Brazil’s Electric Power Transmission Auction Paves the Way in Economic Recovery and Foreign Investment
On December 17th, Brazil will kick off its upcoming Electric Power Transmission Auction. This event, which will take place in São Paulo, is critical for Brazil’s forward-movement in economic recovery since the pandemic. ANEEL – the Brazilian Electricity Regulatory Agency, will be hosting the auction to attract investments to the energy sector, and ultimately create jobs. Global Trade Magazine heard directly from Roberto Escoto, Investment Manager of Apex-Brasil (the Brazilian Trade and Investment Promotion Agency) to learn more about the event and its importance in the foreign investment arena.
Discuss the goals for the upcoming Electric Power Transmission Auction and the issues it’s aiming to solve.
The upcoming Electric Power Transmission Auction will be held on December 17, 2020 by the Brazilian Electricity Regulatory Agency (ANEEL) at B3 S/A – Brasil, headquartered in São Paulo.
There are 11 lots of projects, covering 1,940 km of transmission lines and substations with a transformation capacity of 6,420 MVA. The transmission facilities that will be auctioned involve investments of about BRL $7.4 billion, with the potential of generating 15,434 thousand jobs during construction of the projects.
The term for commercial operation of the facilities varies from 42 to 60 months, for concessions of 30 years valid from the signing date of the contracts. Concessions will be tendered for the construction, operation, and maintenance of 16 transmission lines and 12 substations.
Brazil’s main transmission network, the National Interconnected System (Sistema Interligado Nacional – or SIN), consists of four interconnected subsystems (North, Northeast, Southeast and Center-West, and South). Together, this makes up one of the largest interconnected subsystems in the world. The Brazilian network has interconnections with neighboring Paraguay (through the Itaipu Binational project), as well as with Uruguay, Argentina, and Venezuela.
The system operator (ONS) expects the Brazilian transmission network to grow extensively by 2024. More specifically, ONS envisages an extension of the grid towards the less well-connected regions of Brazil, as well as work to make further improvements to the existing grid in other parts of the country. The upcoming Electric Power Transmission Auction in December 2020 aims to assist in achieving these goals.
How does the region create and maintain a competitive environment for initiatives in the energy sector and foreign investment?
The electricity sector in Brazil – in generation, transmission, and distribution – is now one of the largest destinations of foreign direct investment in the world. The growing interest from foreign investors is driven by strong business opportunities, with private players having the chance to compete in all segments of the sector, combined with the strengthening of Brazil’s regulatory framework.
What major companies are already benefiting from investment opportunities/energy sector in this region?
Companies from all around the world are benefiting from the investment opportunities within Brazil’s energy sector, including but not limited to Iberdrola, Enel, EDP, Engie, EDF, EDP, Statkraft, Equinor, State Grid, China Three Gorges, CGN, Brookfield, Suncor, Canadian Solar, and more.
Discuss how you identify and lead multi-sector business development opportunities?
Apex-Brasil has an extensive international network of partner organizations, associations, and companies. We have offices in the U.S. (Miami and San Francisco), Europe (Brussels), Israel (Jerusalem), Russia (Moscow), China (Shanghai and Beijing), the United Arab Emirates (Dubai), and Colombia (Bogota). Additionally, since we work in close partnership with the Brazilian Ministry of Foreign Affairs, we have access to over 100 Embassies around the world. Finally, we have a market intelligence unit that supports our efforts with relevant information on the international economy, business, and key players.
This global reach and intelligence allow us to map and prospect the right investors, as well as introduce Brazilian companies to foreign investors on international business trips.
How is the workforce prepared for incoming investors? How about for current investors?
Brazil is a populous country with a workforce of over 100 million people. The sectors that usually gather the largest number of Brazilian workers, according to IBGE’s statistic report (PNAD), are retail and mechanic workshops, public administration, defense, education, health, social services, information and communications services, financial activities, realty, and administration.
In 2017, Brazil’s Congress approved a reform in the country’s work legislation, known as the Consolidation of Labor Laws (CLT). The main goal of this reform was to make the laws more flexible, with a specific focus on negotiations between employers and employees.
As a result, new rules have emerged, allowing for outsourcing of labor in a company’s main activity, home-office regulation, and more accountability for employees in lawsuits against employers. That said, collective bargaining agreements between employers and unions may offset some points written in the law, adjusting the terms to the necessities of the workers. Some of these topics include working hours, profit sharing, and sanitary standards (which were previously established only by the employer).
However, this does not mean that workers are left unprotected, as their fundamental rights cannot be negotiated under CLT. These rights include maternity and paternity leave, holidays, minimum wage, 13th salary, retirement, and the Guarantee Fund for Continuing Service (FGTS), which is a type of savings account taken directly from workers’ salaries that aims to protect the worker’s subsistence in case of dismissal but can also be used to buy residential properties.
Also, Brazil has first-rank universities and engineers with expertise in onshore and offshore technologies, as well as in EPC entrepreneurships.
Brazil has a skilled and diversified labor market, as well as favorable labor framework conditions for investors.
Let’s discuss how the region has managed the energy sector climate during the pandemic and other disruptions. What should companies know and how are you addressing it?
Brazil is taking concrete actions to combat the Covid-19 pandemic and still remain globally competitive. Among other measures, the Brazilian government has launched a package to protect both workers, especially the most vulnerable people, and SMEs.
When it comes to the power sector specifically, several initiatives have been introduced since the start of the pandemic. This includes but is not limited to the following measures:
First, a Committee of Crisis and Monitoring, composed of the Ministry of Mines and Energy (MME), and other authorities and experts, has been established to map and act quickly on the challenges that the pandemic has imposed.
Second, MME and ANEEL, along with banks, have designed and implemented the “COVID account,” which offers loans of a total of USD $16.1 billion for energy companies, with the goal of providing liquidity to the sector, especially in the key segment of distribution.
Finally, MME has launched the green bonds program, which is favorable for obtaining financing for new energy projects, with an estimated gradual release of USD $250 by 2030. It is envisioned that this particular program will contribute to expanding 25 GW for new wind energy, 8GW for solar and energy, and 3 GW for small hydro plants.
Please share anything else you’d like the readers to know about Brazil’s investment climate.
Brazil has one of the cleanest electric matrices in the world, with over 80% of our electricity coming from renewable sources. Currently, hydro represents 58% of the Brazilian power generation mix, while biomass, wind, and solar have a share of 11%, 9%, and 2%, respectively. In 2029, it is expected that these sources will represent 42%, 10%, 16%, and 8%, respectively, of our power generation mix. With this forecast in mind, it is clear that wind and solar energies are increasing fast and constantly, underscoring their importance now and in the future. That said, this growth is not a surprise: Solar and wind are very competitive areas, and Brazil offers unique differentiators for investors to consider.
For example, Brazil has one of the highest capacity factors for wind energy in the world, with an average above 40%. Brazil also has the highest growth rate for wind in Latin America over the last 10 years. Additionally, our solar irradiation is higher than those of other counties, such as Spain, France, and Germany. What’s more, the power generation segment has opportunities in auctions, free market (Corporate Power Purchase Agreements model), and distributed market (i.e. type of net metering model) – these are all important drivers for the growth of these two sources.
To conclude, Brazil´s energy sector has a successful regulatory framework that is prime for foreign direct investment. Additionally, all of the energy segments in Brazil (generation, transmission, and distribution) are open to private investors. Lastly, Brazil has a solid track record of success and growth in this sector, which is the reason why the power sector attracted so much foreign investment in 2019, as well as why we expect this growth to continue in the coming years.