PacHydro to build wind farms with Brazilian mining giant Vale

Pacific Hydro is expanding its wind farm portfolio in Brazil – at half the cost of Australian wind.

Australia’s Pacific Hydro has struck a unique joint venture agreement with Brazilian mining giant Vale to jointly build two wind farms in the north-east of Brazil at a cost of around $315 million.

The contract is significant, as it extends PacHydro’s growing overseas portfolio (a legacy of stalled renewable investment in Australia), and puts it in partnership with the world’s second largest mining group.

Brazil is an interesting destination for renewable energy players. Rather than a renewable energy target like Australia, the country has been auctioning capacity grants to both fossil fuel and renewable energy developers. And because of the costs, wind energy has been winning most of the auctions easily.

Much of the 1,9GW of auction capacity won by wind was awarded at an average price of $48/MWh – around half the price of equivalent power purchase agreements in Australia. Two of the key reasons for this are lower capital costs – Brazil has a growing local supply chain in the wind energy industry – and attractive financing from government-owned development banks.

The two wind farms will total around 140MW, and are the first of some 1000MW of renewable energy facilities planned by Vale. It will be the sole off-taker of the electricity supplied by the wind farms – reinforcing the growing trend towards the “self consumption” market.

Vale says it sees the investment as much as an energy security issue, as an emissions abatement one. “The option to develop wind projects also helps diversify our energy matrix, reduce our emissions and ensure cost competiveness in the long term,” it said. Its electricity demands are likely to grow by 150 per cent by the year 2020.

Pacific Hydro already supplies renewable energy to some of the world’s largest resource companies such as Rio Tinto in Australia and CODELCO in Chile. It also owns two wind farms totaling around 58MW of capacity in Brazil that sells electricity to a local utility.

CEO Rob Grant says the company is hopeful the partnership will lead to the construction of more renewable energy projects, both in Brazil and internationally. “The world’s second-largest mining company and Brazil’s largest energy user, Vale is leading the way in the industry by demonstrating not only their commitment to a cleaner world but to climate change and fuel price risk management,” he said.