Wind turbine manufacturers are seeing their costs spiral in Brazil as they struggle to meet the governmental requirement to buy or make of all of their main parts domestically.
Companies such as Vestas (OMX: VWS) and Suzlon (NSE: SUZLON) may be forced out by the regulation as it is estimated that in order to comply companies may have to invest as much as $96m to build the necessary factories.
According to Bloomberg Energy Finance over half of the 13 suppliers that were operating in Brazil may opt out as margins are squeezed.
“Money is hard to come by — you need a solid case to justify what you’re doing here,” Paulo Fernando Gaspar Soares, chief executive officer of Vestas’s Brazil unit, said in an interview in Sao Paulo. “There may be cases in which companies make the decision not to come over here.”
Shares of Vestas, the world’s second-largest turbine maker, declined 24 per cent in the past year and Suzlon, India’s biggest turbine company, slumped 48 per cent.
The stricter rules imposed by Brazilian President Dilma Rousseff’s (pictured) government may drive up the price of turbines by as much as 20 per cent as makers are forced to choose local parts over cheaper imports, said Renato Volponi, country manager for EDP Renovaveis SA (EDPR), a Spanish developer of wind farms.
Brazil will be the fifth-biggest market for wind turbines by installations this year after China, the U.S., Germany and India, New Energy Finance forecasts.
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