abeeolica - Brazil-US Business Council

23 de Abril de 2012Élbia MeloChief Executive Officer

WHO WE AREThe Brazilian Wind Power Association – ABEEólicacongregates, throughout Brazil, 95 companies whichpartakes the country´s wind power production chain.

95 Members

95 MembersZETAENERGIA

Wind Energy inBrazil

Opportunities• Increasing energy demand in Brazil: Average annual growth of 3,200MW of firm capacity in the 2011-2020 period, according to theBrazilian Energy Research Company (EPE).• The government has been assigning its priority for the inclusion ofrenewable energy sources.• Great potential of renewable energy sources: Hydro, wind, biomassand solar power.• Perspectives of 12% average annual expansion from small hydroplants, wind power and sugarcane bagasse biomass power in theperiod from 2011 to 2020.

Opportunity – Power Matrix Diversification• Due to seasonality of the hydro power system, which is responsiblefor 91% of the energy offered in 2011, raises the need for energysupplementation.• The reduced storage capacity of the future hydro projectsreinforces this necessity.• It can be observed seasonality and complementarity among thehydro, wind and biomass power sources.

Opportunity – Power Matrix Diversification• Along with securing energy supply, a system with more renewableenergy source inserts will also set reasonable tariff rates, by reducingthermal power plants injections.• Decentralized generation, closer to consumer centers, which reducestransmission losses.• Micro and mini generation possibility:Recently approved by the National Energy Agency – ANEEL.• Price of renewable energy sources becomes increasingly competitive.

MWhNov/07Jan/08Mar/08May/08Jul/08Sep/08Nov/08Jan/09Mar/09May/09Jul/09Sep/09Nov/09Jan/10Mar/10Complementarity amongHydro, Biomass and Wind Power180,000160,000140,000120,000100,00080,00060,00040,00020,000025,000.0020,000.0015,000.0010,000.005,000.000.00Hydraulic Biomass WindSource: CCEE

Stored Energy (% max)Jul 01Jul 02Jul 03Oct 08Wind power physical output (% installed capacity)Wind PowerThe wind power “opposite seasonality” virtuallyincreases the hydro storage capacity.StorageWind power production100%100%90%80%80%60%40%20%70%60%50%40%30%20%10%0%Jan 00Apr 00Jul 00Oct 00Jan 01Apr 01Oct 01Jan 02Apr 02Oct 02Jan 03Apr 03Oct 03Jan 04Apr 04Jul 04Oct 04Jan 05Apr 05Jul 05Oct 05Jan 06Apr 06Jul 06Oct 06Jan 07Apr 07Jul 07Oct 07Jan 08Apr 08Jul 080%Note: PROINFA wind power and storage in the Northeast regionSão Francisco River Basin

Wind Power•Regional (geopolitical) complementarity:oSouth / Northeast: Wind PoweroSoutheast / Midwest: BioelectricityoNorth: Hydro Power Plants

Location of Wind Farms57,6 MW18 MW105,6 MW518,9 MW443,1 MW987,9 MW244,8 MW958,9 MW1.706,4 MW66 MW24,8 MW78 MW30 MW520,1 MW1.046,9 MW28,1 MW340 MW94 MW969,8 MW2,5 MW236,4 MWOperation: 1.479,4 MWConstruction: 2.046,1 MWContract: 4.952,2 MW

Capacidade eólica acumulada (MW)Introduction in the Power Matrix: Wind Power9,000.08,000.0A-3 of 20127,000.06,000.05,000.04,000.03,000.02,000.01,000.00.02006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Greenhouse Gas Emissions• Economy average 17Mton of CO2 equivalent• Simulation by removing coal plants and placing wind farmsSource: Engenho/2012

Socio-environmentalaspects

Wind Power• Clean and renewable energy. Zero emission! Low environmentalimpact.• No exposure to oil and gas international prices.• Expressive potential in Brazil - 300 to 400 GW.• Fast implementation of wind power projects, with reducedenvironmental impact - relevant due to the uncertainty in demandgrowth, especially HPP possible delays.• Easy integration with hydro power plant due to its flexible reservoirs,that is, HPPs also compensate wind power production variability.

