Brazil's state-owned development bank BNDES will offer loans to power companies to cover up to 65 percent of the cost of new solar generation projects in the country, part of the government's plan to rapidly develop a local solar energy industry.
BNDES announced the lending plan Tuesday.
The program comes after years of government resistance to solar power on cost grounds. Government efforts to diversify Brazil's energy mix has been accelerated by an ongoing drought. That drought has underlined the weaknesses of a system that has long depended on hydroelectricity but finds itself increasingly reliant on non-renewable fossil fuels.
The bank also said it will not require a large share of locally produced equipment right away, easing concerns that high domestic-content rules might raise costs.
Companies building the new solar generation farms, however, will be offered better financial terms if they use more Brazilian-made parts than required.
Besides the regular financing line know as Finem, with a 5 percent annual interest rate, BNDES will offer solar projects access to its Climate Fund, which charges only 0.1 percent a year. Climate Fund loans, though, are limited to 15 percent of the total investment.
Companies are eligible to take loans from both credit lines.
In October Brazil will auction rights to sell solar power to the national grid, the first of its kind in the South American country. Power companies have registered about 400 projects for the auction, but many asked for more clarity on investment conditions and financing before committing to bid.
Absolar, a Brazilian lobby group promoting solar power, said the financing rules were very positive.
"They will reduce the average capital needs for the projects," said Rodrigo Sauaia, Absolar executive director. (Reporting by Marcelo Teixeira and Leonardo Goy; Editing by Lisa Shumaker)