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News 04/jan/2022
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A record number of new solar projects were registered with ANEEL (National Electricity Agency) in 2021. But new distributed generation legislation, currently awaiting ratification, will see a new rush of solar projects as developers seek to avoid new incremental charges for the use of transmission networks through the TUSD (Tariffs for the Use of the Distribution System).

The legislation proposes a 10-year transition from the current model, with projects already connected to the grid allowed to operate under existing rules until 2045.

The new legislation will push developers to move ahead quickly with projects in an effort to beat the higher tariffs so they can offer cheaper power purchase agreements, or Power Purchase Agreements (PPAs), to outside buyers for as long as possible.

By 2021, installed solar capacity in Brazil reached 12 GW and, before the changes were outlined, in September 2020, the portfolio of registered renewable projects under development was 8.7 GW.

That number, however, more than doubled after the law was proposed in March, reaching 18 GW, with solar power accounting for most of the new capacity.

Reducing or removing renewable subsidies can often result in new project applications falling through, as in the UK with successive reductions in - and the eventual removal of - the Feed in Tariff (FIT). The Brazilian industry is expected to pause and take stock.

However, the solar market will continue to grow strongly, responding to the key drivers leading to the adoption of solar energy and the reduction in the cost of photovoltaic panels.

We expect to see more investment in solar farms and a greater uptake in the residential market as consumers look to manage their rising household energy costs.

In the longer term, the new law also improves the financial environment, which will stimulate foreign investment in renewable energy projects by opening access to a wider range of financing options.

ESG: increasingly important

In April 2021, at a US-sponsored climate summit, Brazil committed to achieving zero carbon emissions by 2050 (a commitment reinforced in November during the 26th United Nations Climate Change Conference), a prediction 10 years earlier than previously planned.

While there is much well-founded scepticism about President Jair Bolsonaro's environmental and climate promises, it is worth noting that leaders of 30 of the country's leading companies suggested this promise in an open letter to the country's president.

Brazilian companies are increasingly concerned about the environment and broader reputational issues as environmental, social and governance issues, ESG, have become constant elements on the boardroom agendas of these businesses.

Evidently, the ESG is intrinsically linked to finance, and Brazil is no different from any other country in this respect. The evidence is there to prove it. Of the money invested in BlackRock Brazil during the first quarter of 2021, more than a third went into exchange-traded ESG funds.

Continued pressure from indigenous people and international businesses is slowly but surely forcing the government of Brazil to act on climate. This shift in approach will help remove a major barrier to international investment in Brazil's green infrastructure.

Agriculture: a technological revolution

Agriculture accounts for around 1 in 10 of Brazil's jobs and adds over 4% to the country's GDP. Brazil is the world's largest producer of many key commodities, including sugar, coffee and orange juice.

There is a revolution happening in the world of agriculture and it involves the use of technology - or 'agritech' - to improve crop yields, reduce the use of harmful chemicals and protect the soil.

Technology is being applied in a number of ways. For example, the use of cameras and drones that can identify and remove weeds without the need for mass spraying of chemicals. Or even the planting of seed pods from the air.

Satellite data analysis can help inform exactly where - within a few metres - crops have benefited from fertilizer application and in what quantity. More accurate weather forecasting using local weather stations allows farmers to plan planting, protection and harvesting to maximise yields.

According to a 2020 survey by McKinsey & Company, a global strategic consulting firm, the reach of digital farming in Brazil is greater than in the United States - and growing.

Brazilian farmers are embracing technology to help them grow and process food more profitably and sustainably. Solar panels are technology's natural allies in the sustainable agricultural revolution.

Solar farms can provide much-needed power to remote and off-grid areas, allowing processing plant, irrigation and agricultural equipment to benefit from clean electricity with predictable prices. Agriculture is expected to be a key driver of off-grid solar power by 2022.

Some producers are already realising the benefits of combining solar energy and food crops on the same land. This approach maximises the use of the area and allows the use of photovoltaic solar energy to improve growing conditions.

For example, in hot regions, solar panels can be used to provide crop shading during the hottest part of the day, helping to prevent water evaporation and reducing the need for irrigation. Mounted on the ground, solar panels are also compatible with smaller free-range animals such as chickens and sheep.

New generation

Historically, Brazil's abundance of hydropower has ensured that its energy matrix has been low carbon. However, there are growing problems with ageing infrastructure and, in recent years, generation has been erratic due to the effect of drought on river levels.

The demise of hydropower is fuelling the growth of solar and other more sustainable forms of renewable energy. In fact, in the last decade, Brazil's wind power production has grown 20-fold and now provides 11% of the country's electricity, with 20 GW of installed capacity.

In addition to achieving high levels of insolation that benefit solar generation, Brazil is also very windy. During 2020, the wind capacity factor was over 40% compared to a global average of 35%. And with 7,400km of Atlantic coastline, we see a significant opportunity for the offshore wind sector in Brazil.

Along with solar, wind energy has a promising future in Brazil and we expect to see continued strong growth through 2022 as new opportunities for floating offshore wind technology emerge.

Hydrogen: the opportunity

With an abundance of renewable energy, Brazil is well positioned to profit from the hydrogen economy. During 2021, Ceará announced plans to build a 600,000-tonne-per-year green hydrogen plant, which would make it the largest in the world. As well as helping to decarbonise Brazil's industrial economy, the state plans to export the hydrogen it will produce.

Hydrogen can play its part in the energy transition by providing energy storage for microgrids, i.e. hybrid energy systems comprising renewable generation and storage that provide 24/7 access to electricity.

Micro-grids are self-sufficient local energy networks that can serve a neighbourhood, campus or business community, and can operate in parallel to the existing power grid or completely independently.

Currently, batteries provide the most direct way of storing energy, but hydrogen is also becoming more viable as the price of specialist equipment falls.

We expect to see more substantial Brazilian hydrogen infrastructure projects announced in 2022, with a wide range of applications.

Growing the green economy

Despite the government's poor environmental record, Brazil remains well positioned to benefit from investment in its green economy over 2022.

The most recent legislative proposals will bring legal security to both contracts and consumers, who will have their rights guaranteed and respected.

And in a move designed to encourage domestic investment, the government has also cancelled import duties on foreign-made solar equipment.

If the country is to sustain a strong economy, a reliable energy infrastructure is essential. New policies that support green investment also provide businesses with reliable low-carbon energy, boost the wider economy and create clean energy jobs.

Foreign investors will continue to support Brazil's green renaissance during 2022. Taking urgent and credible action to halt deforestation and environmental destruction could open doors for foreign investment.

Source: Solar Channel

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CGC Energia is an innovative company in Brazil's community solar segment.