Wind PowerSocially fair: Land-lease payments (royalties) are directly made tolandowners where the generation farms are installed, providing:o People maintenance in the countryside;o Peaceful coexistence with other activities(i.e. cattle breeding, agriculture, leisure and etc.);o Generation of income in the localities (usually needy areas);o Expansion of property prices, stimulating wealth in rural communitieswhich embrace wind power generation;o Increase in the legalization of land ownership;o Accomplishment of the legal reserve registration (forestry code).

Wind PowerTrading Aspects

The Brazilian Electricity Sector(largely renewable)Installed Capacity 2011Total 117.019 MWGeneration 2011Total 493,8 TWhThermo31.235 MW27%Nuclear2,007 MW2%Wind1.457 MW1%Thermo 25.982GWh5,3%Nuclear15.659 GWh3,2%Wind1.902 GWh0,4%Hydro450.237 GWh91,2%70%Hydro82.321 MWSource: ANEEL / EPE

Free and Regulated Trading EnvironmentsSellersPublic Utilities, Independent Producers, Traders and Self-ProducersRegulated MarketDistributor( Captive Consumers)Free MarketFree Consumers and SellersAuction-based contractsAll sellers perform contractswith the distribution companiesBilateral contractsfreely negotiated

The Free MarketThe free market covers transactions among utilities, independentproducers, self-producers, traders, importers and free consumersof electric power.Origin of Energy(Source)ConventionalandAlternative(Discount in TUST and TUSD)Origin of Energy(Source)Requirements for Free ConsumersMinimumContracted Demand3 MWRequirements for Special ConsumersMinimumContracted DemandMinimumVoltage69 kVBefore (08/1995)None, after(08/1995)MinimumVoltageAlternative(Discount in TUST and TUSD)500 kW – 3 MW 2.3 kV

The Regulated MarketAlternative Energy Sources10 – 30 yearsSince the first yearA-5A-3 A-1AAdjustment AuctionsContracts of up to 2 yearsEnergy from new generationprojects15 – 30 yearsEnergy from existingpower plants3 – 15 years• Auctions are the main instruments of expanding generation in theBrazilian Electricity Sector.• Buyers: Distribution companies.• The Offer: hydro, wind, thermo, biomass and small hydro power.(Terms of contracts depend on the kind of source, usually between 15and 30 years)

Planned Expansion 2011-2020Source: EPE

Agent per classFonte: Source Feb/2012

Souce: CCEE Feb/2012Total Consumption• ACR – Regulated Market• ACL – Free Market

Types of ERNC ContractsPROINFA• Long-term contracts• Regulated prices•Low riskFree MarketNew EnergyAuctionsReserve EnergyAuctions• Prices freely negotiated• Short/Mid/Long-term contracts• Medium/High risk• Long-term contracts• Regulated prices• Low risk•Long-term contracts• Regulated prices• Low risk

Wind powercompetitiveness

2009, 2010 and 2011 AuctionsWind with a significant presence2009LERRegistered13 GWContracted753 MW firmcapacity2010LFA e LERRegistered11 GWContracted899 MW firmcapacity2011A-3 e LERRegistered10,5 GWContracted832 MW firmcapacity2011A-5Registered7,5 GWContracted487,5 MWfirm capacity= 6.759 MWInstalled capacitycontracted within24 months(Dez 2009 a Dez 2011)= 1.837 MWinstalledcapacity= 2.047 MWinstalledcapacity= 1.929 MWinstalledcapacity= 978,5 MWinstalledcapacity

Price 30/01/2012 (R$/MWh)Wind Power Average Price350300308.5250200150167.4147.2 134.2100101.3 101.3 105.5500Proinfa LER 2009 LER 2010 LFA 2010 LER 2011 A-3 2011 A-5 2011Source: BNDES, 31/01/2012

