW kWh/tc Electricity Mechanicalg MW kWh/tc 21/300 A-Reference a 492 6,5 13,0 6,5 13,0 0 0 21/300 B-Bagasse b 492 15,2 30,4 6,5 8,0 8,7 17,4 42/420 C-Steam

drive c 492 33,0 66,0 6,5 8,8 26,5 53,0

65/485 D-Steam drive c

492 41,3 82,6 6,5 9,3 34,8 69,6

65/485 E-Steam drive c

400 45,8 91,6 6,5 9,3 39,3 79,6

65/485 F-Electrical d 400 58,7 117,4 18,0 0 40,7 81,4 100/530 G-State of art

e 300 69,9 139,8 19,2 0 50,7 f 101,4 f

a Reference scenario: mill is self sufficient in electricity and there is an excess of bagasse. This is typical of mills built in the late 1980s. b All the bagasse is used (275 kg/tc), less 5-7% for plant shutdowns, hot standby and start-ups. This is true for all the scenarios below with higher steam pressures. c Steam-driven equipment to prepare and crush the sugarcane. d Electrical: equipment to prepare cane is driven by electric motors and crushing is done with electrical-hydraulic systems. e State-of-art system with electrical/hydraulic drives for cane preparation and crushing, monodrum 100 bar boiler and extraction/condensation turbo-generators. f The values here for exportable surplus are higher than in the equivalent case of the previous table, in the third line (100 bar, all bagasse used) - for example 101 kWh/tc versus only 90. This because the values here are for a completely optimized plant (300 kg steam per tc and 89% boiler efficiency), whereas in the table above the values are those actually being achieved in recent new mills (350 kg steam per tc and 85% boiler efficiency). g Refers to the power of the steam driven equipment to prepare and crush the sugarcane.

It can be seen from the table that the amount of surplus electricity available to sell to the grid depends strongly on the steam pressure and temperature produced by the boiler. It is also somewhat sensitive to other energy optimization measures, such as reduced process steam use or the use of electrical/hydraulic drives for preparing and crushing the cane instead of the traditional steam driven mechanical drives. The study cited only considers the use of bagasse and not any field residues. The impact of the fibre content of the sugarcane was not considered in this study but can also be significant.

Table 61 shows the boiler pressure of projects submitted to the BNDES for financing in recent years. It can be seen that more than 2/3 been with steam pressure of about 65 bar.

26 Source: Dedini, 2008. Only includes bagasse for fuel – no use of field residues.


Table 61: Boiler pressures in proposals for financing submitted to the BNDES27

Boiler Pressure (bar) DEBIO a DEGAP b Total Share 21 2 - 2 2.5% 30-33 3 - 3 3.8% 42-45 13 - 13 16.3% 64-70 37 22 59 73.8% 97-100 2 1 3 3.8% Total 57 23 80 100%

a DEBIO–Departamento de Biocombustíveis, deals with projects for the whole sugarcane operation. b DEGAP–Departamento de Gás, Petróleo e Energias Alternativas, deals with generation projects specifically for selling electricity to the grid.

However, some investors are beginning to opt for higher pressure (100 bar) systems. Table 62 compares the investment in 65 bar and 100 bar cogeneration plants.

Table 62: Impact of plant pressure and scale on investment28

Pressure and Investment Capacity USD/kW USD 106

100 bar 50 MW $1,694 $8570 MW $1,389 $9765 bar 41 MW $1,597 $6560 MW $1,250 $75

The vast majority of new plants in recent years have installed the traditional back pressure turbo-generators. Extraction/condensing turbines, though somewhat more expensive, decouple electricity generation from the process steam requirements of the mill. This means that the plant can respond more flexibly to variations in the electricity market during the harvest season (when it is in co-generation mode). Probably more important, this also means that the mill can generate electricity outside the harvest season. Both kinds of flexibility are very helpful for adding the use of sugarcane field residues (“ponta e palha”) as a fuel.

Environmental restrictions are increasingly limiting the use of field burning and commercial unburned (green) cane harvesting techniques have been developed. Although part of this straw residue (“ponta e palha” in Portuguese) must be returned to the soil a large part can be used as fuel. More study is needed to determine the ideal quantity of straw which should be left in the fields to protect the soil against erosion, to maintain soil moisture, recycle nutrients and especially, to make possible the use no tillage technology in sugarcane cultivation. Today, without further studies, it is considered that 50% recovery is a reasonable value. This would correspond to about 7 - 8 tons of dry matter per hectare.

The availability of straw in the fields will depend essentially on the spread of cane harvesting without burning. Considering the Federal Law that determines the phase out of cane burning in Brazil and the

27 Source: BNDES (Position in 07/2008). Data in atmospheres/bar. 28 Source: Dedini. Costs include transport and taxes but may vary by ±10% due to different plant conditions. Assumes an exchange rate of BRL 1.80/USD.


two Environmental Protocols in the states of São Paulo and Minas Gerais, the share of sugarcane harvested without burning should evolve as shown in Table 6329.

Table 63: Estimated phase out schedule for sugarcane burning30

% of cane harvested without burning Year SP/MG a Brazil b

2010 55 45 2014 75 65 2017 100 85 2020 and afterwards 100 90 a Environmental Protocols in São Paulo and Minas Gerais b Federal Law 2,661

Thus, the use of the straw residues which have traditionally been burnt in the field is a near and medium term possibility for increasing electricity output. This increase can be quite significant. With boilers operating at 100 bar, the use of 50% of these residues could add about 60 kWh per ton of sugarcane processed, as shown above in Table 59. This increase is close to what mills generate today for sale from all their bagasse with boilers operating at 65 bar.

The technology for collecting field residues, however, is still not mature. Bailing straw and leaves blown onto the field suffers from bringing quite large amounts of earth with fuel (10% by weight can be ash). This might be mitigated by some kind of cleaning process at the mill. Another approach is to leave some of the leaves and straw together with the cane. This increases transportation costs because the density of the load is considerably reduced. The technique of blowing the residues into a separate trailer has not so far worked. This kind of engineering problem might be solved more rapidly if there were an urgent demand for this residue. However most mills would not be able to use more than a small part of the residue collected because they are already dimensioned to only use bagasse during the harvest season and they are incapable of using the residue at other times, since they have back pressure turbines. There is a chicken-and-egg problem here.

Today, the best returns are obtained with 65 bar plants operating in pure cogeneration mode. Whether the market will evolve towards a higher share of 100 bar plants will depend on investors’ perceptions of future energy prices and the impact of the increasing availability of field residues. There is also a competition for investment resources to expand sugar and ethanol production.

A longer term possibility, outside the horizon of this study, is the use of biomass gasification with combined cycle technology. This technology could lead to an exportable surplus of ~300 kWh/tc, or almost double that which could be achieved in the new mills using 100 bar steam turbines using field residues. However, to achieve this level it would require using 70% of field residues (versus 50% now contemplated) and steam consumption reduced to 280 kg/tc (versus 350 kg/tc, though not much below the state-of-the-art of 300 kg/tc). All this will take time, but given the advances in recent years it is not impossible.

29 Cane burning for 10% of production is assumed to remain for social and technological reasons, especially in the hilly areas in the Northeast. In the long run this 10% will probably diminish to close to zero. 30 Source: Leal, 2009


Significant regional differences

Brazil can be divided into two broad regions for sugarcane production:

• The Central-South31 region accounts for 90% of total production and the harvest is primarily in the period from April to November.

• In the North-Northeast region, which accounts for about 10% of total production, the harvest is primarily in the period from September to February.

As shown in Table 64 production has concentrated more in the Central-South in recent years and this trend is expected to continue. Amazônia (except for the State of Tocantins) is outside the agro-ecological zone for sugarcane. In the Northeast, there is limited land which is apt for the cultivation of sugarcane, except in Bahia, Maranhão and Piauí.

Table 64: Production of sugarcane in Brazil and by regions (thousand metric tons)32

Regions 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09North 670 849 858 1,101 894 1,092Northeast 59,525 56,544 48,869 52,149 63,716 63,008Southeast 234,257 261,469 276,914 299,244 339,737 397,166South 28,580 29,076 24,867 32,087 40,498 44,937Middle West 36,284 38,153 35,933 40,955 50,879 62,860Central-South 299,121 328,697 337,714 372,285 431,114 504,963North-Northeast 60,195 57,393 49,728 53,251 64,610 64,100Brazil 359,316 386,090 387,442 425,536 495,723 569,063

The State of São Paulo alone produces about 60% of the country’s sugarcane and continues to grow despite the higher cost of land. Indeed, as shown in Table 65, the State’s share of financing from the BNDES has varied between 65% and 70%. This is due to the high productivity per hectare, availability of qualified labour, easier access to technical assistance and better infrastructure for commercializing production.

Table 65: Profile of loans by the BNDES to the sugarcane sector, by state, from 2004-2008 (%)33

State 2004 2005 2006 2007 2008 São Paulo 69,8 66,6 72,8 64,7 70,4 Minas Gerais 5,4 6,9 7,6 4,6 9,8 Paraná 9,0 12,1 7,8 6,9 8,1 Goiás 9,8 7,2 7,6 16,4 7,0 Mato Grosso do Sul 0,7 0,3 1,2 1,1 2,7 Pernambuco 2,1 2,1 1,1 1,1 0,5 Alagoas 1,2 1,5 0,6 0,4 0,2 Outros 2,1 3,2 1,3 4,8 1,3

31 This region includes the Southeast, Middle West and Southern regions more generally used to divide Brazil geographically. 32 Source: Unica, 2009 33 Source: BNDES (Position in 07/2008)


Barriers and risks

Barriers to the market penetration of ethanol in Brazil are now very small given the expansion of the Flex Fuel vehicle fleet. Barriers to exports continue to be the heavy customs duties which are applied to Brazilian ethanol. In the USA this is USD 0.54/gallon (3.8 litres) + 2.5% ad valorem tax. In the European Union, EUR 192/m3 of ethanol.

Requirements for certification of biofuels which will soon be imposed – principally those related to calculations of the emissions of GHG due to land-use changes (LUC and ILUC). The requirements for certification will probably favour sugarcane ethanol produced in Brazil when compared with grain ethanol produced in the USA or the EU, especially with respect to GHG abatement potential. However, it will introduce a risk in the biofuel business since these requirements are not fully developed yet).

Perceptions of competition with food supply which are exaggerated by campaigns of interests who are opposed to the expansion of biofuels.

For electricity generation, the primary risks today involve the costs in comparison with other alternative of power generation and uncertainties regarding future electricity price and demand as well as reinforcement of the connection with the grid to sell power.

Overview of the regulatory framework for ethanol

The production and use of ethanol began to be regulated in Brazil back in 1931, when a 5% mixture was decreed for imported gasoline. The objective at the time was to reduce the surplus of sugar produced, which was depressing prices for the commodity. The Institute for Alcohol and Sugar (IAA - Instituto do Açúcar e do Álcool) was created in 1933 to set production quotas and prices for cane, sugar and alcohol – including for the export market.

With the creation of Proálcool in 1975 (Decree Nº 76.593) ethanol began to have a distinctive treatment as a product potentially as important as sugar. At that time 600 million litres of ethanol were already being produced annually. The Constitution of 1988 began the deregulation of the sector. In 1990 the IAA was extinguished. In 1991 the prices of anhydrous and hydrated ethanol were liberated at the producer level. In 1999 the government ceased to fix the price of sugarcane in the mills and the retail price hydrated ethanol. Since then prices have been set by the market. As part of this change a Council of the Producers of Sugarcane, Sugar and Alcohol (CONSECANA - Conselho dos Produtores de Cana, Açúcar e Álcool) was created in 1997. The setting of prices for sugarcane was left to be negotiated between the independent sugarcane growers and the mill owners.

In 2005 the regulation of biofuels was passed to the ANP (today the National Agency for Petroleum, Natural Gas and Biofuels). This includes fixing the level of anhydrous ethanol in gasoline (between 20 and 25%, depending on the balance of supply and demand), assuring the maintenance of adequate stocks and guaranteeing ethanol supply throughout the country.

The Interministerial Council for Sugar and Alcohol (CIMA) was created by Decree 3,546 in 2000 inside the Ministry of Agriculture (MAPA - Ministério da Agricultura, Pecuária e Abastecimento). It deliberates


on factors and mechanisms necessary for the self-sustainability and growth of the sector, including scientific and technological development.

The norms establishing the specifications for ethanol, including minimum parameters for quality, are in the Regulamento Técnico Nº 07 which was published in Resolution 36/2005 of the ANP. Currently Brazil, the European Union and the USA are trying to negotiate na international specification. Unfortunately, there are still some significant differences between the proposals. In 2009, the International Organization for Standardization (ISO) began the process to prepare a norm for certifying biofuels, including ethanol.

The taxes which apply to ethanol are the IPI (Tax on Industrialized Products - Imposto sobre Produtos Industrializados), the ICMS (Tax on the Circulation of Goods and Services - Imposto sobre Circulação de Mercadorias e Serviços), the CIDE and the social taxes (PIS & COFINS).

Overview of the regulatory framework for the sale of power to the grid

The first legislation concerning the sale of surplus power to the grid by co-generators such as sugarcane mills was published in 1981 (Decreto-Lei 1872). It allowed the electric utilities to purchase power from self-generators, so long as it was generated without the use of oil derivatives. It was not until 1987 that the first sugarcane mill could exploit this possibility (São Francisco de Sertãozinho in São Paulo).

There is a huge number of regulatory acts and Federal and State laws bearing on the sale of power by self-generators to the grid. Here we only summarize some key legislation.

A crucial step was taken by Decree 2003 in 1996, which regulated the generation of electricity by IPPs (Independent Power Producers) and self-generators.34 It guaranteed the access of both to the transmission and distribution systems of the utilities with payment of fees set by ANEEL (the power sector regulator). In 2000 ANEEL (Resolution 21) set the prerequisites for a plant to be considered a cogeneration plant in order to be qualified for incentives to promote cogeneration projects. In 2006 the prerequisites were revised in Resolution 235, with more stringent energy efficiency parameters required to be considered cogeneration.

The PROINFA program to explicitly promote the use renewable resources for electricity generation - including biomass, small hydro and wind - was launched by Law 10,438 in 2002. This PROINFA program is briefly described elsewhere in this report.

The new general institutional framework for the power sector was defined in Law 10,848, passed in 2004. The most relevant aspects of this landmark general legislation are:

• The creation of periodic sector-wide auctions to contract new capacity three and five years hence. These auctions are planned by the MME (and under it, the EPE) and organized by ANEEL (Decree 5163 of 2004).

34 Self-generators are distinguished from IPPs by the fact that their sales to the grid would be sporadic and temporary.


• The possibility of individual utilities to organize mini auctions (approved by ANEEL) for distributed generation to supply up to 10% of their demand.

In addition, at that time the Normative Resolution 77 of ANEEL reduced the charges for use of the T&D system by 50% - amplifying a concession given originally to small hydro plants to biomass and wind power.

Biomass cogeneration plants, dominated by sugarcane, have been active players in the different categories of general auctions for years, as shown in the Table 66.

Table 66: Summary of biomass projects in auctions since 200535

Auctions Projects # MW Installed MW average Average PriceBRL/MWh

1º New energy (16/12/2005) 7 270 97 150,62º New energy (29/06/2006) 6 188 70 135,13º New energy (10/10/2006) 5 234 61 141,51º Alternative sources (18/06/2007) 12 542 140 142,21º Reserve energy (14/08/2008) 31 2385 548 155,7Auction A-5 2008 (30/09/2008) 1 144 35 145,0Auction A-3 2009 (27/08/2009) 1 47 10 144,6Total 63 3779 961 150,4

The Reserve Energy and A-3 auctions of August, 2010, added 12 projects with 713 MW at an average price of BRL 144/MWh.


Among the new and renewable energy alternatives, the sugarcane sector is the most consolidated and the most market-driven. Explicit public policies to promote development are less prominent than in other renewable energy segments, even most R&D is undertaken privately. Perhaps the most important area is interventions to improve infrastructure for the commercialization of different products, including electricity. An example is a recently created program to mitigate the impacts of the seasonality of ethanol production.

Ethanol is produced during seven months of the year, while consumption goes on throughout the year. Considerable capacity to store ethanol is therefore required. However, capacity outside the sugar/ethanol plants has been limited.36

As a consequence there has been a significant seasonal variation in prices as shown in Figure 18 for hydrated ethanol. Producers often need to sell ethanol during the harvest when prices are low, which also tends to stimulate consumption in the Flex Fuel vehicle fleet. This can mean lower availability in

35 Source: COGEN, 2010 36 Decree n 94,541 of 1987 established norms for the commercialization and storage of ethanol, mandating Petrobrás to create and maintain a security reserve equal to two months’ consumption. However, this norm was never enforced and the stocking of ethanol continued to be the responsibility of (and at the cost to) the distilleries.


the off-season. Prices increase substantially and in some years the government has had to reduce the blend of anhydrous ethanol in gasoline in order to balance supply and demand.

0,4

0,5

0,6

0,7

0,8

0,9

1,0

1,1

1,2

Pre

ço p

or li

tro

(R$)

Álcool Hidratado Combustível

Figure 18: Variation of the price of hydrated ethanol in 2009

In order to increase the storage capacity for and the effective stocking of ethanol, the BNDES created the - PASS (Programa de Apoio ao Setor Sucroalcooleiro). Clients are divided into two broad groups, depending on the harvest seasons (those beginning in April and those beginning in September).


