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AES Brasil’s CEO, Rogério Pereira Jorge, has assessed that taxes, in isolation, are not effective and could hamper the country’s plans to retain industries seeking to decarbonize their operations, because the cost of renewable energy will tend to rise.
Local manufacturers celebrated the tax on import of wind power generation turbines imposed by the government as a first step towards boosting the industry which is considered strategic and has been facing difficulties in recent years, with the operations of major companies suspended in the country.
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Manufacturers and specialists expect internally produced machinery to be more competitive again compared to imports, helping to curb the recent movement towards increased equipment imports in this sector. However, generators have drawn attention to potential increases in project costs.
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At the end of December, the Executive Management Committee of the Chamber of Foreign Trade (Gecex-Camex) announced changes to taxes on imports of solar panels and wind turbines, including boosting national production of renewable energy generation equipment.
The measure, which sets the import tax rate at 11.2% for all overseas purchases of wind turbines from 2025 onwards, comes at an inopportune time for manufacturers who have installed in the country.
The impact of this measure on the wind energy sector was different from what happened in the solar energy chain, which relies heavily on solar energy. The resumption of import tariffs for panels was celebrated by the electrical and electronics industry, but criticized by Absolar, which represents generators, manufacturers and other players in the sector, which said it had seen an impact on 18 gigawatts of source projects.
The wind energy industry, already well-established in Brazil, has caused turmoil in recent years, with supply chains disrupted as well as pressure for more deliveries. Facing difficulties, two global giants, General Electric and Siemens Gamesa, suspended their activities in the country.
According to the wind energy association ABEEólica, the government’s action “corrects the asymmetry”, since previously companies did not pay taxes for importing complete machines, but were subject to tax on purchasing components for their local production.
“We are putting things on an equal footing,” said Elbia Ghannoum, president of the entity, stressing that this is just the first step in a broader industrial policy that develops other measures towards “new industrialization.”
She also stressed that Brazil has broken records in the wind energy sector, installing 4.8 GW of wind turbines in 2023, despite the more difficult context for developing new projects due to the increased supply of energy in the country.
“In a short-term snapshot, we see lower demand, but the scenario is different in the medium and long term,” explained the president of ABEEólica.
For Danish company Vestas, this measure ensures competitive equality and is an important sign that Brazil wants to develop an industrial base for the sector at a time when major powers are doing the same to rely less on the energy transition period.
“Brazil has already shown that it is very competitive… It is important that this industry not only remains alive, but also consistent and expanding, because Brazil can become a center for exporting wind turbines to Latin America and other markets,” Leonardo Euler said. Vice President of Regulatory and Government Affairs at Vestas for Latin America.
The executive also stated that the decision is important for the company, which has a factory in Aquiraz (CE), to boost its expansion plans, but did not go into details. The previous day, Vestas announced the extension of its contract with Brazilian blade production company Aeris until 2028.
Cost increase
Despite the excitement in the industry, the tax measure, which also includes solar equipment, has been met with concern by generator companies, which say they see potential increases in the costs of new renewable energy projects.
AES Brasil’s CEO, Rogério Pereira Jorge, has assessed that taxes, in isolation, are not effective and could hamper the country’s plans to retain industries seeking to decarbonize their operations, because the cost of renewable energy tends to be higher.
“My biggest concern is that renewable energy has been the biggest competitive factor in Brazil in attracting industries,” the executive said, citing as an example Alcoa’s decision to resume aluminum production in the country.
“We see a movement of global producers, both solar and wind, to come to Brazil. But we also see the opposite, leaving Brazil… a sign that it is not just the issue of the import tax that influences the decision-making process,” Jorge added. This is amazing”.
Francine Martins Pesny, AES’s regulatory shipping manager, reported that there is uncertainty regarding supply contracts for machines already in place at the company, as an import tax is imposed when the goods arrive at the port.
“In practice, there has been no transition period for wind energy, and everyone who has a sales contract will certainly be hit with this import tax.”
Camila Ramos, founder of the Clean Energy Latin America (CELA) consultancy, believes that taxes ultimately settle the equipment pool with the highest cost.
“I think it would be interesting for the country to have policies to encourage domestic production to be more competitive, such as tax relief, and not make imports more expensive,” Ramos said.
Ghannoum, of ABEEólica, denies that wind energy projects will become more expensive after the tax measure. “(Imports) have no relevant share, no central effect,” she said, and she did not have data on the total amount of equipment imported by the sector.
