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
Private & Confidential - Emerging Energy & Environment, LLC
6 Landmark Square
Suite 400
Stamford, CT 06901, USA
main: +1 203 359 5670
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Fund II - Staffing
Core Management Team:
 John Paul Moscarella
 Anadi Jauhari
 Ernesto Hanhausen
 Jorge Barrigh
 Raul Ortega
 Ramon Olivas
New York/Conn.
Mexico City
Panama City
Rio de Janeiro
EEE Offices
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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 midmarket 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.
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Example: Wind Energy Boom
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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
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Brazil – Wind Energy has come of age
 First Brazilian wind auction was in December 2009. 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 2010. 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 2009. 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% won’t 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?
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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 hydro @ $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 “pricediscovery 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?
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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.
 Chile’s 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 2010- 14, and then
increasing by 0.5% every year until 2024.
 Advantages: Contracts with the off-takers, a deregulated market.
 Argentina’s state power awarded 17 wind power contracts through its GENREN
renewable energy tender in July 2010. 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.
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Other LA Markets – Overview
 Uruguay’s state power company accepted 23 bids in an auction for wind power in August,
awarded prices were circa US$64/Mwh.
 Uruguay's government plans to add over 700MW of renewable capacity on the
national grid by the middle of the decade, heavily relying on wind farms.
 Central America:
 Honduras: Largest wind farm in C. America @ 100 MW
 Panama: Several smaller wind developers active, 2 30 MW
 Costa Rica: Recent 50 MW award to Acciona, several small (20 MW) developments
 Attractive to Private Equity? Generally on the lower end of the equity returns
 Little evidence of Climate Investment finance, except for CDM projects
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Conclusions
 The availability of excellent wind resources is critical to the success of
projects in the Region.
 Auctions are bringing regulatory certainty to these markets
 Each market has a distinctive mix of local, international and strategic
players developing projects.
 PPAs from credit-worthy entities are a big positive.
 Lenders and a number of financial investors are interested in the
sector, however returns are slightly below the expectations of equity
investors  not unusual for a maturing technology
 In summary, wind investing in Latin America is taking off and we
expect several US$ 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
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Contact:
John Paul Moscarella
Direct: +1 203 359 5675
jp.moscarella@emergingenergy.com
Emerging Energy & Environment, LLC
6 Landmark Square Suite 400
Stamford, CT 06901, USA
Main: +1 203 359 5670
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