A Financial Assessment of Offshore Wind Viability in Brazil: The Role of Capital Cost, Financing Structure and Policy Design

Brazil possesses globally competitive offshore wind resources; however, financial viability is constrained by high capital expenditure (CAPEX) and industry risk. This study evaluates the investment feasibility of a 1 GW offshore wind project in northeast Brazil using a discounted cash flow (DCF) model. For the key parameter of CAPEX, a Baseline Case was established, assuming a 1.53% commodity price escalation from 2021 until the Financial Investment Decision (FID) date of 2027, and was sensitivity tested against an Optimistic Case, assuming 0% cost escalation and a Stress Case based on twice the commodity price escalation of 3.06% up to 2027. Each CAPEX Case was evaluated against 12 financing scenarios involving varying levels of public support through a blend of concessional debt and grants. Financial performance was measured using net present value (NPV) and Equity Internal Rate of Return (EIRR). Results indicate that project financial viability is achieved under the Baseline Case only with levels of grant funding and concessional debt that exceed realistic thresholds, unless PPA tariffs are raised by about 50% relative to current market benchmarks. The Optimistic Case is viable at current tariffs under more realistic financing structures but represents an unattainable degree of capital cost containment. The Stress Case is not viable at all without a doubling of current PPA tariffs. Sensitivity analysis further demonstrates that even the most promising financial scenarios are vulnerable to any shortening of the 20-year PPA contracting period, leading to greater merchant risk exposure. The paper concludes that catalysing Brazil’s nascent offshore wind market will therefore call for a combination of policy measures that: permit (and recoup) a transitional premium over current PPA prices; adopt structural measures to reduce associated CAPEX through local supply chain development; combine public and private sources of capital to soften financial terms; and incorporate price risk mitigation measures.