Brazil’s economy contracted 3.8 percent last year, rounding out its dismal 2015 by shrinking 5.9 percent in the fourth quarter as compared to the previous year. The years of the BRICS hype seem a distant memory now as the South American country struggles with rating downgrades, scarcer capital, and falling tax revenue. This contraction is tightening Brazil’s federal budget and in the process is threatening to halt recent progress made in expanding renewable energy production. Bloomberg reports:
“I am concerned,” said [Bloomberg New Energy Finance analyst Helena Chung]. “Brazil’s government has denied giving more incentives for renewable energy in the same way it has been denying it for other industries. That has a lot to do with the economic crisis, and a slowdown in the energy sector can give a bad signal to the market.” […]“The problem now is declining demand for power as the economy contracts,” said Mauricio Tolmasquim, the head of EPE, said by phone from Rio de Janeiro. “Distributors that buy energy in many auctions already have the capacity they need. In the next couple of auctions we will certainly see a low demand for power.”
As is so often the case, Brazil’s recent renewables progress is ready to crumble at the first sign of economic troubles. A tighter federal budget means less cash available for the kinds of incentives necessary to get wind and solar farms up and running, and producers’ problems are being compounded by the fact that it’s becoming more difficult to secure funding from capital markets. And if that wasn’t enough, those renewable producers who have managed to eke out a foothold in the Brazilian power market are having trouble transmitting their supplies to the grid, as Bloomberg details:
Another challenge is new transmission, which is needed to connect clean power projects to the grid. About 220 power-line projects were behind schedule as of December, about 60 percent of the total capacity under development, according to a document from Brazil’s energy regulator Aneel. Difficulties getting environmental licenses caused the most delays, according to the document. “There is no way to grow power generation without transmission lines on time,” [said Itau BBA’s head of energy project finance Marcelo Girao].
This will, of course, affect Brazil’s ability to meet the promises it made at the Paris climate summit three months ago. Like the treaty’s other signatories, Brazil submitted a national plan to reduce emissions and agreed to review those commitments in the coming years. If its economy continues on the track on which it’s currently traveling, those climate pledges are going to quickly fall by the wayside. At least Brazilian president Dilma Rousseff can take solace in the fact that the Paris treaty lacked any meaningful enforcement mechanisms, so her country won’t face reprisals for any future green backsliding.