Here in Rio, I’m finding that Brazil is moving from one clean energy success to the next…
In 2008, ethanol made from homegrown sugarcane outsold gasoline in this leading emerging market.
And 90% of the cars and light trucks Brazilian motorists bought last year can run on biofuel, petroleum, or both!
Even the national oil company Petrobras (NYSE:PBR) is in on the action, selling Alcool Comum (regular ethanol) next to gasoline for 2/3 of the price.
Compare that to U.S. corn ethanol, which is collapsing under high harvest and transport costs, low efficiency, and a complete destruction of investor enthusiasm.
Brazil’s biofuel success stems from the government’s ProAlcool program, initiated in 1975 to mitigate Brazil’s damage from international oil shocks.
Now, Brazil is kicking into high gear with ProInfa, a major national initiative to derive electricity from alternative power sources.
Where ProAlcool has made Brazil the world leader in highly efficient sugarcane ethanol, ProInfa may well put Brazil ahead of developed countries in another key energy sector.
But the most pressing question for me and everyone else at the Latin American Renewable Energy Finance Forum this week has been simple:
Where will the money come from?
Lula’s Got the Last Laugh
Of the BRIC emerging market pantheon (including Russia, India, and China), Brazil is the closest to the United States and Wall Street. Of course the country feels the pain of the global recession, but President Luiz Inacio Lula da Silva has used this opportunity to lead the charge for developing countries’ having a greater voice in international institutions.
That goes especially for the World Bank and IMF, both based in Washington.
Lula has spent heavily to expand public services and bring the benefits of growth to millions of underserved Brazilians. Often, the IMF has cried foul because they like developing countries to slash social programs and even infrastructure spending for the sake of national balance sheets.
Lula’s getting the last laugh now, as ficsal chaos in the world’s richest countries leaves plenty of room to challenge the Washington standard.
"Maybe we will give money to the IMF," Brazil’s Finance Minister Guido Mantega said on April 25. "But we need to see some progress on reforms first."
That’s right, Brazil is becoming a creditor to the International Monetary Fund. As the IMF announced its first-ever bond issue this week, Brazil’s clout is growing by the day.
As officials push for reforms on the international scene, ProInfa aims to ensure that Brazilians do not anchor their growth to fossil-fuel infrastructure.
Brazil’s national energy mix is already comprised of 45% renewables, the National Bank for Economic and Social Development (BNDES) reports.
Compare that to an average of 6% for developed countries and you’ll see how far ahead Brazil already is!
ProInfa will cause Brazil’s advantage to increase even more, and the investment opportunities in Brazil’s clean energy sector will grow along with it.
Investing in Brazil’s Clean Electricity Boom
Brazil’s national wind energy resource potential is estimated at around 250GW, concentrated in the northeast, coastal south, and northwest of the major cities Rio, Sao Paulo, and Belo Horizonte.
The government is holding its first national auction for wind energy development permits this November. International companies like GDF/Suez, Areva, and Enel are chomping at the bit to get to the front of the line.
The one factor that may supercharge ProInfa’s wind aspect actually has nothing to do with the tropical breezes or foreign financiers. . .
It’s steel prices that we’re looking at.
The World Steel Association released its revised full-year 2009 forecast on Monday April 27, saying global steel demand will drop by 15%.
In the U.S., that number is a much higher 36%. The EU will see wind demand plummet by double the global average, with a 30% decline.
Prices, as a result, have to come down hard.
That’s a boon to wind farm developers around the world, but especially in Brazil, where the country’s fiscal health has brought it more IMF bargaining power and the ability to pounce on low steel prices, seeding wind farms and even local wind turbine production.
Across Latin America and the Caribbean, residential electricity demand is expected to quadruple before 2030, and more rural customers are coming onto grid networks all the time.
The demand is there in spades, and if Brazil’s budding wind energy industry can vertically integrate with low-cost steel, the country basically gets a discount on a new domestic electricity source.
In Green Chip International, co-editor Nick Hodge and I are covering all the angles for how this could play out— and recommending the best stocks to profit.
We will be watching Brazil’s wind auctions carefully, but also taking note of demand trends to make sure this is no flash in the pan.
I’ve been filing exclusive video reports already for GCI subscribers to update them on related stocks and also give them the leg up on all the info I’m getting here in Brazil.
That includes business contacts and people from all walks of life. And it doesn’t hurt that I’m fluent in Portuguese, so this isn’t the kind of research you get from just reading the Wall Street Journal.
Bottom line—Brazil’s renewable energy track record with ethanol tells us to bet on success.
To learn where to put your chips, click below to check out Green Chip International today. And don’t miss the next multimedia report!