Key elements in the supply chain of the sugarcane sector are the mills and sugarcane producers. There are 430 mills operating in 23 states as well as about 70,000 independent cane producers. On average the mills produce about two thirds of the cane which they process – with about half of this coming from their own land and half from rented land. Independent sugarcane producers supply the other third. The methodologies for determining the value of the payments to independent producers vary some from region to region. However, all are based on, and are very close to, the CONSECANA system which takes into account the quantity and quality of the cane delivered as well as the sales prices of the final products (sugar and ethanol) derived from it.

Most sugarcane mills belong to economic groups. In 2008 there were almost 200 groups active in the sector. There has been a marked tendency towards consolidation and it is estimated that within ten years the number of groups will be reduced by about half, even as the output of the sector grows. Some of the larger groups are briefly described below. They provide a representative sample of different strategies being followed to expand.

• Copersucar S.A. (www.copersucar.com.br): It is the largest Brazilian producer of sugar, ethanol and bio-electricity. It is not the owner of the 35 associated mills, but receives all of their output of sugar, ethanol and electricity and manages the entire chain of commercialization and logistics from the mill-gate to the final client. However, electricity is commercialized directly by the mills. The group seeks to control 30% of Brazil’s production of sugar and ethanol by 2018 – up from 13% in the Central-South region in 2008/9. It is already the largest exporter of sugar in the world


and is successfully negotiating long term contracts for ethanol exports. Approximately 1 billion litres/year (28% of output) is now exported.

• Cosan Indústria e Comércio (www.cosan.com.br): Founded in 1936, it owns 23 mills (of which 21 in São Paulo). In addition it has four sugar refineries and terminals at ports. A subsidiary (Cosan Combustíveis e Lubrificantes) has the rights to the brands Esso and Mobil in Brazil and operates a network of 1500 filling stations acquired in 2008. It has been publically listed in the stock market (BOVESPA) since 2005. It is in the process of merging with Shell in a deal of about USD 12 billion with strategic implications for both firms. It is planned to increase sugarcane output from the current level of 53 million tons to 60 million in a short time. The number of filling stations to sell ethanol will increase by the 4500 in the Shell network.

• Companhia Brasileira de Bioenergia – Brenco: It currently has two mills under construction (MT e GO) each with a capacity to process 3 million tc/yr of sugarcane and two mills still being licensed (GO & MS). The original plan was to reach a capacity to process 44 million tc/yr by 2015 with 10 plants which would produce 3.8 billion liters/yr of ethanol after an investment of BRL 5.5 billion. The strategy is interesting because the sugarcane would be produced on degraded land and abandoned pastures. It has been focused on renewable energy and preoccupations of sustainability since the beginning. Brenco recently began a process of merging with another group which is also a newcomer to the sugarcane sector: ETH Bioenergia. The immediate objective is to process 11 million tc/yr of cane during the 2010/2011 harvest season. The BANDESPAR, as an investor in Brenco, will have 16,6% of the new company’s equity.

• Louis Dreyfus Commodities Bioenergia (LDC): LDC has been active in the sugarcane sector as a trading company. It then began to purchase individual mills and the group Tavares de Melo. By 2007 it controlled 8 mills. In 2008 it inaugurated a large new mill of 4.5 Mtc/year costing BRL 700 million. With this LDC had reached a capacity of 20 Mtc/yr. In 2009 it bought Santa Elisa Vale with 13 mills. The new firm, called LDC-SEV is now the second largest group in Brazil after COSAN,37 with a capacity of 40 million tons of cane per year (Mtc/yr). LDC has a 60% share of the new firm.

• Grupo Bunge: This important commodities trading company entered the sugarcane sector in 2007 by acquiring a new mill in Minas Gerais which began operation in 2006 and should reach 4 Mtc/yr. In 2009, Bunge purchased the shares of the Moema Group in six mills and now has 16 Mtc/yr of capacity. It is estimated to have invested USD 1.35 billion in these operations, which should increase to USD 1.5 billion when settlements with minority shareholders are made. In addition, Bunge is constructing two mills to begin operation in 2010 and one to begin in 2012. It expects to process 21 million tc/yr by the 2010/2011 harvest and 30 Mtc/yr by 2014.

• Açúcar Guarani S.A.: The French group Tereos controls Açúcar Guarani, which has four Mills in Brazil and one in Moçambique, with a total capacity to process 15.5 million tc/yr. Petrobrás will invest BRL 1.6 billion in return for a 45.7% share of Açúcar Guarani. This is part of a strategy of the oil company to acquire minority shares in a number of mills. The deal, besides alleviating Açúcar Guaraní’s debt burden opens the possibility of a strategic partnership with Petrobrás.

37 COPERSUCAR, though larger does not constitute a group in the same sense, since it does not own the mills.


• Grupo São Martinho: This group processes 13 million tc/yr and has the largest single mill in Brazil – São Martinho – which processed more than 8 million tc in a single harvest. The group recently joined with Amyris Biotechnologies to begin the commercial production biodiesel and other chemicals from sugarcane juice in a unit to be constructed at the São Martinho mill.

• Grupo Zilor: This group has three mills with a capacity of 10.35 million tc/yr, which should increase to 11 milllion tc in 2010. The expansion includes a modernization of existing mills which will result in a considerable increase in electricity sold to the grid. The associated investment is about BRL 500 million, of which the BNDES is financing BRL 252 million.

The next table summarizes the profile of output of some of these groups. There are large differences between them in terms of the relative importance of sugar, ethanol and electricity.

Table 67: Comparison of product mix of different economic groups in the sector

Group Sugarcane million tc/yr

Sugar thousand tons/yr

Ethanol million liters/year

Electricity GWh/year

Copersucar 67.6 3,200 3,690 naLDC 20.0 1,100 950 naAçucar Guaraní 15.5 1,300 430 300Zilor 11.0 675 552 1,080

There are various other groups which have a capacity to process above 10 million tc/yr of sugarcane, such as USAÇUCAR, Coruripe Group, Lincoln Junqueira, Carlos Lira Group, Irmãos Biagi S.A. However, information on these groups would contribute little more to the picture of the ways that the sugarcane sector in Brazil is expanding, with construction of new “greenfield” capacity, expanding and modernizing existing mills, mergers, acquisitions and partnerships.

As already indicated above, groups from outside the sugarcane sector (be they Brazilian or foreign) have been entering the business. They have been purchasing existing mills, building new “greenfield” sites, forming joint ventures or a combination of all these strategies. This phenomenon has to some extent contributed to the growth and financial strengthening of large groups. For example, the market share of the five largest groups went from 12% in 2004/2005 to 27% in 2009/10. The main new actors in the sugarcane sector are grouped by their sectors of origin (UNICA, 2010):

• Bioplastics: Dow Chemical, Brasken/ETH Bioenergia, Solvay. • Oil: Petrobrás, British Petroleum (BP), Shell. • Agroindustry groups and commodity traders: Louis Dreyfus Commodities, Bunge, Cargill, ADM,

Tereos, Shree Renuka Sugars, Noble Group, Bertin, Adecoagro. • Electricity: Rede Energia, Companhia de Energia Renovável • Other sectors: TGM Turbinas, Construcap, Encalso, Banco Pactual, Grandene, Concessionária

Rodovias SP.

The BNDES, through BNDESPAR, has taken equity participation in some groups and some Banks have participated in the mergers and re-structuring of various groups. These include Banco Itaú, Bradesco and Citi.


With regard to the logistics of transporting ethanol, Petrobrás (through the subsidiary Transpetro) and some of the larger producers are seeking ways to reduce the current overwhelming dependence on road transport. This should reduce both the costs of commercializing output and the environmental impact. One approach is to increase the use of water borne transport. Transpetro plans to move 4 billion litres/year (15% of Brazil’s output) this way, principally the Tietê-Paraná waterway (Barros, 2010) in the west of São Paulo. Coopersucar has also used this modality (as well as railways). The National Plan for Logistics and Transport seeks to achieve a massive shift of freight in general to waterways (from 13% to 29% in 12 years).

Another modality being developed is pipelines. Petrobrás, together with Camargo Corrêa and Mitsui plans to construct an “alcoolduto” of more than 1000 km with a capacity to carry 8 billion litres per year from Senador Canedo in Goiás to the port of São Sebastião in São Paulo (the last stretch from Paulínia to São Sebastião would use existing pipelines). The project is estimated to require USD 1 billion and is part of the plans of Petrobrás to export 4.5 billion liters/yr by 2012. Petrobrás is also considering a second pipeline of 919 km from Campo Grande (MS) to the port of Paranaguá in Paraná.

An important link in the supply chain are the fuel distributors and retailers who run filling stations. There are many firms in this business. However, the ten largest have an 80% market share. The largest are BR Distribuidora, Shell/Sabba and Ipiranga with market shares de 19.2%, 12.6% e 11.7% respectively of the market for biofuels.

Another important sector in the supply chain is the Brazilian capital goods industry which provides the equipment and services needed to expand existing units as well as build new plants on “greenfield” sites. The largest and most traditional equipment supplier for the sugarcane sector is Dedini Indústrias de Base, which is prepared to build new plants on a “turnkey” basis. Another big supplier is Praj Jaraguá (Praj is a traditional equipment supplier in India which entered the Brazilian market relatively recently). Other equipment manufacturers include more specialized firms such as Caldema, Simisa, Equipalcool, Mausa, Santal, Sermatec, Smar, TGM Turbinas.

Investment requirements and sources of financing used until now

The total investment for sugarcane mills through 2015/2016, excluding the purchase of land, would be about BRL 58 billion (USD 32 billion).38 Besides land, there are investments in other parts of the supply chain, especially in logistics. Assuming cogeneration plants operating at 65 bar, this implies a new installed capacity of 8.3 GW (4.7 GW for sale) and an investment of almost USD 12 billion for cogeneration. If half the new capacity were at 100 bar these values would increase to 10 GW installed (6.4 GW for sale) and USD 14 billion. The PDEE projects an expansion of 4.3 GW between 2010 and 2015.

The primary ultimate source of financing for the expansion of the sugarcane sector has undoubtedly been the BNDES. The total lending of the BNDES to each sub-sector during 2004-2008 is shown in Table 68. 38 Based on projections in Table 55. A unit cost of BRL 175/tc is assumed for a 2 million tc/yr mill. Future plants may be larger on average, with lower unit costs (about 10%).


Table 68: Total BNDES loans disbursed by sugarcane sub-sectores (BRL milhões)39

Sub-sector 2004 2005 2006 2007 2008Sugarcane (cane production) 194 224 367 572 437Sugar 273 480 898 1,264 966Ethanol 60 138 447 1,630 1,028Cogeneration 77 256 265 128 250Total 605 1,098 1,976 3,592 2,680

Another perspective on the financing of the sugarcane sector is given in Table 69, which summarizes the status of operations considered to be “active” in mid-2008. The table also disaggregates the portfolio of existing and potential projects by department of the BNDES at that time.

Table 69: Outstanding loans and loan applications of the sugarcane sector, BNDES40

Situation ↓ Department → DEBIO DEGAP AOI DEPRI Total BNDESContracted (BRL million) 4,674 1,419 6,565 - 12,657Approved (BRL million) 1,954 154 - - 2,108In analysis (BRL million) 760 849 - - 1,609“Enquadrada” (BRL million) 5,337 94 - - 5,431Initial consultation (BRL million) - - - 1,646 1,646Total (BRL million) 12,725 2,515 6,565 1,646 23,451

DEBIO: Departamento de Biocombustíveis DEGAP: Departamento de Gás, Petróleo e Energias Alternativas AOI: Area for Indirect Operations (solicitations below BRL 10 million) DEPRI: Department for Prioritization (analysis of recently arrived loan applications)

It is interesting to observe the relatively large volume of indirect lending (Department AOI) and, presumably, smaller loans. It is not clear what share of total lending is undertaken directly and what share indirectly through financial intermediaries.

The sugarcane sector passed through a severe crisis in 2008/2009 which has resulted in a substantial consolidation of capacity in fewer groups. As part of this process there has been an increasing professionalization of the management of the mills. These factors, plus the recovery of commodity prices have helped the sector recover its capacity to invest.

39 Source: BNDES (position 07/2008) 40 Source: BNDES (position 07/2008). Data in BRL million in 07/2008.


References for sugarcane

Barros, R., 2010, Rota do etanol começa a tomar forma, CanaMix, Ano 3, Nº 24, Abril de 2010, p. 18-20. BNDES, 2008, Banco Nacional de Desenvolvimento Econômico e Social, O Perfil de Apoio do BNDES ao Setor Sucroalcooleiro, Rio de Janeiro, 34 p. COGEN, 2010, Associação da Indústria de Cogeração de Energia, Resumo Geral dos Leilões. Disponível em: http://www.cogensp.com.br/leiloes/resumo_geral.pdf. Acesso em: 28 de abril de 2010. Dedini, 2010, Comunicação pessoal. Dedini, 2008, Cogeração: Uma Nova Fonte de Renda para as Usinas de Açúcar e Etanol, SIMTEC 2008, Piracicaba, SP, 04 de julho de 2008. Figliolino, A., 2010, A Lógica da Concentração Setorial, Reunião Anual da Canaplan 2010 – Cana de Açúcar e Produtos – Safra 2010/2011 e Tendências e Desafios Setoriais, Ribeirão Preto, 15 de abril de 2010. IEA, 2008, International Energy Agency, Energy Technologies Perspectives 2008, Paris, França, 650 p. Lamônica, H.M., 2009, Comunicação pessoal. Leal, M.R.L.V., 2009, Uso do bagaço e palha para produção de etanol e energia, FOLicht Ethanol Production Workshop, São Paulo, SP, 23 de março de 2009. Neves, M.F., Trombin, V.G. e Consoli, M.A., 2009, Mapeamento e Quantificação do Setor Sucroenergético em 2008, Relatório Final, Centro de Pesquisa e Projetos de Marketing e Estratégias, Ribeirão Preto, SP, 24 de setembro de 2009, 36 p. REN21, 2009, Renewable Energy Policy Network for the 21st Century, Renewables Global Status Report 2009 Update. UNEP, 2009, United Nations Environmental Program, Global Trends in Sustainable Energy Investment 2009, 64 p. UNICA, 2009a, União da Indústria da Cana-de-açúcar, Dados e Cotações – Estatísticas. Disponível em: http://www.unica.com.br/dadosCotacao/estatistica/. Acesso em: 25 de abril de 2010 UNICA, 2009b, União da Indústria de Cana de Açúcar, Ethanol: A Sustainable Alternative for Transport, World Future Energy Summit 2009, Abu Dhabi, 20 de janeiro de 2009. UNICA, 2010, União da Indústria de Cana de Açúcar, A Alta dos Preços de Açúcar Estimula Novos Investimentos na Indústria Brasileira, FOLicht Sugar and Ethanol Brazil, São Paulo, SP, 23 de março de 2010. WEO 2008, World Energy Outlook 2008, International Energy Agency, Paris, França, 2008.


APPENDIX 7 URBAN SOLIDE WASTE MARKET SECTOR

The collection and processing of urban solid waste (USW) are relevant in two ways for energy. First, it is possible to recover energy from USW in the form of heat, fuel or electricity, due to the large share of organic materials in it. Second, the separation and recycling (or reuse) of energy intensive materials such as glass, metals, plastics and paper is possible. Recycling should be regarded as a form of energy efficiency, but as a matter of convenience is briefly treated here. The main emphasis is on energy recovery.

Characteristics of the market, issues and regional differences

Statistics on the solid waste which is generated and collected in Brazil need to be treated with caution. There is no systematic reporting of data and there are considerable discrepancies between major studies.

The broadest survey was performed in 2000 by the IBGE (the agency responsible for the census and many other national statistics) in a questionnaire sent to all of Brazil’s municipalities at the time (PNSB - Pesquisa Nacional de Saneamento Basico). It was estimated that about 84 million tons per year of urban solid waste (USW) were collected in 2000. A more recent survey was carried out by the Ministry of Cities in 2005 (Ministério das Cidades, 2007), however the sample was much smaller (192 municipalities out of 247 responded, in a universe of more than 5,500).

A later estimate by ABRELPE (Associação de Empresas de Limpeza Pública e Resíduos Especiais), appears to be more reliable and hás the advantage of being updated annually. For 2009 it estimated a much smaller value than the IBGE for collected USW - about 50.3 million tons per year (up from 46.6 million tons in 2008).

Despite the discrepancies between sources, a broad picture emerges. First, a significant percentage of USW (about 12% or 7 million tons/year) is not collected at all (ABRELPE, 2009). Second, of that which is collected, a large part is ultimately disposed of in an environmentally inadequate way, as illustrated in below table.

Table 70: Destination of urban solid waste, by macro-region41

Macro-Region Open Air Dump Simple Landfill Sanitary Landfill North 38,2% 28,8% 33,0% Northeast 34,2% 32,9% 32,9% Center West 22,9% 49,0% 28,1% Southeast 11,7% 17,1% 71,2% South 12,9% 18,0% 69,1% Brazil 19,3% 23,9% 56,8%

The categories shown are: (1) open dump (vazadouro a ceu aberto); (2) simple landfill without impermeabilization (aterro controlado); (3) sanitary landfill (aterro sanitario). The first two categories

41 Source: ABRELPE, 2009


represent a clearly unsatisfactory destination for USW and accounted for 43% of the total collected nationwide.

The table shows some significant regional differences. The poorer North and Northeast macro-regions have a larger share of USW going to open air dumps and simple landfills, as does the Center-West. However, it is arguable that the biggest differences aren’t between regions but between cities. Some cities have been much more active than others in the same region in improving the standard of waste disposition.

