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Private & Confidential - Emerging Energy & Environment, LLC 1 Private equity fund and developers perspectives on investing in climate and clean enegy in.

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Presentation on theme: "Private & Confidential - Emerging Energy & Environment, LLC 1 Private equity fund and developers perspectives on investing in climate and clean enegy in."— Presentation transcript:

1 Private & Confidential - Emerging Energy & Environment, LLC 1 Private equity fund and developers perspectives on investing in climate and clean enegy in Latin America John Paul Moscarella Renewable Energy Finance Briefing Latin Carbon Forum San Jose, Costa Rica Sep. 29, 2011 Emerging Energy & Environment, LLC 6 Landmark Square Suite 400 Stamford, CT 06901, USA main:

2 Private & Confidential - Emerging Energy & Environment, LLC 2 Fund II - Staffing Core Management Team: John Paul Moscarella Anadi Jauhari Ernesto Hanhausen Jorge Barrigh Raul Ortega Ramon Olivas EEE Offices New York/Conn. Mexico City Panama City Rio de Janeiro

3 Private & Confidential - Emerging Energy & Environment, LLC 3 Emerging Energy Latin America Fund II Fund II will target up to US$150 million to focus on renewable infrastructure investments in of Latin America principally in the high growth economies of Brazil, Mexico, Peru, Chile, and Colombia. The Fund will mainly invest in companies in the energy related sectors of Hydroelectricity, Wind Power Generation, and Solar Energy. The Fund will also invest in regional mid- market companies that provide support and energy services to the renewable and energy efficient sectors using market proven technologies. The fund is sponsored by EEE, an alternative investment firm based in the USA with offices in Mexico, Brazil and Panama.

4 Private & Confidential - Emerging Energy & Environment, LLC 4 Example: Wind Energy Boom

5 Private & Confidential - Emerging Energy & Environment, LLC 5 Mexico – Overview Two models: (a) self-supply and (b) PPA with national power company (CFE): Self-supply: Recently Mexico's beverage company Femsa and the Macquarie Mexican Infrastructure Fund have purchased two wind energy projects in Oaxaca state from Spanish firm Preneal for US$89 million. With a total capacity of 396MW it will be the largest installation in Latin America. Vestas will develop the project and supply the wind turbines. CFE launched a tender for construction and operation of three separate wind, each with capacity of some 101MW. Winning bidders would operate assets for a period of 20 years, and sell power to CFE under the independent power producer framework. Lowest bid to sell power from the plants at US$66/MWh. National energy regulator seeks to bring certainty to projects through feed-in tariff regimes for wind. A lot more work to be done on the regulatory framework: the market depends on multilateral and development banks. temporada abierta for transmission is useful. Attractive to private equity funds? There is a limited role in these markets for investment funds and deals, with big strategic players playing a major role, but Macquarie Mexico Infra Fund has made a significant investment Climate Finance Mechanisms: Clean Technology Fund resources via IFC + CERs

6 Private & Confidential - Emerging Energy & Environment, LLC 6 Brazil – Wind Energy has come of age First Brazilian wind auction was in December The auction awards were 71 new projects with a combined capacity of 1.8GW. The new wind farms will start to deliver power from January 2012 under 20-year power sales contracts. A second renewable energy auction took place in late August The winning projects include 70 wind farms that will sell power at an average of 130 reais/MWh (US$74/MWh), 9.5% lower than Winning wind plants will total just above 2GW in installed capacity A third auction on August 2011 with developers of 44 wind farms at an average of $62/MWh. This was lower than the average price of contracts signed from two natural gas plants. The total capacity is expected to be 1.9 GW from these awards. However: Bloomberg New Energy Finance predicts up to 40% wont be built and Returns on equity are lower than 10% -- Carbon finance would be helpful! Auctions in Brazil are conducive to investment with a transparent subsidy. The main risk comes in the project execution from local players at a low and competitive contracted price. Attractive to private equity funds? Project returns are unattractive, mainly utilities invest Climate Investment Finance Mechanisms are not active in this segment – why?

7 Private & Confidential - Emerging Energy & Environment, LLC 7 Peru – Maturing Peru has no specific regime for wind projects but established a renewable energies framework and its corresponding auctions. Late in February 2010, Osinergmin, the Peruvian energy and mining investment regulator, awarded 26 projects in an auction to supply 500 MW from renewable energy over 20 years, with projects in biomass, wind, solar and hydro under 20MW. Three wind projects of 30MW, 32MW and 80MW where awarded contracts with a weighted average price of US$81/MWh. Developed by local power developers. In June 2010 a second auction had only one project awarded (18 MW $64/Mwh). Results from the third auction in Aug. 2011, with 10 awarded projects ranging between US$69/MWh for wind to US$120/MWh for solar, shows that auctions provide a price- discovery mechanism with lower prices awarded. Attractive to private equity funds? It is attractive for first mover funds and others that are looking for wind deals, the PPA regime has proven to be a successful formula for Peru. Climate Investment Finance Mechanims are not active in Peru for these sectors – why?

8 Private & Confidential - Emerging Energy & Environment, LLC 8 Other LA Markets – Overview In Chile, the main driver for wind power expansion are the renewable portfolio standards. Its 2008 Renewable Energy Law requires electricity generators of more than 200MW to source 10% of their energy mix from renewable sources. Chiles new government aims to reach of 20% of power from renewable energy sources, which would require about 500MW/year of new renewable capacity. The obligation will be phased in gradually, starting at 5% from , and then increasing by 0.5% every year until Advantages: Contracts with the off-takers, a deregulated market. Argentinas state power awarded 17 wind power contracts through its GENREN renewable energy tender in July The wind contracts awarded will receive an average price of US$126.9/MWh. Attractive to private equity funds? Argentina is relatively more risky than other markets but the prices and returns appear to justify the risk premium.

9 Private & Confidential - Emerging Energy & Environment, LLC 9 Other LA Markets – Overview Uruguays state power company accepted 23 bids in an auction for wind power in August, awarded prices were circa US$64/Mwh. Uruguay's government plans to add over 700MW of renewable capacity on the national grid by the middle of the decade, heavily relying on wind farms. Central America: Honduras: Largest wind farm in C. 100 MW Panama: Several smaller wind developers active, 2 30 MW Costa Rica: Recent 50 MW award to Acciona, several small (20 MW) developments Attractive to Private Equity? Generally on the lower end of the equity returns Little evidence of Climate Investment finance, except for CDM projects

10 Private & Confidential - Emerging Energy & Environment, LLC 10 Conclusions The availability of excellent wind resources is critical to the success of projects in the Region. Auctions are bringing regulatory certainty to these markets Each market has a distinctive mix of local, international and strategic players developing projects. PPAs from credit-worthy entities are a big positive. Lenders and a number of financial investors are interested in the sector, however returns are slightly below the expectations of equity investors not unusual for a maturing technology In summary, wind investing in Latin America is taking off and we expect several US$ billions to be invested in the next 3-5 years, but.. Climate funds and Public Finance Mechanisms are not playing a big role Opportunity? Or should less mature areas be favored

11 Private & Confidential - Emerging Energy & Environment, LLC 11 Contact: John Paul Moscarella Direct: Emerging Energy & Environment, LLC 6 Landmark Square Suite 400 Stamford, CT 06901, USA Main:


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