COPENHAGEN, Oct 3 (Reuters) - Wind turbine maker Vestas Wind Energy lost a major contract in Brazil to Spanish rival Gamesa because the Danish company does not have the required local production to get cheap funding for its customer.
The 254 megawatt (MW) order from CPFL Renováveis, part of CPFL Energia, was cancelled due to changes in Brazil's regulations after the contract was agreed, Vestas said on Friday -- the day after Gamesa announced a 220 MW order for the same wind farms in Rio Grande do Norte, northeast Brazil.
Vestas' notoriously volatile shares fell 5.5 percent on Thursday and 5.2 percent on Friday morning. They have since recouped some of the losses and were up 3 percent by 1507 GMT.
The size of the order was equivalent to 10 percent of the company's order book so far this year.
Sydbank analyst Jacob Pedersen said the contract loss was a significant setback for Vestas, but it would not necessarily incur a financial loss. Vestas maintained its 2014 guidance and declined to comment on the 2015 outlook yet.
"Vestas has clearly communicated that this is an isolated incident," analyst Michael Jorgensen from Alm. Brand Bank said.
Brazil has stringent local rules whereby foreign companies are required to employ locals, use local contracting companies or manufacture locally. Developing countries tend to set such rules to ensure they benefit from resource booms.
But a recent tightening of the rules, linked to the so-called FINAME financing provided by Brazil's development bank, derailed Vestas' plans, a spokesman said.
"We tried to come to an agreement (with CPFL) and we weren't able to do so, and on a friendly basis we decided to terminate the contract," Vestas spokesman Michael Zarin said.
He declined to comment further as negotiations on the terms of the termination were still ongoing.
Vestas said in June it would invest up to 100 million Brazilian real ($40 million) in placing more manufacturing in the country to meet the stricter FINAME rules.
The Danish company has installed turbines with a total capacity of 686 megawatt (MW) in Brazil.
Gamesa, which has increased its focus on Latin America during a slump in its home market, has installed more than 700 MW and signed orders for more than 2,000 MW in Brazil.
Shares in Gamesa fell 5.5 percent on Thursday but traded 3.6 percent higher on Friday.
"This important agreement with CPFL, one of the largest private players in the Brazilian power sector, further consolidates our already solid position in this market," Gamesa said in its announcement.
1 US dollar = 2.4953 Brazilian real Reporting by Teis Jensen; editing by David Clarke