In general there are big differences between larger and smaller cities. The average quantity of USW generated per inhabitant is significantly greater in larger cities (at least up to about 3 million inhabitants), as illustrated in Figure 19 and Figure 20 for two regions in Brazil.

Figure 19: Relation of city population and per capita solid waste, Southeast Region42

Figure 20: Relation of city population and per capita solid waste, Northeast Region43

Most of the smaller municipalities, especially those in poorer regions, have great difficulty in organizing an adequate system of collection and disposal of solid waste. The survey by ABRELPE, estimated that only 39% out of approximately 5,560 municipalities have an adequate disposal scheme for their

42 Source: ABRELPE, 2009. Representative sample 43 Source: ABRELPE, 2009. Representative sample


solid waste, ranging from a low of 15% in the North and 25% in the Northeast, to 35% in the Middle West, 47% in the Southeast and 58% in the South (ABRELPE, 2008).

Table 71 summarizes an estimate of the composition of urban solid waste. Although information on regional differences has not been gathered, it is likely that the share of organic wastes will be somewhat higher in the North and Northeast than in the South and Southeast.

Table 71: Average composition of Urban Solid Waste44

Type of Waste Average Composition Organic waste 52% Paper 25% Others 16% Plastic 3% Metal 2% Glass 2%

The recycling of energy intensive materials found in USW - such as metals, glass, plastics and paper - is an important strategy for conserving both energy and some natural resources. Aluminum is the most intensely recycled material, due to its high value. In Brazil more than 90% is recycled. This share is one of the highest in the world and has been stable since 2003. There is less data on steel cans, but the share which is recycled appears to be over 80%. Other recycled materials include:

• Glass – approximately 47% was recycled in 2007, up from about 45% in 2003. • Recyclable paper - approximately 45% (almost 4 million tons) was recycled in 2007, the same

share as in 2003.

The recycling of plastics varies dramatically, depending on the type. PET bottles are the third most intensely recycled material – about 60%, or 400,000 tons in 2007. The share has been increasing steadily in recent years. Low density polystyrenes and polyethylenes are the second largest – with about 250,000 tons recycled. The recycling of polypropylenes is increasing somewhat faster and reached about 190,000 tons in 2007. All other kinds of plastic contributed 225,000 tons and overall the quantity has stagnated.

Most recycling is done by a large number of waste pickers (catadores de lixo) working informally, often in insalubrious conditions. There are many initiatives, including with financing from the BNDES to change the conditions under which recycling is done.

In addition to “conventional” urban solid waste, there are important categories of “special wastes” also largely generated in urban areas. These are:

• Construction and demolition wastes: These amount to about 26 million tons per year (ABRELPE, 2008). Their potential energy content is quite small.

• Wastes from hospitals and clinics: These amount to about 390,000 tons per year. Although small in volume they present a particular challenge from the point of view of public health. According to

44 Source: FIESP, 2009 (based on ABRELPE, 2008 & CEMPRE, 2007)


(ABRELPE, 2008) only about 30% are treated according to the norm.45 In 70% of municipalities there was no special treatment at all (IBGE, 2000). The capacity to treat these residues is roughly double that actually used. Illegality is rife.

• Industrial residues: Are by volume the largest category of solid waste, but have been only inventoried in some States. It is roughly estimated that they total about 86 million tons per year, of which about 4% (3.7 million tons) are considered to be dangerous (ABRELPE, 2008 & FGV, 2003).

The general panorama is that there is much to be done in terms of the management of urban solid waste in Brazil. This should raise opportunities for energy-related investments.

Characteristics of typical projects and the implications for potential

A range of technologies is available for the recovery of useful energy from USW. There are various high temperature incineration or pyrolitic/carbonization technologies which leave only a relatively small amount of ash for final disposition in sanitary landfills. These high temperature technologies are common in OECD countries, not only because the space available for landfills is often limited but also because of concerns regarding the impacts on groundwater of the leachate - after 20-30 years the impermeabilization layer in the landfill deteriorates. The European Union in particular is moving in this direction.

In Brazil the immediate challenge is more rudimentary. It is simply to achieve an adequate standard of landfill disposition – the sanitary landfill. The use of high temperature technologies for final disposition is still at the pilot stage. In sanitary landfills methane is produced from the anaerobic decomposition of organic materials. The gas which seeps out is approximately 50% methane which has a greenhouse effect approximately 30 times greater than CO2. Energy recovery involves creating a grid of shallow “wells”, then channeling the gas to a central plant to clean and dehumidify the gas. Three routes are then possible:

i) Purify and compress the gas for sale as natural gas. ii) Generate electricity in reciprocating gas engines or small gas turbines iii) Use the gas on-site to produce process heat.

In general, the most viable approach in Brazil will usually be to generate electricity. Active landfills are generally far from natural gas pipelines and potential users of process heat, though some gas could be used to evaporate and condense the landfill leachate (chorume) which is gathered.46 The best conditions are found in landfills which have: at least one million tons of USW stocked; still receive waste or were recently closed and which have a depth of at least 12-13 meters.

45 Resolution n° 306 of 2004 of the National Agency for Sanitary Vigilance (Agência Nacional de Vigilância Sanitária - Anvisa). 46 About 1 m3/day of effluent is produced for every 1000 tons/year received by the landfill. This effluent is generally transported to a sewage treatment plant for treatment and disposal. The volume can be reduced by 70% with evaporation. In principle the heat for evaporation could also be achieved with waste heat from the electric power plant, a form of cogeneration.


Sanitary landfills present a complex challenge for energy recovery. The decomposition process which produces the gas is relatively slow, while a landfill is “active” (receiving USW) for a limited time until it is filled. Figure 21 and Figure 22 illustrate the dynamics of gas output from the landfill and trade-offs involved in two opposite situations. In the first case (A) a landfill gas collection system is in place when the landfill is opened. In the second case (B) landfill gas only begins to be collected when the landfill is nearly full.

Figure 21: Illustrations of landfill gas output and recovery over time, case (A)47

Figure 22: Illustrations of landfill gas output and recovery over time, case (B)48

In both cases, one clear challenge is the varying output of gas over the lifetime of the landfill. A plant which has the capacity to use a large share of the peak gas output will have a relatively low capacity factor over its lifetime, which increases costs. Another point is that not all the gas can be captured

47 Case (A): Landfill opened in 2009 and closed in 2032; collection system in place at opening. Source: SCS Engineers, 2006 48 Case (B): Landfill opened in 1994 and closed in 2008; collection begins in 2007 (simulation assumed that landfill closed about 6 weeks into 2009). Source: SCS Engineers, 2006


(whether for energy recovery or for flaring). The share may be higher than in the examples shown, but at an increased cost.

The generation capacity chosen for a given size of landfill may thus vary. Table 72 summarizes the potential in municipalities where more than 100,000 tons/year are collected. A landfill of this size might support a generation capacity between 1.3-2.1 MW of power, with roughly a 70% capacity factor over its lifetime. Given the economies of scale, a landfill much smaller than this may be uneconomic for electricity generation (though capturing and flaring the gas would be another story). The table discriminates between larger municipalities, with more than 380,000 t/year of USW, and those between 100,000 and 380,000 t/year. The larger municipalities will have a potential higher than 5 MW – even with a low assessment of capacity per ton USW.

Table 72: Approximate potential for electricity generation from landfill gas recovery49

Region >380,000 t USW/year 100-380,000 t USW/year USW t/year Theoretical LFG Potential MW USW t/year Theoretical LFG Potential MW High Low High LowNorth 1,366,578 29 18 810,444 17 11Northeast 4,846,194 102 63 1,268,376 27 16Center-West 2,077,696 44 27 683,362 14 9Southeast 6,102,163 128 79 4,534,323 95 59South 1,346,931 28 18 650,932 14 8Total 15,739,562 331 205 7,947,438 167 103

Assuming a minimum of 100,000 t of USW per year there are 61 municipalities with a combined potential of 308 to 498 MW, or about 1,900-3,100 GWh/year. Of these, 44 would support plants of up to 5 MW (using the low capacity estimate), with a combined capacity of 103-167 MW.

Table 73: Profile of the amount of USW collected in municipalities50

Region Number of municipalities collecting: >380,000 t USW/yr 100-380,000 t USW/yr 50-100,000 t USW/yrNorth 2 6 2Northeast 6 5 11Center-West 2 4 2Southeast 5 24 12South 2 5 9Total 17 44 36

It is estimated that an 11 MW facility, would cost about USD 18 million (including the investment in gas collection) and could generate electricity, without considering carbon credits, for about USD 92/MWh (BRL 165) with a 20% IRR before taxes.51 Carbon credits would add another 60-65% to the revenue stream.

49 Source: Based on municipal RSU estimates in ABRELPE, 2009. 50 Source: Based on municipal RSU estimates in ABRELPE, 2009. 51 The estimate assumes a 68% capacity factor (over the life of the plant) and a payment to the landfill equivalent to about $6/MWh for the gas collected (SCS Engineers, 2006).


However, conditions in Brazil until now have not been propitious for the recovery of useful energy from sanitary landfills. There are two basic reasons for this:

• The price which has been obtained for the electricity produced is too low to justify the increased investment in the equipment to generate power from the collected landfill gas.

• The strong incentive of carbon credits for eliminating methane emissions has been allowed for projects which merely flare the biogas produced by the landfill. Methane is a much more aggressive greenhouse gas than CO2, by a factor of about 30.

The return on simply flaring gas has been much higher than on generating power, so why bother with the much larger investment and greater risk?

Thus there have been many CDM projects to capture and flare the methane in the biogas and very fuel to generate electricity. As shown in Table 74, CDM projects with sanitary landfills are the second most important in terms of carbon credits and third in number.

Table 74: CDM projects by sector52

Projects Approved Number of Projects Reduction in Annual Emissions & in Validation # Share tons CO2 equiv Share Electricity Generation 159 62% 17,305,374 47% Pig farming wastes 40 16% 2,035,369 7% Sanitary landfills 28 11% 8,788,633 24% Manufacturing 11 4% 1,853,002 5% Energy efficiency 10 4% 68,730 <1% Other wastes 2 1% 82,300 <1% Reduction of N2O a 3 1% 6,205,612 17% Chemical industry 1 <1% 80,286 <1% Metallurgy 1 <1% 80,286 <1% Total 255 100% 36,436,082 100%

a Principally projects related to agriculture and nitric acid production

At the same time, there have been only two projects implemented to generate electricity from landfill biogas: the NovaGerar plant in the Centro de Tratamento de Resíduos in Nova Iguaçu – RJ, and the Bandeirantes sanitary landfill in São Paulo – SP.53 Both landfills are quite large by Brazilian standards, which improved their economics.

Unless this context changes there is no reason to expect a significant number of projects generating electricity from landfill gas.

A combination of two policy measures could radically change the outlook. First, create a specific auction framework for contracting electricity sales from sanitary landfills – as has been done with small hydro, biomass and wind. This would allow higher prices to be paid on average, thus remunerating pioneering investments, while also encouraging competition and cost-effective solutions. Second, and simultaneously, only allow carbon credits to be granted for biogas collection projects which go beyond flaring to using the energy in a productive way (at least for landfills above a certain size). This would avoid the “cream skimming” which has been occurring. 52 Source: ABRELPE, 2008 53 Santander Bank participated in the financing of the Bandeirantes project.


Somewhat further in the future, once an energy recovery market has been established, there could be a move away from sanitary landfills towards high temperature processing of USW. As already observed, this approach has the advantages of dramatically reducing the area needed for landfill and presents fewer long term environmental risks from leakage of the leachate (chorume) into the water table. The pressure to move in this direction is likely to be felt first in the larger metropolitan areas and should be reflected in higher avoided costs of landfill tipping fees (these benefits are crucial to the economic viability of high temperature processing). There are additional important advantages in moving to this approach.

• The same level of input of USW can result in about 3-4 times more electricity generated. • The annual fuel input to the power plant varies less, which permits a higher life time capacity

factor. • All methane emissions can be eliminated (recovery from landfills is incomplete, as illustrated in

the graphs above). • The cost of treating and disposing of the liquid effluent of a sanitary landfill will be avoided.

The capital cost of a plant with an incinerator and power generation is much greater than for a simple sanitary landfill. However, the difference narrows greatly if we include energy recovery from the landfill. The capital cost per kW of generation is similar (though, since a given amount of USW will support more power generation, the total capital cost will be considerably higher).

Over time the market for this form of energy recovery could be greater than using landfill gas. Modules capable of processing 150 t/day are commercially available. That is equivalent to about 60,000 tons/year. This lower threshold may substantially expand the number of municipalities which could benefit – though the economics of these smaller units would need to be carefully evaluated (there are economies of scale and the avoided tipping fees are likely to be lower). Table 75 provides rough estimates of the potential with high temperature thermal technology, discriminating by size of municipality – including those in the range of 50-100,000 tons/year of USW. As was shown in Table 73, there are currently 36 of these in Brazil.

Table 75: Approximate potential for electricity generation from high temperature treatment of USW54

Region >380,000 t USW/year 100-380,000 t USW/year 50-100,000 t USW/year MW GWh/yr MW GWh/yr MW GWh/yrNorth 75 615 45 365 7 54Northeast 266 2,181 70 571 40 326Center-West 114 935 38 308 7 58Southeast 336 2,746 249 2,040 47 388South 74 606 36 293 37 306Total 866 7,083 437 3,576 138 1,132

It is possible that the smaller environmental footprint of this technology may also facilitate the formation of consortia of smaller municipalities, increasing even more the potential scale of the market in the longer term.

54 Source: Based on municipal RSU estimates in ABRELPE, 2009.



The current legislative framework, with national guidelines for basic services related to public hygiene (solid wastes, water supply & treatment which are referred to as saneamento basico), is provided by the Law 11,445 of January 5, 2007. The collection and disposition of urban solid waste (USW) is basically an attribution of the municipalities (as is water supply and sewage treatment) – though the municipalities may delegate functions through contracts of concession (including operations under the category of “public-private partnerships” or PPPs).

Under this legislation municipalities may also form consortia with neighbors to manage their solid waste. This is important, because many of Brazil’s municipalities are far too small and poor to organize and invest in the necessary measures to adequately manage their solid wastes.

Tariffs charged for these services should assure the financial equilibiurm of the activity while seeking “moderation” in prices for consumers (“modicidade tarifaria”)

The “outsourcing” of waste management is an established trend. So far, 29 municipalities with about 30 million inhabitants (including Curitiba and Belo Horizonte) have negotiated contracts of concession with private sector operators. In these contracts more than BRL 3 billion have been committed to investment in the collection, transport and final disposition of USW. The municipality of Osasco in the metropolitan area of São Paulo has negotiated a Public-Private-Partnership (PPP) of the type known as “administrative concession”.

An amended version of a bill introduced by the Ministry of the Environment (MMA) to establish a National Policy for Solid Residues has been passed by the Câmara dos Deputados and the Senate and awaits the President’s signature. It is hoped that this legislation will establish a clear legal basis for the management of urban solid wastes.55

The bill addresses the issue of the environmental responsibility for solid wastes and applies the principle of “reverse logistics”, i.e. who produces the wastes shares responsibility for their final disposal. Thus entities in each component of the supply chain of a product – manufacturers, importers, wholesalers, retailers and even consumers – will have some responsibility for relevant steps in the complete life-cycle of goods, from raw materials to final disposition. Thus there will be new agents responsible for collection of residues and wastes besides the traditional public service entities of waste collection.

There are also prohibitions of activities such as the burning of wastes in the open air or any unlicensed container or incinerator, or throwing wastes into any body of water.

Hopefully a more integrated approach to solid wastes (including the “special wastes” cited in the first section) will emerge. The lack of a clear regulatory framework has meant that there has been a multiplicity of norms and rules which are sometimes contradictory. This situation has produced uncertainty and instability in the whole chain of management of solid wastes.

55 The bill is based in part on earlier legislation on solid wastes promulgated in the State of São Paulo in March, 2006.


Policies to promote development

The Ministry of the Environment (MMA) has been supporting the preparation of State Plans for the Integrated Management of Solid Wastes since 2007. These plans seek to eliminate open air dumps, promote the use of sanitary landfills with appropriate technology to recover the methane, improved recycling, composting where appropriate and other measures. Complementary programs to promote investments in these areas are being proposed. Another initiative of the MMA is a pilot program to purchase the future results of managing solid wastes, providing resources for the construction of sanitary landfills and investments in recycling. The pilot program is small, with resources of about BRL 10 million.

An initiative to promote the generation of electricity from the methane produced by sanitary landfills is being evaluated by the Ministry of the Environment (MMA), the Ministry of Mines and Energy (MME) and ANEEL (the power sector regulator). It involves the creation of a market with longer term contracts to purchase this electricity.

Key market players in the supply chain

Municipalities are responsible for collecting and disposing of USW, though they may outsource the service to private sector firms either through concessions or PPPs (public-Private Partnerships).

Various government agencies are involved either in the regulation of solid wastes or the development and financing of improved management. Those involved directly in regulation are:

• Ministry of the Environment (MMA - Ministério do Meio Ambiente): Responsible for promoting the adoption of principles and strategies for the protection and restoration of the environment and the sustainable use of natural resources. http://www.mma.gov.br.

