Driven by its abundant natural resources and rapidly growing renewable energy sector, Brazil's energy landscape is undergoing a transformative shift.
Our country’s existing surplus of affordable renewable energy presents an exceptional opportunity for international investment. Green hydrogen has gained prominence in both the power sector and hard-to-decarbonise industries, while Brazil’s global leadership in the production of biofuels and reduced fossil fuel dependency in road transport further enhance our progress as a global leader in sustainability.
This article explores Brazil’s energy prospects, incentives, and international investment trends, highlighting why VR is a trusted partner in this dynamic sector.
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Economic growth relies on abundant, affordable power. This has been proven time and time again across the globe. With increased global awareness of carbon emissions, as well as measures such as the Carbon Border Adjustment Mechanism, powering industry through low-cost renewable sources presents an ideal scenario for investment in Brazil today — roughly 85% of the country’s power matrix is renewable, before we even consider the substantial number of new renewable projects being implemented.
Brazil, blessed with abundant sunshine, towering waterfalls, and an extensive coastline exposed to year-round, robust winds, boasts a robust renewable energy potential. The country's onshore wind power sector features over 800 operational wind farms, totalling 24 GW, with an additional 53 GW under construction. This substantial capacity, combined with Brazil's offshore wind potential of 1,228 GW, offers ample investment prospects. Notably, one-third of the offshore wind potential is in shallow waters and next to port areas, making project connections to the grid substantially easier.
Brazil's growing surplus of low-cost renewable energy positions green hydrogen produced within the country as a highly competitive alternative to other fuels. It has the potential to entirely replace natural gas in the Brazilian market solely on economic grounds, with or without additional incentives.
The current surplus is attributed to Brazil's extensive hydropower capacity, which can compensate for solar PV and wind intermittency. While hydropower is not entirely predictable due to annual rainfall fluctuations, the growth of new renewable energy projects is expected to maintain Brazil's position, with the increase in hydrocarbon projects helping to compensate for any shortfalls.
When it comes to hydrocarbons, many operators within Brazil are keen to make extraction more sustainable. We’re seeing new technology developing to capture carbon for offshore shipping supply — but there’s currently no incentive to do so. If you charter a supply vessel in Brazilian waters today, for example, the operator pays for the fuel. So, other than something to say on your website, where is the incentive to be greener? New charter contracts across Europe are being discussed that may be replicated: in short, if you consume less fuel, there may be a bonus or reduction in cost as incentive for better, more sustainable practices.
As the global leader in biofuel production through ethanol from sugarcane, Brazil boasts a light-vehicle fleet predominantly composed of flexible-fuel cars capable of using both gasoline and ethanol interchangeably. These vehicles can include differing degrees of biodiesel or bioethanol, even biogas, and continue to significantly surpass electric vehicle (EV) sales in Brazil. The government is committed to further reducing gasoline and diesel usage and promoting ethanol-hybrid cars to decarbonise road transport — a dominant presence in transportation of goods logistics throughout the country.
With the natural gas market experiencing significant price fluctuations due to the Russia-Ukraine conflict, biogas and biomethane have emerged as alternative sources. Brazil's expansive animal protein and agroindustry provides a steady supply of feedstock for biogas and biomethane projects — as the amount of animal faeces produced in the country is significant, they either become industrial waste, managed by agroindustry companies, or serve this production of energy in a circular, sustainable way.
Finally, decarbonisation of the maritime sector is occurring through two avenues.
Brazil is yet to implement its regulated carbon market. For local consumption, this means there’s no local ‘regulatory stick’ that penalises companies for not reducing their carbon footprint. (It’s worth noting that exporters, however, must adapt to measures like the Carbon Border Adjustment Mechanism.)
However, several incentives have been adopted in Brazil.
Debentures Incentivadas: This long-term financing tool issued by the Brazilian Development Bank (BNDES) is designed to incentivise investment in sustainable and infrastructure projects across Brazil. They finance projects that contribute to the country's economic growth and sustainability goals while aligning with specific criteria set by the Brazilian government. They come with significant tax benefits for investors, including exemption from income tax on interest income and capital gains. BNDES typically guarantees a certain level of repayment, reducing the perceived risk for investors.
