Although the highly-competitive environment in Brazil’s wind industry significantly cut OEMs’ margins in last year’s tenders, market observers believe turbine makers won’t be affected in the long term as the market is expected to return to normality.

“I am not concerned about the low margins – these are large guys that will be around for a while,” said Brian Gaylord, Latin America analyst at MAKE.

With record low prices of R$98.62 per MWh, which in dollar terms has brought down Brazilian prices to around $30/MWh, a total of 1.4GW of wind capacity was contracted to come online by 2021 and 2023.

While Siemens Gamesa told Recharge that it will be one of the main suppliers of turbines for the new projects – probably with its G132 platform – sources said that Nordex-Acciona was responsible for the remaining contracts. The winning developers were also large global players such as Enel, Voltalia and EDPR.

According to Gaylord’s study, the margins of these two OEMs were “wafer thin” since they were aiming to keep their nacelle assembly plants in the country and supply chains busy. They are looking forward to the restart of annual tenders, through which the government says it plans to more than double Brazil’s 13GW wind power installed capacity by 2026.

“After two years of no contracts, it was a very competitive tender and the OEMs seemed to be aiming at zero profit,” Gaylord said, pointing out that turbine prices were almost half of what they were in 2015.

“But Brazil is a unique market and there are plenty of O&M opportunities.”

Apart from Siemens Gamesa and Nordex-Acciona, another four OEMs assemble turbines in Brazil, a prerequisite to comply with local-content rules so that developers can obtain funds from the National Development Bank (BNDES), the main source of cheap, long-term financing for infrastructure projects in the country.

Together, Siemens Gamesa, Nordex-Acciona, Vestas, GE, Enercon and local player WEG are said to have enough capacity to assemble over 2GW of machines a year. But they also invested hundreds of millions of dollars to develop a complex supply chain, attracting several global component makers to the country.

But apart from their concern at keeping these investments productive, to further complicate matters for OEMs, developers were also hungry for new contracts after having readied and registered 26GW, or close to 1,000 projects, for the tender.

However, with four and six years to get the projects completed things may change, which could help OEMs recover some of the lost margin.

Firstly, local currency the real – currently weakened at R$3.2 to $1 following a recent downgrade by rating agencies and continuing political and economic uncertainties – may strengthen following this year’s presidential elections and as the economy gives signals of recovery. With around 20% of the components of a locally-assembled turbine still imported, this could be a relief.

Secondly, OEMs may be able to tap into productivity gains in their supply chains which resulted from process streamlining, as component makers looked at exports as an alternative to the lack of orders in Brazil.

Brazil contracts 1.4GW of wind as price falls to $31/MWh

Siemens Gamesa, for example, started to export some components from Brazil to other countries to keep its supply chain busy. At the same time, said Gaylord, all Brazilian OEMs started to take steps to effectively export parts to the neighbouring Argentina and its 1GW-a-year wind power market.

As OEMs prepare once more for the April A-4 tender – which may be just as competitive as last time, with 26GW of wind still shortlisted – and for at least another two tenders this year, Gaylord believes prices cannot go much lower.

“These low prices may be repeated in April’s tender, but they are probably at rock-bottom,” he said.

By his calculations, the prices of the Brazilian turbines contracted for last year’s tender – which are among the most expensive in the world – are now aligned with global and regional levels, except for Mexico where wind was contracted at below $20/MWh last year.

Nevertheless, as Brazil’s wind market returns to normality margins will likely be recast and prices may rise. But, for now, contract hungry OEMs and developers will probably take their toll on profitability.