• CONAMA – National Council for the Environment (Conselho Nacional do Meio Ambiente): The advisory and deliberative organ for environmental norms, presided by the Minister of the Environment. http://www.mma.gov.br/port/conama

• Ministry for Cities (Ministério das Cidades): Responsible for policies to promote sanitation (both water and the treatment of solid wastes).http://www.cidades.gov.br/secretarias-nacionais/saneamento-ambiental/programas-e-acoes-1/residuos-solidos.

• ANVISA – Agência Nacional de Vigilância Sanitária: Agency within the Ministry of Health responsible for oversight of public health standards http://portal.anvisa.gov.br.

Relevant associations of agents involved in solid waste management include:

• ABRELPE – Associação Brasileira de Empresas de Limpeza Pública e Resíduos Especiais: An association which brings together public and private sector agents involved in the collection and treatment of different urban solid wastes. It is an important source of surveys and information. http://www.abrelpe.org.br/.

• IBAM – Instituto Brasileiro de Administração Municipal: It is an NGO with the objective of preparing research and analyses to improve municipal services in general. http://www.ibam.org.br


The development of projects with sanitary landfills is of considerable interest to some of Brazil’s largest construction companies, which also have much experience with energy projects. These groups include:

• Cavo Serviços e Saneamento S/A (www.cavo.com.br), subsidiary of the Camargo Correa group. • Vital Engenharia Ambiental S.A (www.vitalambiental.com.br), subsidiary of the Queiroz Galvão

group. • Foz do Brasil (www.fozdobrasil.com.br), subsidiary of the Odebrecht group.

There are a large number of private sector providers of services and equipment relevant to the treatment of USW. The most important can be found at the website of ABRELPE given above.

There are also many groups specialized in carbon finance and knowledgeable about financing which are active in the area of USW. Companies who are working with CDM projects in Brazil include:

• Ecopart Assessoria Ltda. Belongs to the Ecopart Group (formerly Ecoinvest) which is also active in projects with biomass, hydro and wind power.

• GDF Suez Energy International (part formerly was Econergy). Is is also active in projects with biomass, wind power and large hydro projects (UHE Jirau).

• Ecobio Carbon Empreendimentos Ecológicos Ltda. Specialized in the capture and flaring of biogas from landfills and diverse activities, including especially agro-industry (pigs, chickens, effluents from ethanol distilleries).

• ASM Ambiental S.A. Project development services related to carbon credits in renewable energy, forest management and environmental services.

• PricewaterhouseCoopers Ltda. Project development services related to carbon credits, carbon inventories and corporate strategies and the commercialization of carbon credits.

• Max Ambiental S.A Project development services related to carbon credits. It invests own resources or those of third parties in projects which reduce or absorb carbon emissions.

More information about activities in the CDM and carbon mitigation market can be obtained from ABEMC (Associação Brasileira das Empresas de Mercado de Carbono) http://www.abemc.com

Investment requirements and observations on financing

As already observed, under current policies there is no incentive to develop projects to recover energy from sanitary landfills – only to flare the methane in the gas. However, if a new set of policies were implemented, the perspective could change dramatically. Perhaps 80% of the potential in municipalities with more than 100,000 t/year of USW could be implemented in a five-year period.


The investment in the complete collection and energy recovery system (not the landfill itself) will cost approximately USD 1,700 to USD 2,000 per kW of “exported” electricity. Assuming the parameters summarized above (with a range of recovery rates), the total potential for investment in this period would be approximately:

Table 76: Total investment potential for USW projects on a five-year period

Low Recovery: High Recovery: Total investment USD 510-600 million USD 825 – 970 million

Of this, approximately 25-30% of the total investment could be in projects with less than 5 MW (using the more conservative recovery rate of 1.3 MW per 100,000 tons/year).

The Caixa Econômica Federal (CEF) and the BNDES are the standard sources of credit for improvements in the basic public services of Brazil’s municipalities. These loans have conditions which are well known and are subject to restrictions in the overall debt level of the municipality (contingenciamento), which can make planning of investments complicated. This barrier can be avoided with Private-Public Partnerships (PPP).

Given this segment’s unusual level of activity with the CDM, the BNDES and FINEP (Financiadora de Estudos e Projetos – a parastatal linked to the Ministry of Science and Technology – MCT) also provide lines of credit for the development of projects for the CDM. Almost all of the CDM projects themselves have been developed with the involvement of private resources.

Most Brazilian municipalities are chronically short of financial resources. This severely limits their capability to invest in improvements in the final disposition of solid wastes, such as sanitary landfills. Even with the outsourcing of these investments, via concessions, it is necessary to make the higher payments for the service.

However, it is relevant to observe that the costs required to implement sanitary landfills actually represent a very small share of municipalities’ net annual income (RCL – Receita Corrente Líquida, in Brazilian public sector accounting). Assuming a cost of BRL 30/ton of USW it amounts on average to 0.8%, at BRL 50/ton it comes to 1.3%. The share of income tends to be somewhat higher in the poorer states of the North and Northeast, as well as in larger municipalities - e.g. those with more than 100,000 inhabitants (Mello, 2008).


References

ABRELPE, 2003; Panorama dos Resíduos Sólidos no Brasil; Associação Brasileira de Empresas de Limpeza Pública e Resíduos Especiais. ABRELPE, 2008; Panorama dos resíduos sólidos do Brasil – 2007; Associação Brasileira de Empresas de Limpeza Pública e Resíduos Especiais. ABRELPE, 2009; Panorama dos resíduos sólidos do Brasil – 2009; Associação Brasileira de Empresas de Limpeza Pública e Resíduos Especiais. CEMPRE, 2007. http://www.cempre.org.br/ EPA. Environment Protection Agency. Turning a Liability into an Asset: Landfill Gas-to-Energy Project Development Handbook, Setembro de 1996. Empresa de Pesquisa Energética (EPE) e Ministério de Minas e Energia (MME); Avaliação Preliminar do Aproveitamento Energético dos Resíduos Sólidos Urbanos de Campo Grande, MS; Série Recursos Energéticos – Nota Técnica DEN 06/08, Rio de Janeiro, 2008 FGV, 2003; Panorama das Estimativas de Geração de Resíduos Industriais; Fundação Getúlio Vargas . FIRJAN, Súmula Ambiental, no 143, Pesquisa Gestão Ambiental 2008 – Diagnóstico Ambiental das Indústrias do Estado do Rio de Janeiro, Janeiro, 2009 (www.firjan.org.br ) FIESP, 2009; Panorama sobre Resíduos Sólidos; Cooperação Brasil-Dinamarca, Federação das Indústrias do Estado de São Paulo, Departamento de Meio Ambiente. http://www.fiesp.com.br/ambiente/area_tematicas/residuos.aspx IBAM, 2001; Manual de Gerenciamento Integrado de Resíduos Sólidos; Instituto Brasileiro de Administração Municipal. IBGE, 2000; Pesquisa Nacional de Saneamento Básico – PNSB; Instituto Brasileiro de Geografia e Estatistica ICLEI - Governos Locais pela Sustentabilidade, Secretariado para América Latina e Caribe. Manual para Aproveitamento de Biogás, Volume 1 - Aterros Sanitários. Escritório de projetos no Brasil, São Paulo, 2009. Luftech Soluções Ambientais Ltda, 2004. “Breve Análise do Mercado de Prestação de Serviços de Destinação de Resíduos de Serviços da Saúde”. Mello, Gustavo, 2008; Notas sobre o Gerenciamento de Resíduos Sólidos Urbanos no Brasil; BNDES. Ministério das Cidades, 2007; Diagnóstico do Manejo de Resíduos Sólidos Urbanos – 2005; Secretaria Nacional de Saneamento Ambiental. MdC & MMA, 2008; Elementos para a Organização da Coleta Seletiva e Projeto de Galpões de Triagem; Ministério das Cidades e Ministério do Meo Ambiente http://www.cidades.gov.br/secretarias-nacionais/saneamento-ambiental/biblioteca/MANUAL%20Coleta%20Seletiva%20FINAL%20corrigido.pdf MMA, 2009; Gestão Integrada de Resíduos Sólidos (Série "Mecanismo de Desenvolvimento Limpo Aplicado a Resíduos Sólidos, vols. 1, 2, 3 e 4); Ministry of the Environment. http://www.mma.gov.br/sitio/index.php?ido=publicacao.publicacoesPorSecretaria&idEstrutura=125. SCS Engineers; Landfill gas to energy feasibility study and CDM project evaluation for the Muribeca Landfill; Los Angeles, USA, 2006. Tavares, F.B. & Rocha, E.R.P; Mecanismos para Financiamento de Aterros Sanitários com Geração Elétrica através de Biogás. Grupo de Economia do Meio Ambiente (GEMA), UFRJ. III Seminário Internacional do Setor de Energia Elétrica (SISEE), Rio de Janeiro, 2008. http://www.nuca.ie.ufrj.br/gesel/eventos/seminariointernacional/2008/arquivos/P_EricoFelipe.pdf


Vanzin, E. et alii; Uso do biogás em aterro sanitário como fonte de energia alternativa: aplicação de procedimento para análise da viabilidade econômica no aterro sanitário metropolitano Santa Tecla; (http://www.fae.edu/publicacoes/pdf/IIseminario/pdf_praticas/praticas_01.pdf )


APPENDIX 8 WIND POWER MARKET SECTOR

Scale of the market and recent trends

The first major stimulus for wind power was the PROINFA program. As discussed earlier PROINFA suffered from a general flaw. The energy price and the quantities were set by government bureaucrats. Projects were selected based on when they had obtained the Licence to Install.

In spite of its flaws, PROINFA left the largest wind industry in Latin America and valuable experience was gained in constructing and operating plants.

The auction for wind power in December, 2009 inaugurated a new approach to promoting wind power. The results were dramatic: 1,806 MW were contracted from 71 projects with an average price of BRL 148.33/MWh. This average price was less than that in some recent auctions for thermal generation plant. It also meant a fall by almost half in the average price of PROINFA – from BRL 270/MWh. The following table shows the breakdown of capacity by State.

Table 77: Winning projects in the December 2009 Auction, by State

Northeast Installed MW Share South Installed MW Share Bahia 389 21.6% R. Grande do S. 186 10.3% Sergipe 30 1.7% R. Grande do N 657 36.4% Ceará 543 30.1% Total 1619 89.7% Total 186 10.3%

Some larger firms have now begun to accumulate substantial stakes in the wind energy market. Table 78 shows that half-a-dozen firms, each with at least 90 MW of winning projects in the auction (5% of the total), own almost half of the new capacity.

Table 78: Largest owners of winning projects in the December 2009 Auction

Owner/Developer Installed MW Renova 270 Petrobras 101 Dobreve 144 CPFL 180 Eletrosul 90 Enerfin 96 Total large owners 881

Nevertheless there is considerable capacity in the hands of small “individual developers”. This may produce opportunities for agents with capital.

The success of the December, 2009 auction for wind resulted in the schedulingof a new auction in August, 2010 with distinct segments for wind, biomass and small hydro. This auction resulted in the contracting 2,892 MW – of which 2,048 are windpower plants, at an average price of BRL 131/MWh. There is now an upward revision underway in sector expansion plans of wind’s possible role in Brazil’s power generation mix in the coming years.


Overview of potential; significant regional differences and barriers

The evaluation of wind resources for electricity generation begins with the identification and delineation of areas where wind speeds are relatively high on average and reasonably constant. A common mapping convention is the Battelle Wind Power classification (see Table 2.6.3). This ranks the potential of areas in seven categories, ranging from “Poor” to “Superb”. The values for each category vary with the height, since average wind speed tends to increase with height.

Table 79: Classes of wind potential by wind speed56

Class Resource Power Density Wind speed (m/s) Potential At 50 m – W/m2 50 m height 65 m height 80 m height 3 Fair 300-400 6.4-7.0 6.6-7.3 6.8-7.5 4 Good 400-500 7.0-7.5 7.3-7.8 7.5-8.1 5 Excellent 500-600 7.5-8.0 7.8-8.3 8.1-8.6 6 Outstanding 600-800 8.0-8.8 8.3-9.1 8.6-9.4 7 Superb 800-1600 8.8-11.1 9.1-12.4 9.4-12.8

The areas with higher class wind resources are more attractive because they permit higher capacity factors with equivalent turbines. Exactly how much higher depends on the wind speed distribution, which is approximately characterized by the Weibull number. A narrower distribution of wind speeds (which implies a more constant wind regime) has a higher Weibull number.

Brazil is one of the most thoroughly mapped countries in Latin America. Even so, estimates of wind potential are very much in flux. The basic reference is the Brazilian Atlas of Wind Potential published by CEPEL in 2001. Figure 23 shows the geographical distribution of annual average wind speeds in Brazil.

56 Wind speeds assume a Weibull k value of 2.0.


Figure 23: Map of average annual wind speeds at 50 m57

As can be seen on last figure and also in Table 80, the best areas for wind are limited in size. Of the million km2 categorized in said Table, 90% are no better than “Fair” (Class 3), with average wind speeds below 7 m/s. Only 3%, or about 30,000 km2, have Class 5 or better wind potential (average wind above 7.5 m/s).

Table 80: Areas of Land in Different Wind Speed Classes Brazil58

Average Wind Speed Approximate Wind Class Area in Class (m/s @ 50 m height) (km2) 6 Class 2 667.391 6.5 Class 3 (starts 6.4) 231.746 7 Class 4 71.735 7.5 Class 5 21.676 8 Class 6 6.679 8.5 & higher Class 6/7 1.775

Even though the areas with high quality resources are relatively small, the estimated gross potential in the Brazilian Wind Atlas is large - about 60 GW and 147 TWh in the areas with wind speeds above 7.5 m/s (Class 5 and above).

57 Source: CEPEL, 2001 58 Source: CEPEL, 2001. The total land area of Brazil is about 8 million km2.


This estimate of gross technical potential in high quality wind areas now appears to be excessively conservative. Consider, for example, the capacity factors attributed to different wind classes by the Brazilian Wind Atlas (CEPEL, 2001) and the USDOE analysis of 20% wind penetration in the United States (EERE/USDOE, 2008). As can be seen in Table 81, the former are much lower and appear to be excessively conservative by today’s standards. The average capacity factor being contracted by the wind farms in the wind energy auction of December 2009 was 43.8%, which suggests that the revised values in Brazil will be much closer to the Modified values.

Table 81: Approximate Capacity Factor Associated with Wind Speed Class59

Average Wind Speed Approximate Wind Class Capacity Factor (%) (m/s @ 50 m height) USDOE Brazil Atlas 6 Class 2 NA 14.6% 6.5 Class 3 (starts 6.4) 32% 18.2% 7 Class 4 36% 21.7% 7.5 Class 5 40% 26.4% 8 Class 6 44% 30.7% 8.5 & higher Class 6/7 47% * 34.3%

* The 47% value is for Class 7, which begins above 8.8 m/s at 50 meters.

There are several reasons for the conservatism of the Brazilian Atlas. It was prepared a decade ago and reflects the technological assumptions of that time, or even somewhat before. The effective wind speed in the same class is higher because turbines today reach 90m or more and average wind speed will usually increase by 1 m/s as a result. The efficiency of turbines has also improved. On top of this, the analysis was conservative then regarding estimates of average wind speed.

After capacity factor, a second factor to consider is the density of power capacity per unit area, in MW/km2, which can be achieved in wind farms. Each turbine produces downstream turbulence in the air, so there are physical limits on how closely turbines can be packed together in order to avoid mutual interference which degrades performance. It is difficult to generalize about the spacing of turbines because topography and wind conditions have an influence. A general rule of thumb is that there should be about 7 rotor diameters between each turbine, in each direction (Krohn, personal communication).60

Thus on relatively flat, even terrain one can achieve about 6-7 MW/km2 on average. This value may be somewhat conservative, at least at the level of specific wind farms of a size less than 50-100 MW. Wind farm developers in Brazil tend to use 10 MW/km2 as a general rule, with Energy Yield Assessments resulting in values anywhere from 7-30 MW/km2 (Pacheco, personal communication). Interestingly, the achievable power density is not influenced by the size or height of the turbines, though the capacity factor is.

Table 82 illustrates the impact of using revised parameters on estimates of the gross technical potential of wind energy in Brazil by wind class. Due to the higher capacity assumed per km2 (6 MW

59 Sources: EERE/USDOE, 2008; CEPEL, 2001 60 If wind comes from one direction only, the turbines may be spaced more closely in a line, but then if there is a second line behind it must be further away, say 9 rotor diameters.


versus 2 MW) and the higher capacity factors assumed for equivalent classes of wind speed, the resulting gross potential is far higher than in the Brazilian Atlas.

Table 82: Gross Brazilian wind energy potential – Brazil Atlas and modified parameters

Wind Class Wind Capacity (GW) a Generation (TWh) Speed Brazil Atlas Modified Brazil Atlas b Modified c

Class 3 (from 6.4) 6.5 m/s 464 1,390 739 3,705Class 4 7 m/s 144 430 272 1,290Class5 7.5 m/s 43 130 100 433Class 6 8 m/s 13 40 36 147Class 6/7 8.5 m/s 3,6 11 11 39Total Classes 3-7 >6.5 m/s 667 2,002 1.158 5,614Classes 4-7 >7.0 m/s 204 611 419 1,910Classes 5-7 >7.5 m/s 60 181 147 619

a The Brazilian Atlas assumes a power density of 2 MW/km2. The modified scenario assumes 6 MW/km2. b Capacity factors used as in Table 81. c The capacity factors in Table 81 for USDOE were reduced by 5%, except for the Classes 6/7 which were reduced by 10% since Class 7 starts at a higher wind speed (8.8 m/s). The resulting capacity factors were: Class 3 – 30.4%; Class 4 – 34.2%; Class 5 – 38.0%; Class 6 – 41.8%; Class 6/7 – 42.3%.

