SAO PAULO – Sao Paulo officials recently signed an agreement with the Renault SA-Nissan Motor Co. Ltd. Alliance to use the auto makers’ electric vehicles to help reduce pollution in this city of 11 million inhabitants and nearly 7 million vehicles.

The fact no timetable has been set underscores that EV demand in Brazil remains a question mark, as the main priority of the government and giant sugar-ethanol industry is to produce biofuels.

Currently, more than 90% of all new vehicles here have flex-fuel engines that can run on gasoline mixed with ethanol or on ethanol, alone. The country mostly exports its ethanol to subsidize imported diesel.

But lately, the government has implemented a new program using 5% biofuels mixed with diesel to help the industry become self-sustaining.

Other factors unique to Brazil are influencing EV decision-making, as well. Among them is the availability of electricity.

The government recently suspended a package of incentives for electric cars, frightened by the country’s notorious blackouts in the power grid that helped bring about voter rejection of the previous centrist government eight years ago.

During Brazil’s dry season from May to September, thermo-power plants must be used to counter low water levels in hydropower reservoirs throughout the country.

And then there is the cost issue. “Generally speaking, electric cars have a high initial cost due to the battery and a more complex mechanical and technological system,” says Pietro Erber, director-Brazilian Association of Electric Vehicles.

Even hybrid versions cost more than the traditional internal-combustion engine models, he adds.

French auto maker PSA Peugeot Citroen predicts 4.5% of cars sold in Europe in 2020 will have electric powertrains. “Today, there is a positive context for electric cars: reduced emissions, higher oil costs, new battery technology and consumer demand,” says Ayoul Grouvel, PSA director-electric vehicles.

But in emerging markets such as Brazil, the high prices of electric cars are an obstacle, he admits.

Nevertheless, hybrid-electric vehicles gradually are driving into the market. The first HEV, already on sale here, is the Mercedes-Benz S400 Hybrid with a 3.6L V-6 gasoline engine and 20-hp (15-kW) electric motor. But the car costs a whopping BR431,000 ($245,000).

The more-practical Toyota Prius hybrid is scheduled to appear in dealer showrooms in the near future. The car has a 1.8L 98-hp engine with an 80-hp (60 kW) electric-propulsion system.

But the Prius is not inexpensive, with an expected sticker price ranging from BR79,000-BR97,000 ($45,000-$55,000), which competes with top sedans.

Global auto makers seeking access to what they see as a lucrative market are not discouraged. Other hybrid and electric models will be exhibited at the Sao Paulo auto show in October, including the BMW ActiveHybrid 7, Porsche Cayenne Hybrid, Nissan Leaf EV and Peugeot 3008.

“The new electric- and hybrid-car market (in Brazil) should begin with service vehicles, company-manager vehicles and rental cars,” says Jean Pierre Lamour, technical director of the 10th Michelin Challenge Bibendum. The annual race, which focuses on sustainability, recently was held in Rio de Janeiro.

Brazil’s price of energy is another inhibiting factor. Electric energy costs $0.18 per kWh in Rio and $0.19 in Sao Paulo, compared with $0.09 on average in the U.S., according to Brazil’s National Electric Energy Agency.

Even so, inroads will continue to be made. As early as 2006, Fiat Automoveis SA was working on a project with the Itaipu Hydroelectric consortium in Parana to develop the Palio Electrico. The small EV generated 20 hp and could travel 75 miles (120 km). The Palio Weekend Eletrico followed and was similarly fitted.

However, the cars never took off with the public, as they cost more than three times that of flex-fuel models capable of running on 100% locally produced sugarcane alcohol.