A-3 of 2012 Auction• Date of Auction: 28/06/2012• 663 registered total projects and 583 Wind Farms• 27.058 MW total and 14.260 de Wind Farms• Supply in 2015• Duration of 20 years15000Oferta (MW)14260100001034350000420 941 1094PCH Hidrelétrica Biomassa Gás Natural Eólica

A-5 of 2012 Auction• Date of Auction: 16/08/2012• 585 registered total projects and 508 Wind Farms• 25.098 MW total and 12.547 MW Wind Farms• Supply in 2017• Duration of 20 years16000120008000Oferta (MW)850612547400002859473713PCH Hidrelétrica Biomassa Gás Natural Eólica

STRUCTURAL FACTORS (5)Competitiveness FactorsSTRUCTURAL AND SHORT-TERM FACTORS(which explain recent results)• Industry Technical Progress – The Technological Path has beencontributing to the reduction of production costs of the industry´sproduction chain. Ex. Towers of 50m and 100m (11 months -technological changing term).• Wind Favorable Conditions – Comparative Advantage of Brazil, whichcarries potential estimated at 300GW and wind feature much higher thanEurope and the USA (high capacity factor).• Auction and Contract Models (competitive auction with 20 yearcontracts corrected by the National Wide Consumer Price Index - IPCA(fixed income).

Competitiveness FactorsSTRUCTURAL AND SHORT-TERM FACTORS(which explain recent results)STRUCTURAL FACTORS (5)• Financing Conditions• ICG Model

Competitiveness FactorsSTRUCTURAL AND SHORT-TERM FACTORS(which explain recent results)SHORT-TERM FACTORS (6)• Today, Brazil is a favorable environment for infrastructure investment in general.• Crisis in Europe and the USA, Brazil is basically the only country investing in wind powerin the world (it imports around 40% of K-goods).o China, the largest investor, has its own industry;o China is also a competitor in the Brazilian market;o The wind power K-goods industry has been progressively taking place in the country.As the only investment locus in the segment, Brazil has been attracting increasingwillingness to invest.• Aggressive investing policy for K-goods and generators to gain ground in the market.o Trade dispute;o Simultaneous auctions of the production chain.• Exchange rate, the depreciation of the US dollar has brought a 30% reduction in importedcomponent costs.

Competitiveness FactorsSTRUCTURAL AND SHORT-TERM FACTORS(which explain recent results)• The move back to local generator investments (market entryprice).• Investments released from Merchandise and Service CirculationTax -ICMS and from Industrialized Product Tax - IPI.

Perspectives2012 A-3 Auction – Favorable.2012 A-5 Auction – Favorable.Competitiveness FactorsIMPORTANT ASPECTS – Prices reflect market conditions in t time, it isan one-time variable.Prices are not necessarily the production cost, there is no guaranteethat wind power CME is the price. In medium and long-termperspectives, if conditions change, prices change soon!URGENT REQUIREMENT– Strengthen structural factors in decisionmaking, at the expense of short-term factors.

Positioning

ABEEólica's Future Agenda• With regard to the wind power source, it will focus oncontinuity of ACR auctions, with annualcontracting of at least 2GW of wind power forthe next 8-10 years, securing the sourcecompetitiveness through scale gains of the wind powergeneration equipment and component industry.

ABEEólica's Future Agenda• Great Challenge: Free Market – Drawing up the rules to verifyphysical guarantee of wind power plants• Energy Reallocation Mechanism - MRE• Contract Portfolio Model• Green Energy Certificates• Wind and Solar Power Generation in the same farm (portfolio)and scale/scope gains

ABEEólica's Future Agenda• To seek for tax exemption in wind power investments.• Technology know-how:ooTo establish a Research Network and, subsequently, a WindPower Research and Technology Center;To create a Wind Turbine Test Field.

Final Comments• In times of climate changes and emission restrictions, it isimportant to focus on a low-carbon economy.• Brazil has, by nature, a major comparative advantage (naturalresources) and, at this time, a strong competitive advantage(several structural and short-term factors) to invest in ERNC.• It is important to take this opportunity and build, with economicrationality, a sustainable basis for the industry.

Thank You!Élbia MeloChief Executive Officer