A revision of estimates of Brazil’s wind potential is in fact under way and there are indications that the new values will be closer to those in the “Modified” case above in Table 82.

Of course, both of these estimates are for a kind of gross technical potential. One should not assume that more than a relatively small percentage of the land area which is apt for wind power could be developed. Some of the best potential sites may be in areas with characteristics that severely limit or prohibit development. Unusual scenic areas are one example. Places with concentrations of birds may be another. Buffer areas between wind farms are advisable and some land uses may be incompatible - though this is not the case with agriculture (while renting space for the towers can be a source of income for farmers). Technological advance has reduced some impacts, for example noise and the distracting reflection from turning rotor blades.61

However, even large restrictions of area allow a big contribution to future supply: in order to supply 25% of the electricity generation today (448 TWh in 2007), would require wind farms to cover just 6% of Class 4-7 land area (about 6,000 km2 or 0.08% of Brazil’s land area).

Another approach to evaluate potential is to consider up to what share of total generating capacity could be wind without imposing high additional reserve and backup costs. In large thermally dominated systems, this is currently reckoned to be about 20%. In a hydro system like Brazil’s the limit may be higher. However, assuming this level, about 21,000 MW of wind (75 TWh) could be incorporated in today’s system. This value would increase as the total system expands.

61 A review of environmental impacts can be found in USDOE/EERE, 2008. The noise level at 300 meters from modern large turbines is less than 45 dB. The impact on avian populations is reviewed, most studies show relatively low mortality, but this impact will be quite site dependent.



The average capacity of the wind farm projects approved in the December 2009 auction was 25.4 MW. Only five of the 71 projects contracted had a capacity of less than 10 MW, the smallest being of 6 MW. At the other end of the scale, only five projects had more than 30 MW, the largest being of 50 MW. The large majority of projects were between 20 and 30 MW. In August, 2010, auction the average size increased to 29 MW.

One factor dimensioning projects was the 30 MW upper limit for projects to be eligible for the 50% discount on transmission charges (TUSD/TUST).62 In a number of cases one finds that the projects are geographically contiguous and will in fact be operated as a unit in wind farms of as much as 150 MW (examples include the projects being developed by Renova, Dobreve, Enerfin and CPFL)

The average investment per kW was BRL 4,000 or slightly less (all costs included for a commissioned wind farm). There was a sharp drop in estimates of investment per kW before and even during the auction as the project developers and turbine manufacturers responded to competitive pressures. Before the ceiling price (of BRL 183/MWh) for the auction was announced the norm had been about BRL 4,800/kW, reflecting in part the lesser incentive for cost control in the PROINFA program.

The August, 2010, auction saw a further reduction in average price (BRL 131/MWh) which implies that the investment per kW continued to fall. The consolidation of the sector and the increasing volume of business appear to allowing more cost reductions.

The capacity factor of the winning projects in the auction was quite high by the standards of wind power – 43.8%. Interestingly, the average of the projects which were registered to bid in the auction was significantly lower – 38.7%. It is possible that the average capacity factor of winning projects in the next auction will be even higher, perhaps as high as 48%. A higher capacity factor improves the economics of a wind farm by diluting the fixed investment over more MWhs each year. However, there is a trade-off. Capacity factors this high may also imply reduced exploitation of the potential of the site.

Taking the nominal size of the winning projects in the December auction as a guide, a typical project of 25 MW would require an investment of about BRL 100 million.


The specific regulatory environment for wind power generation is being defined in the sequence of special auctions which has now begun for smaller scale renewable resources.

Guidelines were published in MME Portaria no 211 of May 28, 200963, amended by MME Portaria no 242 of July 25, 2009 64. These regulations refer to the Technical Note of EPE (Empresa de

62 This discount was originally given to small hydro and was subsequently extended to wind power projects. 63 http://www.epe.gov.br/leiloes/Documents/Leil%C3%A3o%20de%20E%C3%B3lica%202009/Portaria%20MME%20n%C2%B0%20211-09.pdf 64 http://www.aneel.gov.br/cedoc/prt2009242mme.pdf


Pesquisa Energética), NT-EPE-DEE-RE-014/2009-r0, which present a methodology of accounting for wind electricity generation. 65

The electricity generated by the projects selected in the December 2009 Auction should be delivered to the grid no later than July 1, 2012. The terms of sale are:

• The price of electricity sold will be re-adjusted annually by the IPCA (Índice Nacional de Preços ao Consumidor Amplo) published by the IBGE (Instituto Brasileiro de Geografia e Estatística);

• Contractual year starts on July 1. Payments are in twelve uniform monthly tranches. • Annual output may range between 90% and 130% of the contracted value without penalty.

Output above 130% will receive only 70% of the contractual value. Below 90% the shortfall will suffer a 15% penalty and must be paid to the Reserve Energy Account (Conta de Energia de Reserva – CONER) in twelve equal monthly installments the following contractual year.

• Every four years output will be reviewed and a new range set. • A positive balance in one wind farm can be used to compensate a shortfall in another selected in

this same auction.

The auction price includes the cost of interconnecting the wind farm to the grid, as well as a transmission charge to a predefined node in the grid.

Barriers and risks

A major barrier is frequently the cost and uncertainties surrounding the connection of the project to the grid. Many projects are located in areas where the existing grid is quite weak and are “at the end of the line”, which exacerbates the problem. In these cases significant investments will be needed to connect the new wind farm to the grid and project developers are faced with great uncertainty regarding collection arrangements. Under the existing arrangements, the wind farm developer must evaluate the cost of an isolated connection. Since criteria should be conservative in order to be prudent, this tends to increase the viable price for selling electricity. If a number of wind farms are in the same neighborhood (which is often the case) it would be cheaper to create a feeder system for the projects as a group, instead of doing so individually. One possibility is an ICG (“Instalações de Transmissão de Interesse Restrito para Conexão Compartilhada de Centrais de Geração”). This approach has so far been avoided by project developers due to uncertainties about rules and allocations of costs.

Another problem is the quality of many analyses of the output of a wind farm and the resulting certifications of output. Many are prepared by institutions which have little recognition in this area and are of doubtful reliability. These certifications are accepted by the BNB (Banco do Nordeste), which was a major financial player in the last auction (see below), though the BNDES is more rigorous and requires certifications of output by internationally recognized entities, such as DEWI or GL Garrad Hassan. This situation has opened space for sloppy analyses. Proper reviews have subsequently found differences of 25% or more in the certifiable output. Projects with this kind of analysis were

65http://www.epe.gov.br/leiloes/Paginas/Leil%C3%A3o%20de%20Reserva%202009%20-%20E%C3%B3lica/AprovadasasdiretrizesdoLeil%C3%A3odeEnergiadeReserva2009%E2%80%93E%C3%B3lica.aspx


frequently developed with the intent of selling on after winning the bid, hence the developer was not incurring the risk of not producing the claimed output.

In addition, the technology of some of the equipment manufacturers is not very reliable. Some turbines do not even have a certified power curve with wind speed. Problems have already been encountered with equipment recently installed in the PROINFA program. For example, there have been fires in the rotor hub (“nacelle”) due to the improper functioning of the control system.

These kinds of problems will increase the perceived technical or project risk of wind farm projects, which could exacerbate difficulties with financing in the future. Other risks which can have an impact on financial viability are: unexpected increases in the cost of transporting the electricity; unexpected increases in the cost of maintenance and repairs; unexpected increases in taxes or power sector charges.


Since PROINFA, there have been no Government institutions and/or programs which have been promoting wind. However, the auctions have represented a powerful stimulus to develop the sector. Informally, one can also see an engagement of EPE’s Planning Department to understand and model wind energy and even present proposals to develop the market.

New evaluations of potential are being supported. Until recently, much attention was given to updating atlases and campaigns with temporary measurements. Now it is more clearly recognized that high quality time series are also needed.


Most of the principal international wind turbine manufacturers are present in the Brazilian market. Several, including GE, Vestas and Enercon offer turn-key plants and to do this work closely with local firms. Hyundai is preparing to do the same. There is a spectrum of more specialized equipment and service providers. One set of services of great importance is the certification of projects (for example, evaluating the analyses underlying projections of capacity factor). Major international certifiers, such as GL Garrad Hassan and DEWI GmbH are now present in Brazil. More information on market players is presented elsewhere in this report.

Eight categories of agents were considered:

i) Manufacturers of wind turbines and associated equipment; - ENERCON – Eduardo Lopes (15)2101-1700 Sales manager

(http://www.enercon.de/en/_home.htm, http://www.wobben.com.br/) - VESTAS – Marcelo Hutschinski (11)2755-8002 Director (http://www.vestas.com/) - GE – http://www.gepower.com/businesses/ge_wind_energy/en/index.htm) - SIEMENS - Eduardo Angelo (11)4585-5932

(http://www.energy.siemens.com/entry/energy/hq/en/?tab=energy) - FUHRLÄNDER – Bastian Fenner (85)3275-7044 and Nuno Sá +49 2664 9966, Commercial

Director (http://www.fuhrlaender.de/index_en.php)


- ALSTOM – (http://www.power.alstom.com/home/wind/) - HYUNDAI – Mauro Bittencourt (11)3033-5783 Comercial manager (http://english.hhi.co.kr/) Among the manufacturers cited above, ENERCON, GE, and VESTAS are offering turnkey implementation of projects (including civil works, substations and connection with the grid) as well as turbine/tower. In order to provide the latter service the manufacturers are associating with local engineering firms. HYUNDAI also intends to provide this service soon.

ii) Importers and wholesalers of RE equipment (when distinct from manufacturers and are an important part of the supply chain): The Brazilian market is not yet sufficiently developed to have this kind of agent. All equipment supply is provided by the manufacturers.

iii) c. Project developers and turnkey contractors (when distinct from manufacturers): Larger firms include: - TOSHIBA – Otone Zamberlan (11)4083-7900 Commercial Director - ENERFIN/ELECNOR – Marco Morales (51)9235-7475 Director / Ricardo Encinas (11)2139-

8100 General Director. This category is incipient. TOSHIBA is only beginning to enter the market. Enerfin/Elecnor have not yet executed projects for third parties and suffer from their being owner/operators (and hence competitors) of possible clients. There is considerable capacity in the hands of relatively small individual developers. Having won in the December, 2009 auction, many of these are positioned to sell their project for execution to larger firms – creating opportunities for the latter to enter or expand their participation in the market. The buyers are Brazilian energy companies (e.g. CPFL, Energisa, Light, CEMIG, CHESF, Eletronorte, Eletrosul); large Brazilian construction companies and mining companies (e.g. Vale); foreign utilities (e.g. SNPOWER-StatKraft of Norway); domestic and international investment funds. Little information is publicly available about this “secondary market”. The prices paid vary between about USD 55,000 -140,000 (€ 40,000 - 100,000) per MW of contracted installed capacity, depending on the projected performance of the wind farm, the characteristics of the connection to the grid and the logistics of the site (such as ease of access).

iv) d. Owners of plants or groups of plants (only leading firms):

Some larger firms have now begun to accumulate substantial stakes in the wind energy market. These include traditional energy supply companies, such as Petrobrás, CPFL, Iberdrola, Eletrosul, as well as firms more specialized in wind and (possibly) other renewables, such as Renova, Dobreve. Some contacts are: - ENERFIN – Marco Morales (51)9235-7475 director - MULTINER – Julio Pedro (21)2272-5500 director


- IBERDROLA – Laura Porto (21)3820-1519 - PACIFIC HYDRO – Maurício Vieira (84)4009-0112 manager for business development - PETROBRAS – Anário Quintino Jr. (21)3212-4923 coordinator for wind energy As observed in the previous item, there is also substantial capacity in the hands of smaller developers. Many of these are interested in selling on their projects for implementation to larger agents.

v) Professional associations of businesses: - ABEEOLICA – Lauro Fiuza (SERVTEC) (11) 3660-9700. President.

vi) Commercial banks which have been engaged in financing investments in this area:

Although most credit is ultimately from the BNB and the BNDES, financial intermediaries such as Santander, Itaú BBA and HSBC have entered in some of these operations. Among the private banks, Santander has been the most active. It already has extensive experience in Europe in this area. It acts not only as an intermediary for BNDES loans, but can finance equity and provide guarantees. In addition, they may participate as a shareholder in projects – generally >50% of the equity for a period of up to 36-40 months (with tag along agreements with the original partners) – and provide resources for project design/development. The bank has global agreements with various manufacturers, which can reduce the cost of turbines and contracted O&M. It is considering entering into leasing arrangements for wind turbines. Contact: Eduardo Klepacz, [email protected], (11) 3012 7189.

vii) Green investment funds (including carbon funds):

- Perenia Carbon (www.pereniacarbon.com) - manager for Latin American operations Cintia Dias (21) 9444 8504.

viii) Principal firms (domestic and international) certifying projects in Brazil:

- DEWI GmbH (dewi.com) – internacional (http://www.dewi.de/) - GL Garrad Hassan – internacional (http://www.gl-garradhassan.com/) - Camargo Schubert – nacional (http://www.camargo-schubert.com/)


The two principle sources of credit for project finance are the BNDES and the Banco do Nordeste de Brasil (BNB). The BNB finances projects in the Northeast Region. As shown in the table, the terms of the BNB are significantly more favorable for project developers than are those of the BNDES.

Table 83: Comparison of credit terms between those of BNDES and of Banco do Nordeste

Development Bank Max share of Interest Depreciation Grace Investment Rate (%) (Years) PeriodBNDES 80% 9-11 14 6 monthsBNB – Banco do Nordeste 90% 7-10 20 Up to 4 years


During the time of PROINFA, the BNB had a small credit window for wind and was not much used. However, lending capacity for wind projects was increased in time for the December 2009 wind auction. A large fraction of lending for the selected projects should come this year from the BNB.

It is indeed quite possible that the availability of such concessional finance for the Northeast was a major factor behind the very large share of capacity (almost 90%) that was won by projects in the region.

It is not clear to what extent BNDES operations are “direct” or “indirect” (through banks). A typical project of 25 MW would involve ~BRL 100 million of total investment, which would qualify for “direct” financing. However, it appears that a significant share of the lending for projects from the December 2009 auction will be “indirect”.

The winning projects, once commissioned, will have long term contracts with predictable and credible revenue streams over a 20-year period.


APPENDIX 9 BIODIESEL MARKET SECTOR

Scale of the market and recent history

The National Program for the Production and Use of Biodiesel (PNPB - Programa Nacional de Produção e Uso de Biodiesel), was begun in 2005 to substitute for diesel oil.66 Legislation in that year established a chronogram for minimum % mixtures in diesel as well as a framework for monitoring this new fuel’s insertion in the market. The program originally authorized a voluntary 2% mix (B2) between 2005 and 2007. Between 2008 and 2012 this 2% mix would be obligatory and would increase to 5% (B5) from 2013.

However, the popularity of the program and the rapid development of the market brought a revision of the targets for the obligatory mix. In March, 2008, the government authorized a 3% mix (B3) from July of that year and in 2009 there were more changes. Table 84 shows the evolution of the mix until now.

Table 84: Evolution of the required blend of biodiesel in diesel from fossil fuel67

2005-2007: From Jan 2008: From July 2008: From July 2009: From January 2010: 2% authorized 2% obligatory 3% obligatory 4% obligatory 5% obligatory

Since production effectively began in March of 2005, biodiesel output has grown quickly, as shown in Table 85. The regional profile has changed. In 2007, the Northeast was the largest producing region, but output there has actually fallen since.

Table 85: Evolution of the production in m3 of pure biodiesel (B100), 2005-200968

Region↓ Year→ 2005 2006 2007 2008 2009North 510 2,421 26,589 15,987 41,821 Northeast 156 34,798 172,200 125,910 163,905 Middle West 0 10,121 125,808 526,287 640,077 Southeast 44 21,562 37,023 185,594 284,379 South 26 100 42,708 313,350 477,871 Brazil 736 69,002 404,329 1,167,128 1,608,053

There are now 48 biodiesel plants with a capacity of 11.9 thousand m3/day which have been authorized to produce and commercialize biodiesel. There are also 5 new plants authorized for construction and 7 existing plants authorized to expand which increase capacity by 2.6 thousand m3/day.

With the current (since January, 2010) obligatory mix of 5% (B5), the tendency is for production to grow. The market is being adequately supplied and the installed capacity comfortably exceeds demand.

66 Ethanol has long been used in Brazil to substitute for gasoline. Since it has a high octane it is suited for use in spark ignition engines (Otto cycle) generally used in automobiles. However, for this very reason, it is unsuited for mixture with diesel, which is used in compression ignition engines. 67 Source: Ministério das Minas e Energia 68 Source: ANP as stipulated in ANP Resolution n° 17/2004.


Overview of potential; significant regional differences and barriers

In the short term, Brazilian biodiesel production should grow because of the strong internal market. Besides the steadily increasing demand for diesel (B5 and subsequently higher % mixes), there is the prospect of various fleets of urban buses beginning to use either B20 or B100, or pure biodiesel.

There is biodiesel production in all of the macro regions of Brazil as shown in Table 85. The most important region is the Center-West (Centro-Oeste) but, other than in the North (roughly, Amazonia) all regions have important production. The current geographical distribution of production capacity is projected to continue in the near future, with some increase in the relative weight of the Southern Region, as shown in the following table:

Table 86: Current regional shares of biodiesel production capacity and projected shares in the near term69

Region Current Production Future ProductionNortheast 18.9% 18.2%South 19.8% 26.2%Southeast 17.6% 17.5%North 4.8% 3.2%Center-West 38.9% 35.0%

Nominal production capacity has been substantially larger than actual output, as illustrated in the next map.