Grid certification for production of green hydrogen: The Brazilian Electricity Market Chamber (CCEE), a regulatory and operational entity responsible for overseeing the power market in Brazil, created a free certification of origin for renewable sources, structured to comply with European standards for low-carbon hydrogen. This ensures green hydrogen projects focused on exportation can use power from the grid and still comply with the standards imposed by European consumers.
Decarbonisation credits (CBIOs): These are certificates issued by ANP (The Brazilian National Agency of Petroleum, Natural Gas, and Biofuels) that encourage the production and use of sustainable biofuels in Brazil. They represent greenhouse gas emissions that have been avoided and are used to meet mandatory emissions reduction targets in the transportation sector. CBIOs create a market mechanism that rewards biofuel producers and distributors for reducing carbon transportation fuel.
Renewable Energy Certificates (I-RECs): As seen similarly within other countries, including the UK, US, and with the EU’s Renewable Energy Directive, Brazil uses I-RECs to track and certify the renewable energy attributes of electricity generated from renewable sources, which facilitates acceptance of the relevant products by markets requiring this kind of certification.
Incentives for research and development: Both oil and gas E&P contracts and regulated power purchase agreements impose obligations for investments in research and development. These obligations may include funding for projects focused on developing new technologies, improving energy efficiency, and reducing environmental impact.
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Brazil's pre-salt reserves — significant offshore hydrocarbon deposits found beneath thick layers of salt in certain deepwater areas of the world — are highly profitable with low exploration risk, making them a cornerstone of the offshore hydrocarbon industry. This trend is expected to continue over the coming decades, drawing significant investments to the sector.
Alongside this, as touched on briefly above, a notable trend right now is E&P companies investing in Brazil’s renewable energy. For instance, most major hydrocarbon players in the country, in fact, are also actively involved in licensing offshore wind projects, which will require participation from global suppliers and their unique expertise. However, offshore wind projects are attracting a substantial amount of attention from international investment.
Interest in renewables remains steadfast. With a burgeoning economy, Brazil's demand for power continues to rise and, given the cost-effectiveness of renewables across the country, the uptake of power from these projects is assured.
China has played a significant role in driving down capital (CAPEX) and operating (OPEX) costs for solar PV projects. Their efforts are expected to extend towards other renewable energy sources, too. China's involvement in the electric vehicle automobile industry is pivotal for increasing demand and making EVs more affordable.
Meanwhile, though not a direct intention of Russia’s invasion of Ukraine, the sanctions currently imposed on the country during the conflict have led to an increase in hydrocarbon prices, making renewable projects more competitive and appealing.
India's government has consistently expressed its ambition to become one of the world's largest solar module manufacturers, and boasts a robust manufacturing ecosystem for wind energy and is rapidly expanding its solar capacity. India is poised to follow China's lead in developing new technologies and reducing equipment costs in the renewable energy industry.
We have always been pioneers at the forefront of Brazilian energy frameworks — in fact, almost half of our client portfolio comes from the energy investment industry.
We started with hydrocarbons, before splitting our focus and looking towards renewable energy market progression. We provide support to a diverse range of clients in this sector, including project owners and companies offering services to these industries — shipping, EPC contractors, O&M operators, and many more.
Our support for these clients extends across both transactional matters, assisting with day-to-day operations, and as long-term advisory partners. Our department serves as their central hub, effectively distributing tasks among the experts within our firm. This has been a consistently successful workflow, leading to several of our support areas — such as tax, environmental, real estate, labour, and M&A — having partners who specialise in individual industries and providing focused support.
Rather than limiting ourselves as legal advisors, we take pride in our team's tradition of acting as business partners to our clients. As a one-stop shop for any international investors, we might provide a tax and customs expert in the gas sector, a corporate expert in oil fields, or a labour partner who understand offshore operations.
Our approach is unique. We're here to help resolve all issues, allowing our clients to focus on their core business objectives and activities. While we assist with standard legal activities — contract reviews, licensing support, and so on — it’s when we leverage our in-depth knowledge of the Brazilian energy market to offer transactional and strategic guidance that we truly stand out against our competitors.
Written by Daniela Ribeiro Davila & Thiago Luiz Silva
