Environmentalists welcomed the victory of Luiz Inácio Lula da Silva in Brazil’s presidential election last week. They see this as a chance to undo some of the damage wrought by Lula’s predecessor Jair Bolsonaro over the last four years.
The urgent priorities for Lula include reversing the rise in deforestation in the Amazon rainforest; weakening the influence of companies that profit from this illegal deforestation; and committing Brazil to be active in global climate talks, including the COP27 discussions in Egypt until next Friday.
He is set to officially become Brazil's president on 1st January 2023.
But what about Lula's approach to renewables? This is where the picture gets more complex. Bolsonaro may have overseen devastating deforestation, but his liberal free market economic policies helped wind and solar, as well as natural gas. These sectors stayed strong because they are economically competitive.
Since 2019, installed wind capacity in Brazil grew from 15.4GW to 23.3GW according to GlobalData; solar quadrupled from 4.5GW to 21.1GW; and hydro is still pre-eminent in Brazil’s energy mix, with installed capacity of 109.9GW.
And yet, Brazil’s energy boom has not only been in renewables. Natural gas has grown strongly, again driven by cost; Bolsonaro has championed fossil fuels by extending the life of coal plants; and he has also driven a rapid expansion of oil and gas production. Brazil is now the world’s ninth-largest oil producer.
So, what can wind expect under Lula?
His margin of victory was narrow – he picked up 50.9% of the vote compared to Bolsonaro’s 49.1% – which will limit his room for manoeuvre when he looks to deliver on his environmental and energy priorities; and his campaign has also been criticised for being light on policy. There has been little clarity on his plan for renewables. Even so, we can make some predictions.
Companies investing in the Brazilian onshore wind sector will likely see little by way of short-term changes. Lula has bigger environmental priorities than making changes in a renewables sector that has broadly been growing well.
We have seen in recent weeks that Brazil is attractive for overseas investors.
Last month, China’s Goldwind said it is in talks to build a wind turbine factory in Brazil; and oil giant Total last week established a joint venture with Brazilian developer Casa dos Ventos to develop 12GW of renewables projects.
The as-then-potential change of government was no issue for Total, which said Brazil has one most “dynamic” merchant power markets in the world.
One overarching change we are likely to see is an increased government focus on the plans of the state-owned oil giant Petrobras. Lula’s victory could herald a return to a state-led of model of economic development that was part of his previous stints as president. This would mean Petrobras taking a bigger role in driving the energy transition. Its influence could be especially important in new sectors where private investors, including foreign firms, are wary of investing.
However, the biggest shift we are likely to see is in offshore wind.
The industry has gained momentum under Bolsonaro and there are now a reported 66 projects in the licensing phase, with a total development pipeline of 200GW. We expect the Lula administration to throw its support behind the sector and remove bureaucratic barriers in a similar way as Biden's did in the US. This is a huge sector where major investment is waiting to be unlocked.
For example, Shell is carrying out environmental studies on six offshore wind farms totalling 17GW in Brazilian waters; Corio Generation has set out plans for five projects totalling 5GW; and Petrobras has teamed up with Equinor for an initial 4GW project that could link with its offshore oil operations. The Lula administration could use the government's stake in Petrobras to help offshore wind in Brazil to achieve commercial maturity.
Promoting offshore wind would enable Lula to accelerate renewables growth and attract investment. Now the industry needs him to be clear on his plans.