EMERGING ENERGY & ENVIRONMENT, LLC
TALLER DE PLANIFICACION DE LA DIRECCION DE MEDIO
AMBIENTE
CAF – Banco Latinoamericano de Desarrollo
THE ROLE OF PRIVATE EQUITY FUNDS
BY: JOHN PAUL MOSCARELLA
FEBRUARY 2013
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FUND CONCEPT – Emerging
Energy Latin America Fund II
Emerging Energy Latin America Fund II focuses on
renewable infrastructure investments in Latin
America. The Fund will mainly invest in companies
within 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 will benefit from the collective
experience of the team in the region in local
origination, project development, project finance,
investment management, and exits.
First closing occurred in 2012.
EMERGING ENERGY LATIN AMERICA FUND II
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
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INVESTMENT HIGHLIGHTS
Emerging Energy Latin America Fund II is a USD 150 million expansion
capital fund focused on multi-sector investment in renewable energy.
The Fund offers institutional investors an opportunity to invest in:

One of the world’s fastest growing regions

Renewable energy sector facing unprecedented demand from the
industrial, transportation, and consumer segments

Renewable infrastructure sector with its urgent need of expansion

Seasoned fund management team with proven track record and three
offices in the region
•
Focused on Renewable Energy and Energy Efficiency
infrastructure
EMERGING ENERGY LATIN AMERICA FUND II
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
3
INVESTMENT STRATEGY AND SECTOR FOCUS
PRIMARY COUNTRY/REGIONAL FOCUS
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INVESTMENT TYPE
 Infrastructure-orientation
 Asset-centric
 Expansion and growth
Brazil
Colombia
Mexico
Peru
Chile
Central America
INVESTMENT SECTORS
Renewable Energy
 Small Scale Hydro (up to 30 MW)
 Wind
 Solar
EMERGING ENERGY LATIN AMERICA FUND II
Energy Services
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Energy Services Companies
Industrial Co-Generation
Renewable Energy Distribution
Renewable Energy Logistical Infrastructure
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
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INVESTMENT STRATEGY AND SECTOR FOCUS
 Portfolio Breakdown by Sector
-
Renewable Energy Infrastructure 80%
-
Energy Services Companies 20%
 Strategies:
- Portfolio Companies with
- Scalable and proven business and
technology models
 Portfolio Diversification
-
Geography: <40% of the fund’s assets
will be invested in one single country
-
Assets: <15% of the fund’s assets in a
single investment
EMERGING ENERGY LATIN AMERICA FUND II
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Stable cash flow and resistance to
macroeconomic fluctuations
-
Long term off take contracts with anchor
end-users
-
Partnership with local management teams
with proven development expertise and
operational track records
-
Clustering companies into attractive
portfolio acquisition targets
-
Lead investor role with extensive control
over and influence on the operational
management of portfolio companies
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
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INVESTMENT STRATEGY AND SECTOR FOCUS - TYPE OF ASSETS
Fund II will principally invest in three types of assets:
 "Late stage" investments, with no early stage development risk, with construction risk, subject to completion
of one or more of the following:
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Resource identification and measurement
Basic engineering and design, construction budget reviewed and approved by third party
Site control and access to transmission
Key environmental permits and approvals, and execution contracts
Anchor revenue contracts
Project financing "highly likely" or in place
 Operating or brownfield assets:
 Assets with established operating profiles with potential for expansion ("low cost or free growth
option")
 Early stage assets:
 Strong pre-feasibility analysis
 Attractive resource, favorable regulation, and strong economic outlook
 Key contracts or permits still need to be obtained
EMERGING ENERGY LATIN AMERICA FUND II
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
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INVESTMENT STRATEGY AND SECTOR FOCUS - AGGREGATION
 EEE believes that there is an outstanding opportunity to aggregate smaller renewable energy
projects, which benefit from portfolio efficiencies in financing, implementation and operation
 Improvements in technology and economics, combined with the existence of strong resource base
(hydro, solar, wind) have made smaller projects economic and attractive
 The smaller projects, individually with enterprise value between $5-50 mm, is an overlooked and
capital-constrained niche in the market
 EEE will pursue a country-specific or a regional approach in the implementation of its roll-up
strategy
EMERGING ENERGY LATIN AMERICA FUND II
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
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INVESTMENT STRATEGY AND SECTOR FOCUS - AGGREGATION
 Country-specific portfolios - key issues
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Lack of asset and geographic diversification
Country risk concentration
Resource risk diversity
Asset financing - single asset vs. portfolio - lender appetite may vary
Sector and electricity price outlook
Regulatory and institutional issues
Exit prospects
 Regional portfolios - key issues
 Portfolio diversification based on country, regulatory regime, hydrology variation, asset-type, assetstage
 Geographic composition of the portfolio - initial focus will be on countries with well-mitigated country
and regulatory profiles favorable to small hydro, as well as investment grade sovereign ratings
 Regional approach to financing is new but lender feedback is encouraging
 Target focus - Peru, Mexico, Brazil, Chile, Central America, Colombia
EMERGING ENERGY LATIN AMERICA FUND II
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
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PIPELINE OVERVIEW
The team is actively working on the pipeline for Fund II:
 Focus on renewable energy infrastructure.
 The current Fund II active pipeline, as of October 2012, consists of:
 Over 35 deals representing over US$2.7 billion of investment potential.
 Over US$2.2 billion of the pipeline represents wind, solar, and small hydro renewable energy
infrastructure.
Uruguay, 4%
BIOMASS, 8%
RECYCLING,
3%
CT INFRA,
8%
Central
America,
13%
SOLAR,
14%
SMALL
HYDRO, 26%
COGEN, 5%
Peru, 11%
Brazil, 21%
Chile, 9%
Mexico, 43%
WIND, 32%
BIOGAS, 3%
EMERGING ENERGY LATIN AMERICA FUND II
CONFIDENTIAL – FOR PROFESSIONAL INVESTORS ONLY
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CleanTech Fund (CTF): US$25 MM (2004)
Early Stage VC Fund: Portfolio by Technology & Country (US$ MM)
LFGTE
(2.75)
16%
HYDRO
(3.86)
22%
BRASIL
(6.3)
36%
Hybrid
Vehicles
(3.5)
20%
Starch &
By-prod
(3.84),
22%
PERU
(1.11)
6%
MEXICO
(10.3)
58%
CNG
(3.6)
20%
PERU (1.11)
MEXICO (10.3)
BRASIL (6.3)
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Investment in clean energy had shown positive growth to 2011…
But in 2012 showed a decline of 11% (source Bloomberg)
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“Greening” investment report of G20 Green Growth Action Alliance
Source: The Green Investment Report, the ways and means to unlock private finance for green growth,
World Economic Forum, 2013
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More “Green” investment required: US$700 billion per year (estimated)
Source: The Green Investment Report, the ways and means to unlock private finance for green growth,
World Economic Forum, 2013
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US$700 billion green target: Possible public-private finance scenario
Source: The Green Investment Report, the ways and means to unlock private finance for green growth,
World Economic Forum, 2013
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Data for 2011 suggest investment of circa US$370 billion…circa 50%
of the goal
Only $2
billion
from
PE
funds
…$75 billion from development finance institutions, and $250-280 billion private flows
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Leveraging private sector flows: some recent trends
Source: The Green Investment Report, the ways and means to unlock private finance for green growth,
World Economic Forum, 2013
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Private Equity Funds: Early stage, Growth Capital,
& Infrastructure
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Venture Capital funds:
 Early stage, institutional capital
 Companies are often still “concept”
 “Pre” revenue or still incipient revenues
 Usually several VC firms collaborate
 Exit or sale to larger PE funds, strategic or Initial Public Offerings (IPOs)
Private equity funds
 Growth capital, usually expansion of current revenues by accelerating
growth (“accelerated organic growth”)
 Capital to acquire similar companies, competitors (“buy and build”)
 Pre-IPO capital
 “Greenfield” projects, require debt
Infrastructure Funds
 Project based special purpose companies
 Usually “brownfield”
 Significant debt requirements
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Some conclusions: Transition to low carbon economy

