UPDATE 1-Brazil development bank scraps financing for coal-fired plants

(Adds BNDES comments, context)

SAO PAULO, Oct 3 (Reuters) - Brazil’s BNDES, Latin America’s largest development bank, said on Monday it will no longer finance coal-fired or oil-fired power plants in a push to discourage carbon-intensive energy projects.

BNDES released a new set of guidelines for public financing in the power sector. The bank decided to reduce credit to gas-fired power plants to 50 percent of total investment from 70 percent. For solar developments, it increased financing to 80 percent of project values from 70 percent.

“The measures aim to contribute to increase alternative energy sources in the Brazilian power mix, directing investments to projects with high social and environmental returns,” the bank said in a statement.

Public financing for carbon-intensive projects such as coal-fired power plants has long drawn the ire of environmental groups across the globe, even more so now that most countries have agreed to reduce carbon emissions to limit global warming.

Brazil has financed big coal projects in the past, including a large 300-megawatt (MW) plant built by one of the companies controlled by former billionaire Eike Batista.

BNDES also said on Monday it will finance up to 80 percent of energy efficiency projects, such as cities switching to LED street lighting.

Both solar and energy efficiency financing lines are based on the so called TJLP interest rates, now at 7.5 percent per year, much lower than the country’s Selic basic rate of 14.25 percent per year.

BNDES said it wants to encourage the nascent solar energy industry in Brazil by giving the sector better credit conditions.

Additionally, BNDES said it will reduce to 50 percent from 70 percent financing for large hydroelectric power plants.

While a renewable energy source, hydroelectric plants in Brazil have faced severe criticism from environmentalists because they are often built in the Amazon rainforest and have severe impacts on the jungle’s delicate ecosystem. (Reporting by Marcelo Teixeira; Editing by Chizu Nomiyama and Cynthia Osterman)