69 Aproximately 2 years with the addition of processing plants currently under construction or which have been authorized. Source: FNP- Agrianual 2010


Figure 24: Map of biodiesel nominal production capacity versus actual output, 200870

Many different raw materials are used to produce biodiesel, but by far the largest feedstock is soybeans – which supply 82% of the biodiesel produced. The second largest feedstock (12%) is animal fat from slaughterhouses, followed by cottonseed oil (2%). The remaining materials account for 6%.

Although soybeans are the dominant feedstock for biodiesel today, their use as a raw material is widely criticized since the oil is a staple food product. No other source, however, is as well understood from an agronomic or industrial processing perspective. All the other potential feedstocks today have their difficulties. For example, Castor beans – considered by the government to be the archetypical biodiesel crop for small family farms in the Northeast – is very viscous which complicates its processing and means the product must be blended with other vegetable oils. Developers using this feedstock in the Northeast have suffered setbacks. Agronomic research in Pinhão manso, also in principle an attractive crop for small family farms in the Northeast, is very limited to provide a basis for industrial scale supply. Table 87 summarizes the principal advantages and disadvantages of different raw materials.

70 Source: ANP


Table 87: Advantages and disadvantages of different feedstocks for biodiesel71

Feedstock Advantages Disadvantages Soybeans • Well developed technology

• Cultivation consolidated in Brazil • Global commodity

• Low % of oil in the seed • Used for food • Large price volatility

Sunflower • High % of oil in the seed • Fits in well as a second crop in

rotations in Center-South

• Cultivated area in Brazil is small • Used for food

Castor Beans • High % of oil in the seed • Not used for food • Crop fits social development

objectives in Northeast

• Small and poorly developed market, associated with subsistence agriculture

• Little technology for industrial development

• Low productivity per hectare • Oil is very viscous

Cottonseed • Well developed technology • Global commodity

• Low % of oil in the seed • Used for food • Cultivated area in Brazil is small

Jatropha Curcas (Pinhão Manso)

• High % of oil in the seed • Not used for food • Crop fits social development

objectives

• Limited agronomic understanding • Lack of stable genetic material • Little research has been undertaken • Commercial harvest after 3rd year

Palm oil (Dendê) • High % of oil in the seed • Global commodity • Excellent option for tropical regions

• Used for food • High initial investment cost • Large price volatility • Commercial harvest after 4th year • Manual harvest increases cost • Natural oil solidifies at low

temperature Bovine animal fat • Raw material substantially cheaper

than vegetable oils • Large expansion would increase

feedstock price, competing with soap • Since solid at 22o C, requires more

expensive processing

In general, for the vegetable oils for which there is a developed commodity market the opportunity cost of redirecting the oil towards fuel use is quite high, which requires subsidies.

Brazil is one of the largest producers of biodiesel in the world and one of the few capable of supplying increasing global demand – notably that in the European Union where several countries have targets to increase the mix of biodiesel. Argentina is also a major biodiesel producer. However, the demands of the internal market resulting from the compulsory 5% (B5) mix may limit that country’s ability to export. In some other countries there is a tendency for production to decline, given a lack of cultivable land and concerns about the conflict between food versus fuel.

However, the export of biodiesel is still for some time off in the future, after the internal market has been consolidated. Though Brazil is a comparatively low cost producer, neither it (nor any other country) produces biodiesel which can compete directly with conventional diesel oil – the cost in Brazil

71 Source: FNP Agrianual 2010 - Biocombustíveis and Antonio Claudio Horta Barbosa


is roughly double.72 Countries which provide strong subsidies for biodiesel (such as the USA and Germany73) may be loath to see foreign producers benefiting from these subsidies. As in Brazil, a strong aspect of the overall motivation for biodiesel production is to provide income and employment in rural areas. This context can lead to protectionist posture regarding imports. The problem seems to be rather similar to that faced with sugarcane ethanol.


Although there is much interest in “mini-processing” plants of 1000 to 5000 liters per day (l/day), the average capacity of existing plants is much larger – 248,000 l/day. There are substantial economies of scale in the processing plants. Assuming a plant of 185,000 l/day, the total investment in the processing facility will be about BRL 27 million.74 Compared with an autonomous distillery producing ethanol from sugarcane, the unit investment per m3/day of output is modest, about BRL 145,000/m3/day versus BRL 350,000/m3/day. However, electricity and alcohol must be purchased for the process.

By far the largest component of costs is the feedstock material – typically 80% or more. As already observed, the most important feedstock is soybean oil (82%), followed by animal fat from slaughterhouses (12%). The recent and projected prices of different sources of oil in natura are shown in the next table. One ton of feedstock produces approximately one ton of biodiesel.

Table 88: Prices of oil & fat feedstocks for biodiesel (USD/ton)75

Year Soybean Sunflower Palm Oil Mamona Mamona Animal Recycled (international) (Domestic) Fat Frying Oil2008 $1,097 $1,543 $1,046 $2,005 $908 $771 $6582013 $1,337 $1,548 $1,110 $2,443 $1,107 $940 $802

Although recycled frying oil is the cheapest feedstock, difficulties in collection have made it as yet unviable on a commercial scale. The availability of animal fat is also limited and competition with traditional uses is raising prices. The projected tendency is for the prices of the feedstock from oilseeds to also increase.

Assuring a reliable supply of feedstock is of crucial importance and feedstock supply has often been a problem.

Overview of regulation and the framework for commercializing biodiesel

Biodiesel is sold exclusively through periodic quarterly auctions which are coordinated by the National Agency for Petroleum, Gas and Biofuels (ANP). The quantity put to bid in each auction is based on 72 A possible exception is production for local use in remote areas of Amazonia, where the cost of transporting diesel is extremely high. 73 For example, Germany grants biodiesel complete exemption to taxes, which amount to US$0.47/liter. In the US there is a tax credit of $0.50/gallon ($0.13/liter) for renewable fuels used for transport and $1.00/gallon for use in agriculture. 74 This includes the trans-sterification unit, the laboratory, utilities and equipment for preparing the raw oil, treating water and effluents, weighing and unloading/loading shipments. 75 Source: EPE


estimates of the projected consumption of diesel in the next quarter. From these estimates the calculation is made of the volume of biodiesel needed to meet the obligatory % blend (Bx) in that quarter.

The ANP then determines the maximum “reference” price (or price cap) for biodiesel based on estimates of the cost of production. The winning bidder is that who charges the lowest price for each lot which has been specified. The ANP sets pre-requisites for the producers to be credentialed to participate in the auctions. These pre-requisites may change as the market develops.

Petrobrás is the only buyer in these auctions. It defines the size of the lots of biodiesel for each of the distributors of conventional diesel (e.g. BP, Shell, etc) based on the average share of the market of each one. The lots are then sold on to each distributor at the average purchase price of the auction since Petrobrás intermediates the operation without any spread or profit. The biodiesel producers are responsible for delivering the product to the ultimate distributors who then blend it with the conventional diesel before delivery to the retail fuel stations.

The biodiesel producer who wins the supply of a lot has three months to deliver 80% of the contracted volume. If the producer fails to do so, it may be barred from future auctions. The fact that each contract is short term introduces a significant degree of risk for investments in the processing plant.

In the first auctions, a “Certificate of Social Fuel” was required for 80% of the purchased volume. The remaining 20% could be purchased from producers without this certificate. Since the twelfth auction in 2008, the total volume in each auction has been divided in two lots. The first lot requires the Certificate while the second does not. The average prices in the most recent auctions are shown in the following table.

Table 89: Volumes and prices in the 16th and 17th auctions of biodiesel76

16th Auction

Lot 1 16th Auction

Lot 2 17th Auction

Lot 1 17th Auction

Lot 2

For delivery in January – March, 2010 April – June, 2010 Volume contracted (m3) 460.000 115.000 452.000 113.000 Average price (BRL/m3) 2.328,54 2.319,18 2.241,69 2.218,49

The “Certificate of Social Fuel” reflects the strong social dimension of the PNPB. It is a mechanism which requires the biodiesel producers to purchase a certain share of their raw material from smaller family farms. The required share varies from one macro-region to another as shown in Table 90.

Table 90: Minimum required share of raw material input from small family farms77

Region 2009/2010 Harvest 2010/2011 Harvest North 10% 15% Center-West 10% 15% Northeast 30% 30% Southeast 30% 30% South 30% 30%

76 Source : ANP. Bids for Lot 1 must have a “Social Certificate”. 77 Source: Ministério do Desenvolvimento Agrário - MDA


As already observed, the “Certificate of Social Fuel” is pre-requisite for participating in much of the bidding in the auctions. It also gives the firms the right to reduced rates for the PIS and COFINS taxes.

However, there have been some difficulties in organizing small farmers for industrial scale production, especially in the Northeast where small farmers tend to be subsistence farmers and the tradition of farmers’ cooperatives is much weaker.


There are several lines of policy action to promote the development of biodiesel. The periodic auctions have been an important way of stimulating biodiesel production in sufficient quantity to supply the mandated % blend (Bx). This instrument is gradually being modified and could move towards a free market, as exists with ethanol, as the market matures. For now, there is a strong parallel with the structured auctions being carried out for purchases of electricity small hydro, wind energy and biomass (largely sugarcane mills).

A second line of policy is the tax incentives which are available to producers who meet the requirements of the “Certificate of Social Fuel” (Selo Combustível). The reduction in PIS/COFINs is worth BRL 0.218 per liter. These are the only tax incentives. However, it can be observed that in all of the auctions which have taken place, the producers with the “Certificate of Social Fuel” have obtained a higher price than those without.

Finally, given the need to find a viable alternative to soybeans in the longer term, the public support of R&D is crucial. Petrobrás and EMBRAPA (the agricultural research arm of the government) as well as other centers of research and universities are developing and testing new varieties, new agronomic techniques and conversion technologies.

An interesting project in Pará state will be the first test on a large scale to produce palm oil (dendê) for biodiesel. Undertaken by a consortium composed of Vale with Biopalma da Amazônia SA it is expected to produce 160,000 ton/year, with production beginning in 2014. Total project investment of about USD 500 million. The biodiesel will supply a B20 blend for Vale’s own fleet of locomotives in the North and heavy mining equipment in Carajás. While at a much larger scale, the experience may be useful for subsequent development of projects to supply isolated electrical systems (and boats) in the region.



Key players in the market include the owner/operators of the processing plants. Some of the largest producers are shown below. The smallest of the plants operated by these firms have 300 m3/day of capacity. There is a marked tendency towards consolidation of producers.

Table 91: Key biodiesel producers in Brazil

Firm No Plants Authorized Capacity (m3/day) Granol 2 1,546 Brasil Eco Diesel 4 1,440 Caramurú 2 1,250 ADM 1 955 Petrobrás 3 905 Biocapital 1 824 Agrenco 1 660

Vale is also investing in a large plant in Pará to produce and process palm oil for its own consumption.

There is a variety of producers of specialized equipment and services for processing biodiesel.

• DEDINI SA- Industrias de Base: Manufactures equipment - www.dedini.com.br • TecBio Tecnologias Bioenergéticas Ltda.: Manufactures equipment - www.tecbio.com.br • Quimis SA: Manufactures equipment & chemical products - www.quimis.com.br • Evonik Industries: Manufactures equipment - www.evonik.com.br • Intecnial: Electrical & mechanical equipment & services - www.intecnial.com.br • Gea Westfalia Separator Brasil: Manufactures centrifuges & other specialized equipment -

www.westfaliaseparator.com.br • Axens IFP Group Technologies: Technology for biodiesel and services - www.axens.net

The website www.biodieselbr.com.br presents information (including contacts) on all of the firms with plants which produce biodiesel today or are under construction. It also has information on equipment suppliers and purchasers of by-products, such as glycerine.

There is an association of biodiesel producers – Associação Brasileira das Indústrias de Biodiesel: http://www.abiodiesel.org.br.

A number of public sector entities are involved in the operation of the PNPB.

• The Ministry of Mines and Energy (Ministério das Minas e Energia – MME) is responsible for structuring the overall program and defining the targets for the volume of biodiesel to be blended.

• The National Agency for Petrolem, Gas and Biofuels (Agencia Nacional de Petróleo, Gás e Biocombustíveis – ANP) is linked to the MME. It is responsible for regulating and monitoring the production, quality control, distribution and commercialization of both biodiesel and conventional diesel. It also organizes the auctions described above.

• Petrobrás is the only buyer in these auctions, as described above. The lots are then sold on to each distributor at the average purchase price of the auction.


• The Ministry of Agriculture (Ministério da Agricultura – MAPA) is responsible for structuring the agricultural supply chain and for the agro-climatic zoning of possible crops.

• The Ministry of Agrarian Development (Ministério do Desenvolvimento Agrário – MDA) is responsible for monitoring the inclusion of small farmers in the biodiesel program and issuing the “Certificate of Social Fuel”.

The development of new varieties and cultivars of potential crops to provide raw material are the responsibility of EMBRAPA, which subordinated to the Ministry of Agriculture. Petrobrás also plays an important role in funding and coordinating R&D for biodiesel.


Brazil’s public sector and development banks – BNDES, Banco do Brasil and the Banco do Nordeste – offer financing both for the construction of processing plants, the agricultural production of the raw material (investment and operations), the purchase of the feedstock by the plants and the commercialization of the biodiesel product.

The credit line of the BNDES – Programa de Apoio Financeiro a Investimentos em Biodiesel – was established in 2004. Operations may be direct, indirect (automatic or non-automatic), or mixed. Under this program, the BNDES can finance up to 90% of the investment (in items which may be financed) for projects with the “Certificate of Social Fuel” and 80% of those without this certificate. The table below summarizes the interest rate for direct operations.

Table 92: BNDES biodiesel support program interest rate for direct operations

Micro, small & medium firms - projects with Certificate of Social Fuel TJLP + 1% Micro, small & medium firms – projects without Certificate of Social Fuel TJLP + 2% Large firms - projects with Certificate of Social Fuel TJLP + 2% Large firms – projects without Certificate of Social Fuel TJLP + 3%

Indirect operations add the remuneration of the financial intermediary. We do not have information yet regarding the share of BNDES operations which are direct, indirect or mixed.

The Banco do Brasil, besides intermediating loans from the BNDES has diverse lines, such as: Pronaf Agroindústria (for small family farms), Prodecoop (for cooperatives), Crédito Agroindustrial (for acquiring raw material) and the FCO-Empresarial (FCO = Constitutional Fund for the Middle West).

Guidelines regarding the agricultural zoning for the proposed crop and the technical recommendations of the responsible official agency should be observed.

A key criterion for conceding credit is the guarantee for the commercialization of the product, be it the raw material or the biodiesel.

The BNDES requires collateral78 of at least 100% of the value being financed. In the operational phase, the collateral requirements (or personal guarantees) may be relaxed if the BNDES or the

78 Guarantees of the following types: hipoteca, penhor (inclusive de títulos) e/ou alienação fiduciária.


intermediary financial agent has first call on the receipts of the sale of biodiesel (vinculação de receitas provenientes de contrato de venda de biodiesel).


