Brazil Wind Energy
Steel demand plummets... Brazilian wind energy benefits.
This is Green Chip International editor Sam Hopkins writing from Rio de Janeiro, where I've been speaking with Brazilian entrepreneurs and industry leaders at the Renewable Energy Finance Forum for Latin America, and above all keeping my eyes open to see what this important emerging country needs energy-wise, and how we can profit with stock plays.
Perhaps the biggest surprise so far has been the enthusiasm I see for wind energy investments here.
The national wind energy resource potential is estimated at around 250GW, concentrated in the northeast, coastal south, and northwest of the major cities Rio, Sao Paulo and Belo Horizonte.
Brazil's government launched an initiative called ProInfa in 2002, which is the electricity counterpart to the government's highly successful ProAlcool sugar ethanol development campaign launched decades back.
I see walking and taking buses around Rio that every fuel station has an Alcohol option. Not booze, mind you, but locally produced sugar ethanol. It's considerably cheaper than gasoline and diesel, at about R$1.48 (66 US cents) per liter. "Common" gasoline (regular unleaded) costs about a third more.
Where wind and the ProInfa electricity generation scheme are concerned, it's not the locally produced crop that will help Brazil kickstart its local industry and deliver low energy costs to consumers, but low global steel prices instead.
The World Steel Association released its revised full-year 2009 forecast on Monday April 27, saying that global steel demand will drop by 15%.
In the U.S., that number is much higher, at 36%. The EU will see wind demand plummet by double the global average, with a 30% decline.
That's a boon to wind farm developers around the world, but especially in Brazil, where the country's fiscal health has brought it more IMF bargaining power and the ability to pounce on low steel prices to seed wind farms and even local wind turbine production.
There will be a major auction of wind energy permits in Brazil on November 25, and I've found that both local and international utilities like France's GDF/Suez are lining up to compete and get their bids low enough that the government accepts.
Vertical integration, i.e. obtaining cheap steel now to ensure low production costs later, will be essential to any successful bids and ongoing projects.
I'll be keeping a close eye on the pre-auction movement in steel prices and buying to see who has the upper hand.