Brazil’s renewable energy sector, particularly wind and solar power producers, is grappling with profitability challenges, as repeated restrictions imposed by the National Electric System Operator (ONS) have significantly impacted their operations, Reuters news report said.
The issue stems from ONS’s policy of curtailments, which temporarily limits the amount of electricity that can be fed into the national grid from these renewable sources. This policy has led to substantial financial losses and is causing many companies to reconsider their future investments in Brazil’s renewable energy market.
The market size of the renewable energy sector in Brazil grew from $44 billion in 2020 to more than $51 billion in 2022. By 2030, Brazil’s renewable energy market is forecast to reach over $100 billion. Brazil accounts for the largest renewable energy market in Latin America.
Despite Brazil’s efforts to encourage investment in renewable energy through generous financing and subsidies, the infrastructure necessary to support this surge in energy production has lagged. The growth in wind and solar generation, especially in the northeast, has overwhelmed the existing transmission capacity, creating bottlenecks that prevent the efficient transfer of electricity to more populous regions such as São Paulo and Rio de Janeiro.
The situation has been increasing since August 2023, following a widespread power outage that affected much of the country. Since then, ONS has adopted a more cautious approach to grid management, resulting in more frequent curtailments. Though ONS defends these measures as necessary for grid safety, the financial impact on renewable energy companies has been significant.
For example, the Brazilian Wind Energy Association (ABEEolica) estimates that the wind energy sector alone has lost approximately 700 million reais (about $128 million) over the past year due to curtailments. The solar energy sector, represented by the Brazilian Solar Association (Absolar), reported losses of 50 million reais in just four months leading up to July 2024.
The hardest-hit areas include the Serra do Mel II B complex in Rio Grande do Norte, where 58 percent of generated power was rejected by the grid, and the Banabuiu complex in Ceará, which saw 50 percent of its solar energy generation curtailed. These losses not only affect current profitability but also deter potential future investments, as higher risk pricing by investors becomes inevitable.
Companies such as Engie Brasil Energia, Equatorial Energia, and SPIC Brasil have expressed concerns about the long-term viability of renewable energy investments under these conditions. Some have even resorted to legal action seeking compensation for the losses incurred. However, these legal battles could take years to resolve, adding further uncertainty to the sector.
To address these challenges, the Brazilian government has initiated auctions for private companies to build new transmission lines. However, many of these projects are still years away from completion, offering little immediate relief to the affected companies.
Christiano Vieira, director of operations at ONS, indicated that a new transmission line scheduled to start operating in September could help alleviate some of the grid constraints in the northeast. While this may offer some short-term relief, the broader issue of grid capacity and reliability remains a significant hurdle for the profitability and growth of Brazil’s renewable energy sector.