APPENDIX 10 INFORMATION ON ISOLATED OFF-GRID SYSTEMS IN AMAZÔNIA

Table 93: Thermal Power Plants in Isolated Systems

Acre

Municipality Installed Capacity

(kW) Latitude Longitude Owner/Operator Fuel

Aeroporto Internacional de Cruzeiro do Sul 216 7°36'0.00"S 72°45'60.00"O Empresa Brasileira de Infraestrutura Aeroportuária Óleo Diesel

Laminados Triunfo 1,500 10° 0'45.00"S 67°46'2.00"O Laminados Triunfo LTDA Resíduos de Madeira

DTCE-RB 528 9°59'36.74"S 67°48'4.15"O Cindacta IV Óleo Diesel

Curzeiro do Sul 21,654 7°36'56.00"S 72°40'28.00"O Guascor do Brasil LTDA Óleo Diesel

Tarauaca 3,314 8° 9'6.00"S 70°45'49.00"O Guascor do Brasil LTDA Óleo Diesel

Feijó 3,177 8°10'31.00"S 70°21'32.00"O Guascor do Brasil LTDA Óleo Diesel

Manoel Urbano 1,169 8° 4'60.00"S 59°15'58.00"O Guascor do Brasil LTDA Óleo Diesel

Assis Brasil 1,494 10°56'5.00"S 69°34'1.00"O Guascor do Brasil LTDA Óleo Diesel

Santa Rosa dos Purus 435 9°26'9.00"S 70°29'35.00"O Guascor do Brasil LTDA Óleo Diesel

Jordão 386 9°11'44.00"S 71°56'42.00"O Guascor do Brasil LTDA Óleo Diesel

Marechal Thaumaturgo 1,029 8°56'37.00"S 72°47'10.00"O Guascor do Brasil LTDA Óleo Diesel

Porto Walter 496 8°15'47.00"S 72°44'29.00"O Guascor do Brasil LTDA Óleo Diesel

DTCEA-CZ 136 7°35'48.20"S 72°46'25.67"O Cindacta IV Óleo Diesel

DTCEA-CZ II 528 7°35'48.20"S 72°46'25.67"O Cindacta IV Óleo Diesel

Rio Acre 45 9°57'54.00"S 67°47'35.00"O Centrais Elétricas do Norte do Brasil Óleo Diesel

Amapá

Municipality Installed Capacity (kW) Latitude Longitude Owner/Operator Fuel

Calçoene 1,296 2°29'52.80"N 50°56'56.40"O Companhia de Eletricidade do Amapá Óleo Diesel

Laranjal do Jari 8,675 0°49'38.00"S 52°31'35.00"O Companhia de Eletricidade do Amapá Óleo Diesel

Lourenço 720 2°18'34.00"N 51°37'56.00"O Companhia de Eletricidade do Amapá Óleo Diesel

Oiapoque 8,250 3°50'4.00"N 51°50'10.00"O Companhia de Eletricidade do Amapá Óleo Diesel

Serra do Navio 21,600 0°53'45.60"N 52° 0'7.20"O Amapari Energia S.A. Óleo Diesel

DTCEA-0I 128 3°51'46.54"N 51°47'49.07"O CINDACTA IV Óleo Diesel

DTCEA-MQ 528 0° 3'11.87"N 51° 4'19.00"O CINDACTA IV Óleo Diesel


Amazonas



Alvarães 1,728 3°13'60.00"S 64°46'60.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Amaturá 1,238 3°22'15.00"S 68°11'46.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Anamã 1,566 3°34'45.00"S 61°24'34.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Anori 4,330 3°44'48.00"S 61°39'40.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Apuí 5,000 7°12'9.00"S 59°53'13.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Novo Aripuanã 4,156 5° 7'17.00"S 60°22'58.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Atalaia do Norte 1,400 4°20'8.00"S 70° 9'20.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Autazes 6,042 3°34'46.00"S 59° 7'58.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Axinim 455 4° 2'44.00"S 59°22'14.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Barcelos 2,460 0°58'31.27"S 62°55'28.17"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Barreirinha 3,240 2°48'23.00"S 57° 3'59.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Belém do Solimões 640 4° 2'30.00"S 69°31'43.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Benjamin constant 5,100 4°21'22.00"S 70° 2'7.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Beruri 2,358 3°53'52.00"S 61°22'29.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Boa Vista do Ramos 2,062 2°58'8.00"S 57°35'17.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Boca do Acre 11,300 8°46'5.00"S 67°19'8.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Borba 6,390 4°23'23.00"S 59°35'46.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Caapiranga 1,378 3°19'46.00"S 61°12'40.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Caburi 680 2°27'39.00"S 57° 6'10.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Campinas 280 3°17'60.00"S 60°37'15.60"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Canutama 2,080 6°32'4.00"S 64°23'1.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Carauari 5,456 4°52'44.64"S 66°54'0.31"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Careiro da Várzea 2,500 3°11'52.00"S 59°46'27.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Castanho 6,000 3°49'8.00"S 60°22'5.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Caviana 430 3°17'60.00"S 60°37'15.60"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Coari 22,260 4° 5'26.00"S 63° 8'49.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Codajás 5,200 3°50'26.00"S 62° 3'45.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Envira 3,327 7°26'27.00"S 70° 1'47.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Estirão do Equador 555 4°22'19.20"S 70°11'31.20"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Fonte Boa 3,550 2°31'27.00"S 66° 2'19.00"O 100% para Centrais Elétricas do Norte do Brasil S/A. Óleo Diesel

Guajará 580 7°32'45.60"S 72°35'2.40"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Humaitá 12,930 7°30'56.00"S 63° 1'30.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Iauaretê 1,310 0° 7'48.00"S 67° 5'20.40"O 100% para Hermasa Navegação da Amazônia S/A Óleo Diesel

Ipiranga 288 2°55'51.00"S 69°41'47.00"O 100% para Masisa Madeira Ltda. Óleo Diesel

Ipixuna 2,668 7° 3'17.00"S 71°41'29.00"O 100% para Petróleo Brasileiro S/A Óleo Diesel

Iranduba 6,082 3°16'38.00"S 60°11'3.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Itacoatiara 19,890 3° 8'3.00"S 58°26'46.00"O 100% para CINDACTA IV Óleo Diesel

Itamarati 2,380 6°26'22.00"S 68°14'46.00"O 100% para BK Energia Itacoatiara Ltda Óleo Diesel


Amazonas



Jacaré 290 3°36'7.00"S 60°49'3.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Japurá 180 1°49'19.00"S 66°36'32.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Juruá 1,998 3°28'26.00"S 66° 4'1.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Jutaí 2,911 2°44'32.00"S 66°46'6.00"O 100% para Breitener Jaraqui S/A Óleo Diesel

Lábrea 6,300 7°15'57.00"S 64°47'37.00"O 100% para Breitener Tambaqui S/A Óleo Diesel

Limoeiro 1,930 1°52'40.00"S 66°59'38.00"O 100% para Empresa Brasileira de Infra-Estrutura Aeroportuária Óleo Diesel

Manacapuru 23,692 3°17'43.00"S 60°37'1.00"O 100% para Empresa Brasileira de Infra-Estrutura Aeroportuária Óleo Diesel

Manaquiri 3,080 3°25'55.00"S 60°27'32.00"O 100% para Empresa Brasileira de Infra-Estrutura Aeroportuária Óleo Diesel

Manicoré 5,110 5°48'49.00"S 61°17'53.00"O 100% para Geradora de Energia do Amazonas S/A Óleo Diesel

Maraã 2,050 1°51'21.60"S 65°34'51.60"O 100% para Itautinga Agro Industrial S/A Óleo Diesel

Maués 11,670 3°23'59.00"S 57°42'50.00"O 100% para Companhia Energética Manauara Óleo Diesel

Mocambo 648 2°27'11.00"S 57°17'4.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Murituba 260 3°51'46.00"S 62°28'54.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Nhamundá 2,800 2°12'18.03"S 56°43'8.03"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Nova Olinda do Norte 4,910 3°53'29.00"S 59° 5'32.00"O 100% para Amazonas Distribuidora de Energia S/A Óleo Diesel

Novo Airão 4,082 2°37'17.00"S 60°56'32.00"O 100% para Rio Amazonas Energia S.A. Óleo Diesel

Novo Céu 600 3°23'11.00"S 59°16'26.00"O 100% para CINDACTA IV Óleo Diesel

Novo Remanso 2,300 3°13'13.00"S 59° 1'19.00"O 100% para CINDACTA IV Óleo Diesel

Parintins 23,000 2°37'59.00"S 56°44'26.00"O 100% para CINDACTA IV Óleo Diesel

Pauini 3,018 7°42'52.00"S 67° 0'9.00"O 100% para CINDACTA IV Óleo Diesel

Pedras 432 2°47'47.00"S 57°16'45.00"O 100% para CINDACTA IV Óleo Diesel

São Sebastião do Uatumã 2,184 2°34'19.20"S 57°52'15.60"O 100% para CINDACTA IV Óleo Diesel

Santa Izabel do Rio Negro 1,864 0°25'14.00"S 65° 2'7.00"O 100% para CINDACTA IV Óleo Diesel

Tabatinga 14,520 4°15'27.00"S 69°56'19.00"O 100% para CINDACTA IV Óleo Diesel

Tapauá 3,780 5°37'17.00"S 63°11'16.00"O 100% para CINDACTA IV Óleo Diesel

Tefé 17,245 3°21'16.00"S 64°40'13.00"O 100% para CINDACTA IV Óleo Diesel

Tonantins 2,740 2°53'16.00"S 67°47'39.00"O 100% para CINDACTA IV Óleo Diesel

Tuiué 568 3°41'35.00"S 61° 3'52.00"O 100% para CINDACTA IV Óleo Diesel

Urucará 4,500 2°32'5.00"S 57°45'38.00"O 100% para CINDACTA IV Óleo Diesel

Vila Amazônia 720 2°36'52.00"S 56°40'0.00"O 100% para CINDACTA IV Óleo Diesel

Vila Bittencourt 444 3°51'10.00"S 61°59'38.00"O 100% para Canamã Energética Companhia Ltda. Óleo Diesel

Vila Caiambé 420 3°31'14.00"S 64°24'27.00"O 100% para Canamã Energética Companhia Ltda. Óleo Diesel

Cametá 592 2°47'34.80"S 57° 4'12.00"O 100% para Canamã Energética Companhia Ltda. Óleo Diesel

Vila Sacambu 362 3°16'37.00"S 60°55'59.00"O - Óleo Diesel


Pará

Municipality Installed Capacity (kW) Latitude Longitude Owner/Operator Fuel

Afua 2,040 0° 9'47.00"S 50°22'60.00"O Guascor do Brasil LTDA Óleo Diesel

Almeirim 2,726

1°30'43.00"S 52°34'58.00"O Guascor do Brasil LTDA Óleo Diesel

Altamira 80 3°11'40.55"S 52°12'33.53"O Cindacta IV Óleo Diesel

Anajas 1,112 0°59'9.00"S 49°56'46.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Aveiro 624 3°36'25.00"S 55°19'46.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Bagre 1,020 1°53'50.00"S 50°12'40.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Bannach 720 7°21'10.00"S 50°24'27.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Breves 8,701 1°40'0.00"S 50°28'11.00"O Guascor do Brasil LTDA Óleo Diesel

Cachoeria do Arari 1,008 1° 0'39.60"S 48°57'46.80"O Guascor do Brasil LTDA Óleo Diesel

Chaves 584 0° 9'45.00"S 49°59'31.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Cotijuba 1,145 1°14'59.00"S 48°33'14.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Curralinho 1,442 1°48'41.00"S 49°48'0.00"O Guascor do Brasil LTDA Óleo Diesel

Faro 954 2°10'8.00"S 56°45'1.00"O Guascor do Brasil LTDA Óleo Diesel

Gurupá 1,603 1°24'26.00"S 51°38'22.00"O Guascor do Brasil LTDA Óleo Diesel

Jacareacanga 1,417 6°13'43.00"S 57°45'39.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Juruti 1,675 2° 9'46.00"S 56° 5'60.00"O Guascor do Brasil LTDA Óleo Diesel

Melgaco 720 1°48'7.00"S 50°42'55.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Monte Alegre 4,563 1°59'38.00"S 54° 5'16.00"O Guascor do Brasil LTDA Óleo Diesel

Muana 1,163 1°32'26.00"S 49°15'1.00"O Guascor do Brasil LTDA Óleo Diesel

Novo Progresso 9,125

7° 2'20.00"S 55°24'16.00"O Centrais

Elétricas do Pará S/a (Soenergy)

Óleo Diesel

Óbidos 6,053 1°54'10.00"S 55°31'48.00"O Guascor do Brasil LTDA Óleo Diesel

Oeiras Do Pará 1,008 2° 0'32.00"S 49°51'44.00"O Guascor do Brasil LTDA Óleo Diesel

Oriximiná 8,482 1°46'15.00"S 55°51'47.00"O Guascor do Brasil LTDA Óleo Diesel

Ponta De Pedras 1,499 1°24'12.00"S 48°51'51.00"O Guascor do Brasil LTDA Óleo Diesel

Portel 3,350 1°56'48.00"S 50°48'41.00"O Guascor do Brasil LTDA Óleo Diesel

Porto De Moz 2,566 1°44'51.00"S 52°13'52.00"O Guascor do Brasil LTDA Óleo Diesel

Prainha 1,202 1°48'12.00"S 53°28'40.00"O Guascor do Brasil LTDA Óleo Diesel

Salvaterra 2,633 0°44'44.00"S 48°31'33.00"O Guascor do Brasil LTDA Óleo Diesel

Santa Cruz Do Arari 720 0°43'6.00"S 49°10'49.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Santa Maria Das Barreiras 1,112 8°50'40.00"S 49°43'53.00"O Centrais Elétricas do Pará S/a Óleo Diesel

Santana Do Araguaia 7,323

9°20'35.00"S 50°19'60.00"O Centrais

Elétricas do Pará S/a (Soenergy)

Óleo Diesel

São Sebastião Da Boa Vista 1,008 1°43'16.00"S 49°31'42.00"O Guascor do Brasil LTDA Óleo Diesel

Soure 3,470 0°44'1.00"S 50°20'1.00"O Guascor do Brasil LTDA Óleo Diesel

Terra Santa 1,344 2° 6'35.00"S 56°29'55.00"O Guascor do Brasil LTDA Óleo Diesel

Vila – Mandi 720 9°17'50.00"S 50° 6'7.00"O Centrais Elétricas do Pará S/a Óleo Diesel


Rondônia



Abunã 3,180 9°41'27.00"S 65°22'22.00"O Guascor do Brasil LTDA Óleo Diesel

Buritis/Fernando Rivero 12,800 10°12'29.00"S 63°49'22.00"O Guascor do Brasil LTDA Óleo Diesel

Colorado do Oeste 10,946 13° 7'8.00"S 60°31'41.00"O Centrais Elétricas de Rondônia S/A. Óleo Diesel

Pimenta Bueno 13,000 11°41'14.00"S 61°11'4.00"O Centrais Elétricas de Rondônia S/A. Óleo Diesel

São Sebastião 98 8°46'22.00"S 63°56'44.00"O Guascor do Brasil LTDA Óleo Diesel

Vilhena 23,750 12°45'45.00"S 60° 8'14.00"O Centrais Elétricas de Rondônia S/A. Óleo Diesel

Rovema Colorado do oeste 4,500 13° 7'8.00"S 60°31'41.00"O ROVEMA Veículos e Máquinas Ltda Óleo Diesel

Rovema Triunfo 4,340 9°17'49.00"S 63°28'5.00"O ROVEMA Veículos e Máquinas Ltda Óleo Diesel

Rovema Bandeirantes 1,632 9°37'48.00"S 64°32'2.00"O ROVEMA Veículos e Máquinas Ltda Óleo Diesel

DTCEA-GM 408 10°47'12.79"S 65°17'5.98"O CINDACTA IV Óleo Diesel

DTCEA-PV 528 8°42'36.00"S 63°54'6.01"O CINDACTA IV Óleo Diesel

DTCEA-PV II 400 8°42'36.00"S 63°54'6.01"O CINDACTA IV Óleo Diesel

DTCEA-GM II 136 10°47'12.79"S 65°17'5.98"O CINDACTA IV Óleo Diesel

DTCEA-VH 528 12°41'39.70"S 60° 5'53.99"O CINDACTA IV Óleo Diesel

Roraima



Água Fria 48 4°37'52.00"N 60°30'7.00"O Companhia Energética de Roraima Óleo Diesel

Campos Novos 360 2°10'55.20"N 61° 2'27.60"O Companhia Energética de Roraima Óleo Diesel

Canauanim 10 2°36'36.00"N 60°35'49.20"O Companhia Energética de Roraima Óleo Diesel

Caracaraí 11 1°49'21.00"N 61° 7'23.00"O Companhia Energética de Roraima Óleo Diesel

Contão 160 4°25'51.60"N 61° 8'45.60"O Companhia Energética de Roraima Óleo Diesel

Equador 281 0° 8'7.00"N 60°33'59.00"O Companhia Energética de Roraima Óleo Diesel

Félix Pinto 600 2°36'36.00"N 60°35'49.20"O Companhia Energética de Roraima Óleo Diesel

Jundiá 400 0°56'44.28"N 60°25'6.37"O Companhia Energética de Roraima Óleo Diesel

Lago Grande 26 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

Maloca Boca da Mata 48 4°25'51.60"N 61° 8'45.60"O Companhia Energética de Roraima Óleo Diesel

Maloca da Bala 6 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Maloca da Raposa 64 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Maloca do Araçá 48 3°39'7.20"N 61°22'15.60"O Companhia Energética de Roraima Óleo Diesel

Maloca Flexal 24 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Maloca Guariba 24 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Maloca Malacacheta 48 2°36'36.00"N 60°35'49.20"O Companhia Energética de Roraima Óleo Diesel

Maloca Moscow 5 3°21'36.00"N 59°49'58.80"O Companhia Energética de Roraima Óleo Diesel

Maloca Santa Rosa 24 4°25'51.60"N 61° 8'45.60"O Companhia Energética de Roraima Óleo Diesel

Maloca São Marcos 6 2°49'12.00"N 60°40'22.80"O Companhia Energética de Roraima Óleo Diesel

Maloca Trairão 320 3°39'7.20"N 61°22'15.60"O Companhia Energética de Roraima Óleo Diesel

Maloca Três Corações 320 3°39'7.20"N 61°22'15.60"O Companhia Energética de Roraima Óleo Diesel


Roraima Municipality

Installed Capacity


Maracanã 57 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Mutum 72 4°35'45.60"N 60°10'4.80"O Companhia Energética de Roraima Óleo Diesel

Napoleão 72 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Normândia 1,220 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Nova Esperança 32 3°21'36.00"N 59°49'58.80"O Companhia Energética de Roraima Óleo Diesel

Olho D´agua 24 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Panacarica 60 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

Passarão 600 2°49'12.00"N 60°40'22.80"O Companhia Energética de Roraima Óleo Diesel

Petrolina do Norte 80 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

Pium 18 3°21'36.00"N 59°49'58.80"O Companhia Energética de Roraima Óleo Diesel

Rorainópolis 2,600 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

Sacaí 48 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

Samaúma 24 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

Socó 65 4°35'45.60"N 60°10'4.80"O Companhia Energética de Roraima Óleo Diesel

Surumú 332 4°25'51.60"N 61° 8'45.60"O Companhia Energética de Roraima Óleo Diesel

Taiano 500 2°58'48.00"N 61°17'31.20"O Companhia Energética de Roraima Óleo Diesel

