This is part two of a three-part series. To read part one, please click here.
Perhaps a better question for understanding renewable energy development in Brazil — and particularly the future role of solar energy — is not the “how” but rather the “why” of this industrial policy. Why did a country with vast untapped, inexpensive hydroelectric potential pursue a strategy to diversify its energy into wind? And what might these motives imply for the future of other alternative energy sources, like solar? As a part of our research, our team identified six goals underlying Brazil’s energy strategy, not all of which were served by the entry into new renewables: 1) economic and industrial development, 2) increasing energy reliability, 3) expanding energy access, 4) lowering consumer energy costs, 5) minimizing governmental expenditure, and 6) environmental sustainability.
By diversifying into wind energy, the Brazilian government was able to create a new industry with high paying jobs, mitigate the energy matrix’s vulnerability to seasonal droughts through diversification, and pursue a form of energy generation with minimal ecological and carbon footprint. These favorable outcomes of wind development were not achieved for free. In the previous section, we discussed how promoting wind required large scale governmental spending, which could have been devoted to other social programs. Moreover, consumers paid higher prices for energy. Ultimately, to the Lula and Rouseff Administrations at least, the benefits outweighed the upfront costs, and now Brazil will continue to reap the rewards from a growing wind industry largely without governmental support.
So if wind is already providing a solution to Brazil’s alternative energy needs, what’s the case for solar? And, if there is cause for solar development, is the path for building the industry the same as wind? The case for why solar remains a murky one. As of now, solar energy generation is next to non-existent in Brazil, with less than 1 GW of online capacity. From our team’s viewpoint, distributed solar generation – solar energy production that feeds directly to consumers and in some cases gives consumers the option to sell energy back into the grid – offers probably the clearest case for solar development. Beyond serving as a local alternative to ecologically damaging energy sources, under the current distributed generation plan, solar energy producers will be able to sell energy back into the grid at the same price consumer pay for energy. In this way, those with distributed solar installments will be paid a rate that includes generation, distribution, and transmission tariffs. This should make investing in distributed solar generation more attractive. Less clear are arguments for expanding solar development for the sake of industrial expansion and a continued diversification of the energy matrix. As of now, solar energy is not cost effective and will require heavy subsidization – at rates similar to or exceeding PROINFA – to be integrated into an energy matrix. Whether or not such a short-term stimulus could again generate a scaled industry capable of competing with fossil fuels, hydro, and nuclear, depends on a number of factors including trends in the global supply chain. Additional questions can be asked of how this stress will affect Brazil’s already overextended BNDES.
Still, advocates will argue that, when and if the day comes that solar is cost-competitive with alternative energy sources, the parts of the world that have invested in creating solar production capacity will benefit immensely. As one of the sunniest places in the world, Brazil and large portions of South America, are likely to be leading markets for a solar energy revolution. For the solar energy components and technology to be produced in Brazil – and not China, Eurozone, or the U.S. – Brazil will most likely need a preexisting supply network and industry. Otherwise, much of the valuable technology and production will be imported from overseas and Brazil will be playing catch up. The end result, our team discovered, is that Brazil is stuck with a high-risk, high-reward gamble: if solar is happening, it’s best to invest early.
Continue here to read the final part of this blog series.
Eric and Todd are MPP/MBA candidates in the Class of 2014, enrolled in the joint-degree program between the Harvard Kennedy School and Harvard Business School. Their joint-degree cohort traveled to Brazil in January to study the clean energy industry.