As all eyes turn to the industrializing nations of BRIC for big developments over the coming years, it looks like five of the world’s largest wind turbine manufactures might lose out on a piece of the action.
Vestas Wind Systems A/S (CPH: VWS), Siemens AG (ETR: SIE), Acciona SA (MCE: ANA), Fuhrlaender AG, and Suzlon Energy Ltd. (NSE: SUZLON), all involved in plant construction in Brazil, haven’t been sourcing a minimum of 40 percent of their industrial components from local suppliers. As a result, Brazil’s national development bank, BNDES, will not be extending any financing to them.
BNDES is the sole provider of loans for wind turbines in Brazil. This means those five companies will not be able to participate in Brazil’s estimated $3.5 billion wind power market.
Now that the five companies cannot utilize BNDES funding for the 2,000 megawatts of turbines that had previously been agreed upon for purchases, they will likely shelve projects or switch vendors.
The Brazilian government is highly critical of the companies, explaining that although they are developing plants all over Brazil to meet a rapidly rising demand, they haven’t held true to their promises to simultaneously develop a thriving domestic supply network.
“BNDES and the turbine makers agreed on a timeline to develop factories and turbine makers didn’t keep to it,” Henrique Tinoco, a director at state development agency Superintendencia do Desenvolvimento do Nordeste, said in a telephone interview. “This is a public bank with limited resources. Of course it’s going to prioritize the acquisition of capital goods produced nationally.”
In an unannounced audit, BNDES discovered some fairly damning information about the developers named.
While Fuhrlaender and Acciona haven’t even begun building factories, Siemens, Vestas, and Suzlon each are operating factories that don’t meet the stated 40 percent requirement.
The requirement demands that wind turbine makers start out sourcing at least 40 percent of their components (towers, blades, etc.) from local Brazilian manufacturers. Over time, that requirement can rise to around 60 percent.
The audit and subsequent decision seems to have sparked a flurry of activity. Vestas and Siemens had both received approval for BNDES loans in the past and have accordingly requested further information explaining the new stance.
Suzlon, which happens to be India’s largest wind turbine company, has also asked for further guidance.
Acciona has hastened to start developing a factory in Bahia by October, which will receive blades from a local factory in Fortaleza in an attempt to ensure compliance with the 40 percent requirement.
Not all is sunny regarding BNDES’s policy, though. Many of these turbine development concerns balk at the prospect of having to use local manufacturers when factories remain idle in their home countries.
The steep local-component percentage requirement means quite a bit of the total equipment must come from within Brazil. The current stalemate will also mean turbine manufacturers won’t receive payment for a longer time, since they only stand to be paid as turbines come online.
And, if developers decide to switch suppliers, then turbine manufacturers could lose enormous sums—up to tens of millions of dollars per project.
The biggest problem is that Brazil’s wind power industry is fairly new, and it is very difficult to develop a sustainable, extensive supply chain as fast as BNDES seems to want it.