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Key ingredients:
 Stable fundamental economies
 Strong regulatory support – key domestic policy is required
 Stable and long term vs infrequent or volatile
 Long term carbon regime preferable
 USA carbon markets are surprisingly showing life
Financing requirements
 Both debt and equity capital
 Equity is critical for:
 Early stage risk capital (VC)
 Growth capital (PE)
 Project based equity (PE)
 Capital Markets
 IPOs but also very important for private markets to function properly
“Supply” of institutional capital via pension funds and other, i.e. institutional
capital, needs to be increased in “greening” the economy generally
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Some conclusions (Cont.):
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2012 was a difficult year  Private sector flows slowed down despite capital markets
positive performance
“Cleantech” investing: over the last decade, early stage investments in a variety of
cleantech sectors has proven challenging, investors have not seen the expected
returns like other “new” or “tech” sectors  all major solar companies publicly listed
have seen dramatic drops in share prices recently
Renewable Energy Infrastructure: Less risky, will continue expanding
 Wind energy matured quickly  Lower equity returns, lower capital costs, very
competitive (circa US$41-42/MWh most recently in Mexico and Brazil)!
 Most dramatic advances in Solar PV capex costs  Expected large investments
in Latin America solar (‘grid parity” in Chile)
 Auctions and policy frameworks are continuing to show results
Natural gas: USA shale gas “revolution” will have long term effects throughout clean
energy value chain  Positive impact on industrial energy efficiency in many Latin
markets (especially cogeneration and transportation sectors)
“Digital energy revolution” – 1st billion smart phones by 2012 most important growth
sub-segment is in “smart-grids” or “data” driven” investing (posted significant growth
in 2012, circa 70%), includes commercial and residential buildings efficiency
Distributed or decentralized generation will continue to grow (residential PV esp.)
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