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Fresh winds through energy sector

NEARLY 50 years spent fishing from tiny sailboats have taught Manuel de Oliveira the power of the wind, but the Brazilian was mystified when white windmills began springing up along the coast near his town of Paracuru.

"I think they were pretty strange," he said as he shook his net out on a beach in Brazil's northeastern state of Ceara. "But the wind is the wind, and it works for everyone. Thankfully for us, it's free."

The strong, consistent winds that have powered the colorful, wooden "jangada" fishing boats off Brazil's northern coast are now making the area the center of the country's fastest-growing energy sector.

After a halting start, installed capacity is expected to roughly double this year from 341 megawatts at the end of 2008, a trend illustrated by the towering turbines that are increasingly common along the region's pristine beaches.

A major boost the industry has been waiting for comes on November 25 when the government holds its first wind power auction in which it is expected to buy up to 1,000 megawatts in new generating capacity from competing firms.

Brazil's wind energy association estimates the auction will generate investments worth about 5 billion reais (US$2.4 billion).

The 1,000 megawatts, which will be auctioned by the government annually, is enough to power around a million average homes.

That number is dwarfed by the world's big wind power players such as Germany, the United States and Spain.

But industry executives speak optimistically about Brazil's potential of 140,000 megawatts, more than 10 times the capacity of the country's giant Itaipu hydropower project, thanks to its 7,300-kilometer-long, blustery Atlantic coastline.

They also see some favorable political and economic winds.

Latin America's largest economy, which has become a renewable energy leader in the field of ethanol, needs to double its energy capacity in 30 years to avoid shortages. But the hydropower dams that supply 85 percent of its capacity increasingly run into hold-ups and cost rises over environmental concerns as they extend deeper into the Amazon region.

Growing worries about the effects of climate change and pressure to reduce Brazil's carbon emissions, the world's fourth biggest, also appear to work in wind's favor.

"If the government goes ahead with what it promised, a continuous auction program of 1,000 megawatts a year, believe me the wind power sector in Brazil will explode immediately," said Armando Abreu, director of Braselco, a consulting firm.

The industry's goal is to increase wind energy capacity to 10,000 megawatts over the next decade, taking its share of total energy supply to around 5 percent from 0.4 percent last year.

Several major energy firms including SIIF Energies do Brasil, partly owned by Citigroup, Spain's Iberdrola, and Portugal's Martifer already have footholds in Brazil and plans for expansion.

Yet after a slow start, some question whether the government is enthusiastic enough to put in place the long-term incentives and subsidies that helped wind power thrive in countries like Spain.

On a tour of wind farms in Spain last month, Brazil's Energy Minister Edison Lobao disappointed executives by saying that wind energy "isn't cheap" and that Brazil didn't need a big capacity at the moment.

Martifer's Vice Chief Executive, Jorge Martins, said Brazil has enormous potential which is not yet being matched by the government setting the ambitious targets needed to generate investments.

While China, for example, plans to triple its wind energy capacity by 2020, Brazil has no formal capacity target.

Although about 4,000 megawatts of projects are in the pipeline, barriers to rapid growth include a requirement that 60 percent of the projects are sourced in Brazil, where there is a lack of companies making the high-tech equipment needed.

"The first pieces have started to come together but not enough to scale the market," said Keith Hays, an analyst at Emerging Energy Research in Massachusetts.

"There are ongoing policy issues that Brazil hasn't really sorted out yet."

Hays said the goal of 1,000 megawatts in new capacity per year was optimistic given policy doubts and the impact of the financial crisis on multinationals' investment plans.

He saw a possible construction lull in 2010 before a gradual rise to 800 megawatts of new capacity per year by 2020.

While wind seemed cheap early last year, steep drops in the price of natural gas and other carbon fuels as a result of the economic crisis are making it look expensive again.

In Brazil's remote northeast, costs are further increased by long distances between wind farms and the electricity grid.

"That doesn't mean that they (the government) shouldn't support it at all, particularly in areas where the hydro resources complement the wind resources," said Hays, adding that wind power would not always be costly relative to other fuels.

A major advantage of wind power in the northeast is that when the rains dry up every year, it gets windier, meaning wind farms can make up for shortfalls from hydro power.

Droughts forced Brazil to ration energy in 2001 and its supply has been placed in doubt in recent years during periods of light rainfall or instability in Bolivia, which supplies most of its natural gas.

Huge recent discoveries of oil and gas off the coast of Rio de Janeiro are not a quick cure for the country's energy needs as getting them to the surface from massive depths is a long, costly and difficult challenge.


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