Saturday, August 20, 2011

Yes it’s true – Brazil’s wind power kicks fossil fuels’ butt

No subsidies, no kid gloves, no whining environmental activists demanding their clean energy rights. It’s big news -- Brazil’s wind power industry beat out natural gas projects last week in government power auction, offering lower prices for power than their fossil fuels based competitors.

 It’s not the way this one’s supposed to shake out – isn’t wind the flaky, unpredictable, overpriced and over-coddled stepchild of the power industry? It may sound like I’m doing a bit of an environmental blogger’s end-zone dance here (guilty as charged). And I’m of course aware that wind is never going to be Brazil’s main source of power, and that there are a series of structural advantages that make this competitiveness possible. But I still think this really marks a coup for the industry, particularly because the European wind power markets are still basically living off the government dole and conscientious “green” consumers willing to pay a premium for low-carbon electricity.

The wind projects on average bid 99.58 reais ($62.63) per megawatt hour, vs 103.2 reais ($64.91) per megawatt hour for the natural gas-fired generators. Not bad for an industry that only three years ago was still under government protection.

Remember, price is always the deal-killer when it comes to alternative energy in the United States. Indignant American consumers are outraged at the idea that their power bills might go up because of insistence on pricey renewable energy as opposed to “cheap” coal-fired electricity (I say “cheap” because I don’t believe air pollution, mercury contamination, and increased incidence of cancer are low-cost phenomena, but that’s an entirely separate diatribe). The news last week knocks down the down the coal lobby’s trump card argument about how renewable power can never win in a fair fight anywhere.

But there’s another stumbling block for wind in the United States, one which wind adversaries like these guys love to gleefully rub their palms about: wind power is variable, therefore it cannot be guaranteed to provide energy when it’s needed. While a coal-fired power plant runs 24 hours a day, a wind farm only generates when there’s wind. If you rely on wind power on a hot summer’s day, you run the risk that everybody turns their air conditioner on at the same time just when the wind stops blowing – meaning there’s not enough power in the system and a blackout ensues. The result is that wind farms in the United States rely on the coal-fired power plants to back them up.

Folks like this reporter have made a career out of harpooning wind power. There’s now an entire campaign insisting wind is actually worse for carbon emissions than burning coal (based on the idea that variable wind power requires utilities to turn coal fired power plants on and off, which boosts coal consumption, mostly based on a study done in Colorado – I’ll get back to this another time).

These arguments do at times have merit, and are needed to bring starry eyed green dreamers back down to earth. But the vituperative and often exaggerated criticisms of the wind industry completely fall apart when applied to Brazil. The reason is Brazil’s power generation can easily accommodate variable wind power, because close to 90 percent of its generation comes from hydroelectric dams. Many of these have reservoirs, which are a form of stored energy. When the wind blows, you close off one of the dam’s turbines and you’re plugging wind power right into the grid. When the wind slacks off, you put that turbine back to work.

What’s also amazing is that the weather patterns line up such that the periods of highest wind are also the periods that have the lowest amount of hydro power, meaning they naturally balance each other out. For years it was horridly expensive to power Brazil’s sparsely populated northeast coastline because the generation was far away, meaning small amounts of electricity had to get dragged for hundreds of miles across transmission lines. Now, wind power pushes electricity from those isolated regions toward population centers. These are natural advantages for wind power in Brazil, which you likely wouldn’t find in the United States, where about half of electricity comes from coal. Brazil, as pop musician Jorge Ben describes it, “a tropical country blessed by God, que beleza.”

But the natural advantages are only part of the story. Brazil did a lot of smart things to make wind into a competitive force to be reckoned with. First, they created a program of subsidies, known as “feed-in tariffs” -- which basically means that the government guaranteed that wind farms could sell electricity at a higher rate than other forms of generation in the market. But even smarter, they used this to kick-start competition and innovation to bring costs down. Europe and the United States never did this. They’re stuck in the feed-in tariff era. Wind farms there are comfortably receiving higher prices and have no incentive to take efficiency to the next level. One consequence of this is that in the United States, developers keep building turbines in places like Texas that don’t have balancing hydro power or ready forms of storage. It’s not unusual in the Lone Star state for power rates to be negative – in other words the utility pays someone to waste electricity because there’s no consumer around to buy it. 

Brazil also did some smart financial engineering (yes, there is such a thing) that allowed investors to get constant and predictable revenues from wind power despite variable generation. This had been one of the hang-ups of getting private investors to put money into wind projects. Then, the government created a series of tax incentives that lowered the cost of producing wind turbines in Brazil, which brought companies running to set up shop – especially as they watch European economies go down the tubes.

Still, there are ways in which the government is supporting the industry to make it more competitive. Brazil’s state-run BNDES provides the overwhelming majority of financing for these projects. The behemoth bank has already been criticized for being overly involved in the economy and “picking winners” by financing the expansion of Brazilian firms that are favored by the government. With Brazil’s interest rates still the highest among major economies, access to cheap financing does offer a major leg up. And tax breaks for companies to set up their wind turbine factories are not an insignificant part of the equation, since tax rates in Brazil are close to European levels.

No, Brazil is not going to become the next China of wind, and it will not be replacing its big dams or taking down its reservoirs to build wind turbines. Even at the current aggressive rates of growth, it’s only going to reach about 4 percent of installed generation capacity by 2014. Rates of growth are going to slow as the market matures and the projects start to show lower returns.

But this is news, big news. It’s time to take wind seriously. 

1 comment:

  1. i m feel so happy when read your blog which provide so good & informatics content Thanks for sharing Such as energy