Last Friday Brazil granted contracts for the construction of 31 solar parks. Amid an energy crisis caused by the worst drought in 8 decades, the country has been fighting to diversify its energy sources.
Brazil’s energy regulator accepted 20 year long energy supply contracts with companies that will invest around $1.67bn. The lucky entities will start to feed the national grid in 2017.
The solar plants will have a combined capacity of 1,048 MW which exceeded analysts projections of 500 MW.
“This auction is a mark, not only because it signals the entrance of solar power in the Brazilian energy mix, but because it was one of the most competitive to date,” said Mauricio Tolmasquim, head of the government’s energy research company, EPE.
Brazil’s power system has been composed by a network of large hydro power plants so far. Unfortunately, almost 3 years of rains below the average levels, have depleted reservoirs and sent the country scrambling to diversify its energy sources.
The Brazilian government has been criticized for a long time by environmental groups for taking so long to enlist solar power in its energy matrix. Brazil’s perfect geographic location makes it an excellent spot for solar.
Generally investors can access the Brazilian equity market via the iShares MSCI Brazil Capped ETF (EWZ) and Market Vectors Brazil Small Cap ETF (BRF) which offer exposure to utilities of 6.4% and 13.7% respectively.
It’s worth noting that in February 2010, Emerging Global Advisors, launched the EGShares Brazil Infrastructure ETF (BRXX) that seeks investment results that correspond (before fees and expenses) to the price and yield performance of the FTSE Brazil Infrastructure Extended Index. Prior to February 3, 2014, the Fund tracked the Indxx Brazil Infrastructure Index.
The FTSE Brazil Infrastructure Extended Index is designed to represent the performance of the 30 largest Brazilian companies ranked by full market capitalization that FTSE determines to be representative of Brazil’s infrastructure industries.
The BRXX allocates 51.4% to utilities and 25% to alternative electricity (please refer to the below tables).
BRXX Sectors
BRXX Sub Sectors
Therefore the BRXX looks like the best option for those who would like to gain exposure to the new solar energy generating plants.
The industry producing solar panels is dominated by companies from U.S., China, Taiwan and Hong Kong. That’s been reflected by the geographic splits of two flagship solar exchange traded funds which are the Guggenheim Solar ETF (TAN) and Market Vectors Solar Energy ETF (KWT).
TAN Geographic Split
KWT Geographic Split
ETFs: EWZ, BRF, BRXX, TAN, KWT
Source: Reuters, iShares, Market Vectors, Guggenheim, EGShares
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