10/04/2016 15h09

BNDES goes green in new energy projects

Valor International

The Brazilian Development Bank (BNDES) will prioritize energy projects that provide bigger social and environmental returns, according to its new financing policy for the electricity sector released on Monday.

The bank has increased to up to 80% from 70% ifs share of solar power projects at the Long Term Interest Rate (TJLP). It has maintained an 80% cap for energy-efficiency projects and of 70% of wind farms, biomass co-generation and small hydropower plant (SHP) projects.

The development lender has also lowered its share of financing for large hydroelectric dams to 50% from up to 70%, also with the TJLP. The same policy will be in effect for gas-fired thermal plants and for distribution ventures (but in this case half of principal will be lent at the TJLP and the other at market rates). The bank has also decided it will stop supporting thermal plants that use coal and fuel oil.

The BNDES could provide up to 80% of financing for transmission projects but at market cost instead of the TJLP. The bank believes the industry is able to raise private-sector funding.

 “The participation of the BNDES will seek to prioritize TJLP loans for projects with bigger social and environmental returns,” the bank’s infrastructure and sustainability director, Marilene Ramos, says. “With that, we will seek more private-sector participation, including with the issuance of debentures.”

She says the new policy, aligned with Brazilian promises for the Paris Climate Accord, was discussed beforehand with the Mines and Energy Ministry, the National Agency of Electric Energy (Aneel), and the Energy Research Company (EPE).

The new financing terms will go into effect as soon as the next transmission-line auction scheduled on the 28, and for the next reserve energy auction (LER), for wind and solar projects on December 16.

“Past auctions respected the conditions released by the bank before the auctions,” the energy superintendent of BNDES, Carla Primavera, says. The terms revealed on Monday will not be valid for an LER auction held two weeks ago for small and micro hydropower plants.

“They follow the policies released before the auction. That’s crucial and sacred for the BNDES. Meaning that conditions disclosed before auctions are respected in the decision-making processes of investors,” Ms. Primavera says.

Rodrigo Sauaia, president of the Brazilian Association of Solar Photovoltaic Energy (Absolar), says the new BNDES terms show the bank wants to give priority treatment to complementary energy sources. “It’s really positive for the sector, the announcement signals that the bank is committed both with energy returns and the evident environmental benefits of solar power,” he says.

The Brazilian Wind Power Association (Abeeólica) also considered the new rules “satisfactory.” But Élbia Gannoum, the trade group’s president, warned the market needs to be ready before resorting to more private-sector sources of funding. “It isn’t today. That’s why the adjustment of the bridge-loan model for transfers needs to happen gradually,” she says. Abeéolica companies expect to hire 2,000MW of installed capacity in December’s auction.

Alan Zelazo, a partner of consultancy Focus Energia, qualified the announcement as adequate. “For investors in general, it offered a directive of where the government will be facilitating a bigger business volume. This way investors will not keep trying to develop projects that will not evolve.”

Although the rules were well-received by the market, the changes to the transmission sector may make it more difficult to hire new projects, says Thaís Prandini, managing director of Thymos Energia. “We know the BNDES is a tough spot, but we still have transmission [capacity] to hire,” she says. The expert believes that investors will have to start seeking alternative funding sources.

Mario Miranda, president of the Brazilian Association of Energy Transmission Companies (Abrate), says the financing changes by the BNDES were already considered by Aneel in tender rules for the October 28 auction. “The Aneel had already approved the new [financing] terms for the auction, which don’t even consider the TJLP.”

Another sector whose expansion will be affected by the new rules is thermal plants. Xisto Vieira Filho, president of the Brazilian Association of Thermal Generators (Abraget), says the new terms didn’t take into account the energy security aspect. The BNDES supports solar projects, which are still developing. But the source “has a huge degree of fluctuation and always will have to be accompanied by firm supply sources,” he says.

“We disagree with the simple and pure removal of coal-fired plants from the new financing terms,” Mr. Vieira Filho says, adding that “you cannot dismiss an important generation source this way.”

Greenpeace praised the new policies. “Nearly a month after the Paris Accord was ratified, the BNDES announcement represents an important signal that the country is, albeit slowly, understanding the need to diversify and clean the Brazilian energy mix,” the NGO’s climate and energy campaign representative in Brazil, Bárbara Rubim, says.