Brazil is the largest economy in Latin America. It has a population of 200 million people and its GDP of 2 trillion dollars is the eighth largest in the world. The growth and expansion of its economy, which places it as the tenth biggest industrial producer, demands an energy grid that can support this process.
The country has an energy grid consisting of various power sources, with oil, natural gas, and uranium reserves, as well as hydroelectric, solar, wind, and biomass capabilities. These alternatives open up investment opportunities in the sector.
In 2004, Brazil had an installed generator capacity of 86.5 GW. Through the adoption of new regulatory guidelines, it was able to increase the private sector participation through public tenders. Between 2005 and 2019, 42 of these were held, with an overall investment of 80 billion dollars.
By the end of 2019, this public policy had ensured that the installed generator capacity had reached around 165 GW, of which around 45% was renewable energy (biomass, hydroelectric, timber, solar, wind).
Within these figures, if we only take into consideration electric energy generation, this is made up of 80% renewable sources, which makes Brazil the third largest producer of this kind of energy in the world.
Renewable energy will boost Brazil’s growth. According to the forecasts from the oil company BP (British Petroleum) for the year 2030, 48% of the country’s energy grid will be supplied by renewable and clean energy sources. The sector will be able to meet Brazil’s growing energy demands, with an increase in domestic consumption of 60% for the year 2040.
Brazil creates green bonds
Despite the large energy plants already possessing investment incentives, Decree No. 10,387 from the Ministry of Mining and Energy, issued on 5th June 2020 created new mechanisms for the issue of green bonds, which will facilitate the financing of infrastructure projects with significant environmental and social benefits.
The regulations define three applicable areas:
- Urban mobility: This will benefit low-carbon emission urban transport projects, with the acquisition of electric buses, biodiesel or biogas hybrid buses, rail transport projects (metro, train, tram), and Bus Rapid Transit (BRT) infrastructure projects.
- Basic sanitation: Water and wastewater storage, rainwater and urban drainage management, and urban waste management projects.
- Energy sector: Electricity generation projects with solar, wind, and waste energy sources. Projects for small hydroelectric plants with a minimum power of 4W/m2 of the flooded area.
Decree No. 10,387 is the first specific regulation in Brazil that incentivises the issuing of green bonds for projects that make a social impact through capital market tax incentives. These include the exemption of income tax on payments to an individual or non-resident investors, with the purpose of stimulating the demand of these securities, while also providing a source of low-cost private financing for issuing companies.
On a global scale, the demand for green bonds is growing. According to the data from the Climate Bonds Initiative, in 2019, this market brought in around 280 billion dollars, which in the case of Brazil, included an investment of 1.2 billion dollars.
In Brazil, instalments from the Fundo de Investimento em Direitos Creditórios (FIDC), infrastructure investments, financial instruments (FI), promissory notes, Agribusiness Receivables Certificates (CRA in Portuguese), and the Certificates of Real Estate Receivables (CRI in Portuguese) fall into the category of green bonds. As of 2018, these bonds may be identified as such by B3 – Brasil, Bolsa, Balcão SA, in order to provide issuing companies with increased visibility.
The plan driven by the Brazilian government projects that over the next ten years, around 3,000 MW may be implemented in small hydroelectric plants, around 25,000 MW in wind farms, and around 8,000 MW in new solar plants. The Ministry of Mining and Energy forecasts that the new decree will promote the investment of over 170 million reales by 2029 in renewable energy sources.
These additional 36,000 MW that will be added to the system will comply with the commitments made by Brazil to reduce its greenhouse gas emission by 37% by 2025 and be 43% lower than the levels seen in 2005 by 2030, respectively.
Decree No. 10,387 also opens up possibilities to energy plants that use waste as a fuel. This will mean a reduction in the volume of rubbish at more than 2,500 landfills active in Brazil. The investment forecast, in this case is 5 billion reales.
In addition to the creation of employment for the undertaking of these renewable energy projects, they will also provide more attractive prices, reducing the rates paid by consumers for household, industrial, and commercial electricity.