POWER FUTURE 2004 ENERGIZES NGOS, GOB, AND PRIVATE

UNCLAS SECTION 01 OF 02 BRASILIA 001229

SIPDIS

USAID FOR LAC/SAM AND EGAT/EIT/E
DOE FOR IEC AND EERE
COMMERCE FOR 4332/WBASTIAN/JANDERSON/DMCDOUGALL
COMMERCE FOR 3134/010/DEVITO/ANDERSON/OLSON

E.O. 12958: N/A
TAGS: EAID ENRG ECON BR
SUBJECT: POWER FUTURE 2004 ENERGIZES NGOS, GOB, AND PRIVATE
SECTOR RENEWABLE ENERGY PLAYERS



1. Summary. Power Future 2004, a trade fair and seminar on
renewable energy technologies, was held April 27-29, 2004 in
Fortaleza, Brazil. Organized by Brazil's Renewable Energy
Network of Non-governmental Organizations (RENOVE) with
USAID/Brazil support, the event allowed private and public
sector participants to exchange ideas on a wide range of
issues critical to the future of Brazil's growing renewable
energy market. In addition, the event provided an excellent
opportunity for equipment and service providers, financial
institutions, and project developers to establish the
partnerships that will allow them to effectively compete for
contracts under Brazil's Renewable Energy Incentives Program
(PROINFA). The event was a major success, attracting over
2,000 participants and 40 local and international
exhibitors, including five U.S. corporations. Preliminary
reports indicate that it resulted in direct sales, service
contracts, and business partnership proposals valued as high
as USD 100 million.

PROINFA
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2. The PROINFA Renewable Energy Incentive Program,
established in 2002 during the Cardoso administration, has
been endorsed by the Lula government and is moving forward
as designed. It guarantees the government purchase of 3,300
megawatts of power from renewable energy sources - 1,100 MW
from wind, 1,100 MW from small hydro and 1,100MW from
biomass - over the next two years, with the goal of
stimulating the renewable energy market while increasing
power generation from renewable sources by 50%. The PROINFA
program also requires that 10% of total installed electrical
generation capacity be derived from renewable energy sources
by 2026.


3. Eletrobras recently called for proposals for the first
installment of the government purchase of 3,300 MW of
renewable energy. The corresponding contracts should be
signed by May 31, 2004, as PROINFA legislation requires that
this first set of projects be operational by the end of
calendar year 2006. The GoB anticipates that the PROINFA
program will generate USD 3 billion in renewable energy
investments over the next two years and create more than
150,000 new jobs.

POWER FUTURE 2004: Content, Concerns, and Results
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4. USAID/Brazil originally proposed the idea of a renewable
energy trade fair and conference to one of its key
implementing partners, RENOVE, as a means to stimulate
investment and improve cooperation between the government
and the NGOs and private companies working in the renewable
energy sector. NGOs, corporations, developers, and
investors responded enthusiastically, making Power Future
2004 Brazil's largest ever renewable energy trade fair. The
event generated a healthy debate over the design and
implementation of the PROINFA renewable energy incentive
program, and raised the following key points of concern:

- Project developers expressed great disappointment over a
PROINFA policy that places a generation ceiling of 220 MW on
single energy sources (wind, hydro, or biomass) in any given
state. Technical experts and project developers argued that
this action will result in inefficient utilization of
natural resources throughout the country. For example, in
the coastal state of Ceara where strong winds are a
constant, wind farms represent an extremely viable and
financially attractive source of renewable energy. However,
the 220 MW single-source ceiling could result in PROINFA
awarding contracts for a number of far less promising
programs in Ceara; the same will be true in other states
where a given source of renewable energy is particularly
well suited. Seminar participants argued persuasively for
allowing technical and regional considerations to determine
the appropriate mix of renewable energy sources. The
renewable energy community is hopeful that this message will
lead the Ministry of Mines and Energy (MME) to reconsider
its position on PROINFA program energy source ceilings.


- Private sector representatives expressed concern over MME
actions to control PROINFA energy pricing. After the first
public hearing in July of 2003, MME unilaterally reduced the
purchase price for renewable energy, failing to adequately
address production costs and other market considerations.

- Private sector representatives argued that conditions
established for GoB financing through the Brazilian Bank for
Social and Economic Development (BNDES) are unacceptable.
High interest rates, excessive loan guarantee requirements,
and an overly bureaucratic application process were some of
the obstacles identified during the seminar.


5. Limited participation by the MME at Power Future 2004
also raised concerns. The ministry sent a representative to
the event, who was more often than not unable to respond to
concerns and questions, particularly with respect to the
PROINFA program.


6. Participation in Brazil by the U.S. renewable energy
industry remains relatively modest. The majority of
international investors in the sector come from European
countries, notably Germany, Portugal, and Spain. However,
this situation appears to be changing, as five U.S.
equipment suppliers actively participated in Power Future
2004 events: GE Energy, Clipper Wind Power, Woodward,
Cummins, and Caterpillar.


7. One noteworthy outcome of Power Future 2004 was the
creation of a partnership between Clipper Wind Power, a
California-based firm, and a local company based in
Sorocaba, Sao Paulo, for the manufacture of turbine blades
and towers in Brazil. Another achievement was the further
strengthening of RENOVE, a key contributor to USAID/Brazil's
strategic focus on mitigating global climate change through
the promotion of viable alternative energy technologies and
energy efficiency. Power Future 2004 also resulted in 20
new organizations and businesses joined Brazil's largest
renewable energy association, which now has over 40 members.
This group is fast developing into a formidable voice for
positive policy reform in the energy sector. Moreover, it
is leading a nation-wide effort to advance renewable energy
technology as the one of the best options for improving the
quality of life and economic opportunities for the estimated
12-15 million Brazilians that currently lack access to
reliable power.

HRINAK