Tepequem 65 3°39'7.20"N 61°22'15.60"O Companhia Energética de Roraima Óleo Diesel

Terra Preta 24 0°52'25.00"S 61°55'54.00"O Companhia Energética de Roraima Óleo Diesel

Vila Antônio Campos 24 2°36'36.00"N 60°35'49.20"O Companhia Energética de Roraima Óleo Diesel

Vila Brasil 900 3°39'7.20"N 61°22'15.60"O Companhia Energética de Roraima Óleo Diesel

Vila Cachoeirinha 57 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

Vila Caícubi 48 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

Vila Central 280 2°36'36.00"N 60°35'49.20"O Companhia Energética de Roraima Óleo Diesel

Vila da Penha 10 2°25'48.00"N 60°53'60.00"O Companhia Energética de Roraima Óleo Diesel

Vila Dona Cota 10 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

Vila Floresta 24 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

Vila Milagre 10 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Vila São José 65 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

Vista Alegre 160 1°44'12.00"S 61° 8'29.00"O Companhia Energética de Roraima Óleo Diesel

Xumina 14 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

Santa Maria do Boiaçú 320 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

Santa Maria do Xeruini 24 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

São Francisco do Baixo Rio Branco 10 1°48'57.60"N 61° 7'40.80"O Companhia Energética de Roraima Óleo Diesel

Jacamim 10 3°21'36.00"N 59°49'58.80"O Companhia Energética de Roraima Óleo Diesel

Vila Vilena 120 3°21'36.00"N 59°49'58.80"O Companhia Energética de Roraima Óleo Diesel

Maloca do Manoá 32 3°21'36.00"N 59°49'58.80"O Companhia Energética de Roraima Óleo Diesel

Uiramutã 240 4°35'45.60"N 60°10'4.80"O Companhia Energética de Roraima Óleo Diesel

Vila Itaquera 24 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

Vila Remanso 26 0°56'45.60"N 60°25'4.80"O Companhia Energética de Roraima Óleo Diesel

São Francisco 320 3°21'36.00"N 59°49'58.80"O Companhia Energética de Roraima Óleo Diesel

Serra Grande II 108 2°36'36.00"N 60°35'49.20"O Companhia Energética de Roraima Óleo Diesel


Roraima Municipality

Installed Capacity


Pacaraima 2,408 4°25'51.60"N 61° 8'45.60"O Companhia Energética de Roraima Óleo Diesel

Maloca Vista Alegre 24 2°49'12.00"N 60°40'22.80"O Companhia Energética de Roraima Óleo Diesel

Maloca Araçá do Amajari 48 3°39'7.20"N 61°22'15.60"O Companhia Energética de Roraima Óleo Diesel

Araçá 32 3°52'51.60"N 59°37'22.80"O Companhia Energética de Roraima Óleo Diesel

São João da Baliza 1,000 0°56'46.00"N 59°54'32.00"O Companhia Energética de Roraima Óleo Diesel

Rovema 4,800 0°56'47.00"N 59°54'31.00"O ROVEMA Veículos e Máquinas Ltda. Óleo Diesel

Aeroporto Internacional de Boa Vista 216 2°49'12.00"N 60°40'22.80"O Empresa Brasileira de Infra-Estrutura Aeroportuária Óleo Diesel

DTCEA-BV 128 2°50'31.87"N 60°41'31.32"O CINDACTA IV Óleo Diesel

DTCEA-BV II 400 2°50'31.87"N 60°41'31.32"O CINDACTA IV Óleo Diesel

Jundiá 40 0°56'44.28"N 60°25'6.37"O CINDACTA IV Óleo Diesel

Surucucu 80 2°53'53.00"N 61°29'29.00"O CINDACTA IV Óleo Diesel

Bio Fuel 4,800 0°57'35.00"N 59°57'21.00"O Brasil Bio Fuels S.A. Resíduos de Madeira

Sawmills in the State of Pará

Firms that are in the Association of Wood Exporting Industries of Pará (AIMEX – Associação das Indústrias Exportadoras de Madeira do Estado do Pará)

1. ABED - IND. COM. DE IMP. E EXP.DE MADEIRAS End: Margem Direita do Rio Pacajá - Porto Barro-Alto CEP: 68480-000 Portel – PA Fone/Fax: (91) 3784-1176 e-mail: [email protected] Linha de Produtos: Madeira Serrada e Aparelhada.

2. AGRO INDUSTRIAL BUJARÚ LTDA

End: Rod. PA 140 – SN, Km 03 CEP: 68670-000 Bujarú-PA Fone: (91) 3746-1260 Fax: (91) 3746-1205 e-mail: [email protected] Linha de Produtos: Serrados

3. AGRO INDUSTRIAL DE MADEIRAS VALE FÉRTIL LTDA

End.: Estrada do Maracacuera - Km 04 - Icoaraci - CEP: 66815-140 – Belém – PA Fone: (91) 3297-7868 - Fax: (91) 3247-3724 e-mail: [email protected] Linha de Produtos: Madeira Serrada

4. ALMEIRIM INDUSTRIAL LTDA

End.: Margem Esquerda dos Rios Parú com Amazonas s/n – Zona Rural CEP: 68230-000 – Almeirim – PA Fone: (93) 3737-1208 - Fax: (93) 3737-1208 e-mail: [email protected] Linha de Produtos: Serrados, Compensados e Laminados


5. AMAZÔNIA FLORESTAL LTDA End.: Av. Alcindo Cacela 1264, Ed. Empire Center – Salas 1201 e 1202 Nazaré. CEP: 66060-000 Belém – PA Fones: (91) 3228-1180/1130 /1108 Fax: (91) 3228-1112 Fábrica: Rod. Transamazônica Km 01 – Vila Miritituba CEP: 68191-400 - Itaituba - PA Fone: (93) 3541-1255 Fone/Fax: (93) 3541-1257 Cel: (93) 9122 0548 e-mail:[email protected] ou [email protected] Linha de Produtos: Madeira Aparelhada e Pisos de Madeira

6. BRASCOMP - COMPENSADOS DO BRASIL S/A

End.: Distrito Industrial de Ananindeua, Setor I, Q/3, Lote 2 CEP: 67000-000 Ananindeua-PA. Fone: (91)4005-5800 Fax.: (91)4005-5829 e-mail: [email protected] Linha de Produtos: Compensado

7. CIKEL BRASIL VERDE S/A

End: Rod. do 40 Horas – Km 04 - Nº 17 - CEP: 67120-000 - Ananindeua – PA Fone: (91) 4005-9900/9955 Fax: (91) 3273-1808 e-mail: [email protected]; [email protected]; [email protected]; [email protected] ; [email protected]; [email protected] Escritório Paraná: Rua Itupava, 1.235 CEP: 80040-000 Curitiba-PR. Fone: (41) 264-1188 Fax: (41) 262-8029 Site: www.cikel.com.br Linha de Produtos: Madeira Serrada, Madeira Aparelhada, Pisos de Madeira, Compensado, Faqueados e Laminados.

8. EBATA – PRODUTOS FLORESTAIS LTDA

End.: Dist. Industrial de Icoaraci Qd. 6 Setor B Lote 13 – Icoaraci CEP: 66815-590 Belém – PA. Fone: (91) 3204-1900 Fax: (91) 3204-1919 e-mail: [email protected] Linha de Produtos: Pisos, Deck, Madeira Serrada, Aparelhada

9. ELDORADO EXPORTAÇÃO E SERVIÇOS LTDA

End: Dist. Industrial de Icoaraci, Setor B, Q/03 Lote 1 a 11 – Icoaraci CEP: 66815-590 Belém -PA. Fone: (91) 3366-8100 e-mail: [email protected] , [email protected] ou Linha de Produtos: Beneficiamento e Exportação de Madeira Serrada, Madeira Aparelhada, Portas, Janelas e escadas

10. EMAPA – EXPORTADORA DE MADEIRAS DO PARÁ LTDA

End.: Rua Ó de Almeida, 409 Ed. Rotary – Conj. 1101 / Centro CEP: 66017-050 Belém-PA. Fone: (91) 4006-8827 Fax: (91) 4006-8828 e-mail:[email protected] Linha de Produtos: Madeira Serrada

11. FLORAPLAC INDUSTRIAL LTDA

End: Estrada Colônia do Uraim, S/N – Km 01 – Setor Industrial - Cx.Postal 02 CEP: 68625-970 – Paragominas – PA Fone/fax: (91)3729 – 3048 / 3084 / 3214 e-mail: [email protected] Linha de Produtos: Compensado


12. GLOBAL IND. COM. E NAVEGAÇÃO LTDA End.: Rua 1º de Janeiro, 110 – União Cx. Postal 47 CEP: 67105-970 Marituba – PA Fone/Fax: (91) 4005-9400 Fax: (91) 4005-9401 e-mail: [email protected] Linha de Produtos: Madeira Serrada, Madeira Aparelhada, Pisos de Madeira e Laminas Torneadas, Forros, Portas, Decks, Etc...

13. IBL - IZABEL MADEIRAS DO BRASIL LTDA

End.: Rod. PA - 236 - Km 06 - CEP: 66033-170 - Breu Branco - Pa Fone: (91) 3271-2277 - Fax: 3271-2277 e-mail: [email protected] e [email protected] Linha de Produtos: Madeiras serradas: pranchas, vigas, peças especiais e Madeiras Aparalhadas: Decking, assoalho, forro e peças especiais

14. INDUFEX INDÚSTRIA FURLANETO E EXPORTAÇÃO LTDA

End.: Estrada Caiçaua, Km 05 CEP: 68798-000 - Santa Bárbara do Pará – PA Fone/Fax: (91) 3621-2018 e 3255-3011 e-mail: [email protected] e [email protected] Linha de produtos: Serrados e Beneficiados

15. JURUÁ FLORESTAL LTDA End.: Dist. Industrial de Ananindeua - Qd 6 Lote 3 Setor D CEP: 67033-310 – Ananindeua – PA Fone/Fax: (91) 3321-3399 Fax: (91) 3321-3355 e-mail: [email protected] Linha de Produtos: Madeira Serrada

16. LAMAPA LAMINADOS DE MADEIRAS DO PARÁ S/A End.: Dist. Industrial de Ananindeua - Qd 3 Lote 7 Setor I CEP: 67033-009 – Ananindeua – PA Fone/Fax: (91) 3250-9800 Fax: (91) 3250-3070 e-mail: [email protected] Linha de Produtos: Madeira Serrada

17. MADEIRAS FILTER LTDA

End: Estrada do Outeiro, Lote 12 Setor A – s/n - Icoaraci CEP: 66815-590 – Belém – PA Fone: (91) 3227-1270 Fax: (91) 3227-1269 e-mail: [email protected] Linha de Produtos: Madeira Serrada, Madeira Aparelhada, Pisos de Madeira e Compensados.

18. MADEIRAS MAINARDI LTDA

End: Rua 1º de Janeiro, 111 CEP: 67200-000 Marituba – PA Fone: (91) 4005-9400 Fax: 4005-9401 e-mail: [email protected] ou [email protected] Linha de Produtos:

19. MADENORTE S/A - LAMINADOS E COMPENSADOS

End: Av. Roberto Camelier, 337 CEP: 66033-640 Belém - PA. Fone: (91) 4005-5716/5777 FAX: ( 091) 4005-5750 e-mail:[email protected] ou [email protected] Linha de Produtos: Madeira Serrada, Madeira Aparelhada (S2S e S4S), Decking, Pisos de Madeira (soalho, parquet, piso industrial e outros), Pisos engenheirado, Compensados e Plataformas. Em varias espécies e medidas


20. MADESA-MADEIRAS SANTARÉM LTDA End:Rodovia Santarém/Cuiabá, Km 4 - Caixa Postal 12 CEP: 68030-000 - Santarém-PA. Fone:(93) 3524-3500/3505 FAX: (93) 3524-1999 e-mail: [email protected] Linha de Produtos: Madeira Serrada, Aparelhada e Pisos de Madeir

21. MADEX MADEIRAS PARA EXPORTAÇÃO LTDA

COORDENADAS End: Rodovia Transamazônica, Km 02 – S/N - Cidade Nova CEP: 68.501-000 Marabá – PA Fone: (94) 3324-2121 Fax: (94) 3324-2785 e-mail: [email protected] ou [email protected] Linha de Produtos:

22. MG - MADEIREIRA ARAGUAIA, IND. COM. E AGROPECUÁRIA S/A End: Rua da Cerâmica, 400 - União CEP: 67200-000 Marituba - PA Fone: (91) 4005-8600 Fax: (91) 4005-8630 e-mail: [email protected] ou [email protected] Linha de Produtos: Madeira Serrada, Pisos de Madeira.

23. M2000 MADEIRAS LTDA

End.: Distrito Indl de Icoaraci – Lt 18 e 20 – Setor B – Qd. 6 CEP: 66810-970 – Belém – PA Fone: (91) 3227-2725 Fax: (91) 3227-7700 e-mail: [email protected] Linha de Produtos: Madeira Serrada e Beneficiada

24. NORDISK TIMBER LTDA

End.: Rod. Augusto Montenegro, S/N - Icoaraci Cx. Postal 141 CEP: 66820-000 - Belém -PA. Fone: (91) 4006-7700 Fax: (91) 4006-7701 e-mail:[email protected] Site: www.dlh-group.com Linha de Produtos: Agenciamento

25. ORSA FLORESTAL S/A

End.: Área Industrial de Munguba, S/N - Bloco A - CEP: 68240-000 – Almeirim-PA Fone: (93) 3736-6510/6262 Fax: (93) 3736-6349 e-mail: [email protected]; [email protected] Linha de Produtos: Serrados

26. PAMPA EXPORTAÇÃO LTDA

End: Rod. Arthur Bernardes, Km 09 CEP: 66825-000 Belém - PA. Fone: (91) 4006-8400 Fax: (91) 4006-8444 e-mail: [email protected] Linha de Produtos: Madeira Aparelhada e Pisos de Madeira.

27. PROMAP PRODUTOS DE MADEIRAS DO PARÁ LTDA

End.: Rodovia Estrada do Outeiro, n° 2275. Icoaraci CEP: 66815-590 - Belém - PA Fone: (91) 4008-1900 Fax: (91) 4008-1901 e-mail: [email protected]; [email protected] Linha de Produtos:


28. RIO CONCREM LTDA End Fábrica.: Rod. BR 010, Km 31 Caixa Postal 34 CEP 68633-000 - Dom Eliseu - PA. Fone: (94) 3335-1005 Fax: (94) 3335-1499 e-mail: [email protected]; [email protected] Linha de Produtos:

29. RONDOBEL MADEIRAS LTDA

End.: Distrito Indl de Icoaraci - Setor A - Qd 5 CEP: 66815-590 - Belém - PA Fone: (91) 3247-2707 Fax: (91) 3247-2777 e-mail: [email protected] Linha de Produtos: Comércio, Indústria, Imp e Exportação de Madeira

30. SELECTAS S.A INDÚSTRIA E COMERCIO DE MADEIRA

End.: BR 116, Km 106, 18.414 - Pinheirinho Caixa Postal 1126 CEP: 81690-300 Curitiba - PR Fone: (41) 3017-2335 fax.: (41) 246-7923 e-mail: [email protected] SELECTAS MADEIRAS LTDA End.: Distrito Industrial de Ananindeua, Setor I, Q/3 Lote 9 - CEP: 67030-970 - Ananindeua-PA. Fone: (91) 3250-3330 Fax: (91) 3250-3393 e-mail: [email protected] Linha de Produtos: Madeira Serrada, Madeira Aparelhada, Faqueados e Laminados.

31. SEMASA – INDUSTRIA COMERCIO E EXPORTAÇÃO DE MADEIRAS LTDA

End.: Rod. Arthur Bernardes, 8047 – Icoaraci – CEP: 66825-000 – Belém – PA Fone: (91) 4006-6000 Fax: (91) 4006-6041/6043 e-mail: [email protected] ou [email protected] Linha de Produtos:

32. TOFOLI IND. E COMÉRCIO DE MADEIRAS LTDA

End.: Estrada Caiçaua, s/n – Km 05 CEP: 68798-000 – Santa Bárbara do Pará – PA Fone: (91) 3621-2023 Fax: (91) 3621-2023 e-mail: [email protected] Linha de Produtos: Desdobramento de madeiras

33. TRADELINK MADEIRAS LTDA

End.:Distrito Industrial de Ananindeua, Av. Principal, s/n - Lote 1 - Setor G - Quadra 9 CEP: 67030-180 Ananindeua -PA. Fone: (91) 4005-7500 Fax: (91) 4005-7524 /7514 e-mail: [email protected]; [email protected] Site: www.tradelink-group.com Linha de Produtos: Exportação e Beneficiamento de Madeira Serrada, Pisos de Madeira, Painel, S4S e Decking, Briquetes de Serragem.

34. TRAMONTINA BELÉM S/A – MADEIRAS

End.: Distrito Industrial de Icoaraci, Setor C, Q/2 Lote 3 a 8 - Icoaraci CEP: 66800-000 Belém – PA. Fone: (91) 4009-7700 Fax: (91) 4009-7701 Linha de Produtos: Artefatos de Madeira: Utilidades, Cabos de ferramentas e Móveis.


35. W TEX INDÚSTRIA E COMERCIO LTDA

End.: Rod. BR 316, Km 09, S/N – Centro CEP: 67.033-000 Ananindeua - PA Fone: 3255-0012 Fax: 3255-2566 e-mail: [email protected], [email protected], [email protected] Linha de Produtos: Pisos


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