Wind Investors Blow Into Latin America
Latin America, a region known for its sun-drenched beaches and vast mountain ranges, is finally harnessing its solar and wind power to produce electricity. And as the region’s renewable energy industry grows, so does deal making.
e value of renewable energy deals in Latin America increased 157% between 2013 and 2016, from $975 million to $2.5 billion, according to Mergermarket data. And while these figures pale when compared with the $14 billion-worth of renewable energy deals struck in the US last year, they do point to increasing interest in the region’s sun and wind-potential —beyond vacation planning. Wind power, in particular, seems to have caught investors’ eyes. Twenty-six of the 62 renewable energy deals recorded in Latin America since 2013 involved wind farms, according to Mergermarket data. Brazil is the most advanced in the region at harnessing its wind power. It currently has 447 wind farms with an installed capacity of 11 gigawatts (GW) —enough to power roughly 10 million homes. Some of the companies operating wind farms in Brazil include Engie; Enel Green Power; Brookfield Renewable Energy Partners; and local companies such as CPFL Renovaveis and Renova Energia. These five companies together generate more than a third of Brazil’s wind energy, according to Fernando Bernacchi, partner at local M&A advisory firm Focus. But since Brazil has not launched a long-term wind power auction since November 2015 (presidential impeachment and massive graft probe dominate the government’s attention), small wind-farm operators may have to turn to M&A to continue growing. Private equity firms such as Darby Overseas Investments and UK-based Actis are also looking to acquire Brazilian wind farms, according to Nestor Casado, partner at Capital Invest, another local M&A firm. Actis, for instance, already owns a renewable energy platform with 635 megawatts (MW) of fully contracted assets and recently launched a wind platform. Omega Energia, a local company backed by Warburg Pincus and Tarpon Investimentos, could also be considering buying wind farms, said Bernacchi from Focus. The company expects to raise as much as $425 million through an IPO, which may be carried out in July. Meanwhile, Mexico, Latin America’s other economic powerhouse, is only just starting to use its solar and wind energy for something other than luring spring breakers. Over the past five years, the country’s installed capacity of renewable energy grew 11 times and now accounts for 20% of its electric grid, according to Hector Olea, head of Asolmex, a local solar-power industry group. Wind power, however, has been investors’ darling. About $7 billion has been invested to build 42 wind farms, said Hector Trevino, executive director of Mexico’s wind energy association. Local mining giant Grupo Mexico; Italy’s Enel; Spain-based Acciona; and Siemens Gamesa Renewable Energy currently operate wind farms in the country. And although Mexico’s wind-energy industry is fairly young, there have been some big M&A transactions. In September, Infraestructurea Energetica Nova, the local subsidiary of San Diego-based Sempra Energy, acquired two wind farms for $852 million, helping Mexico surpass Brazil in the number of renewable energy deals in 2016. Central America has also been working hard to use its wind power for something other than flying kites. Wind farms currently generate about 8% of the region’s electricity, according to Pan American Finance, a Miami-based financial advisory firm. Companies such as InterEnergy Holdings, a renewable energy company backed by the World Bank’s International Finance Corporation; and Real Infrastructure Capital Partners, a New York-based private equity firm, are interested in acquiring wind farms across Central America. And Chile, which has virtually no oil and gas industry is looking to generate at least 20% of its electricity from non-conventional renewable sources, such as solar and wind, by 2025 —an ambitious feat considering the country currently produces about two-thirds of its electricity by burning coal, oil or gas, according to Cristobal Pellegrini, head of the energy practice at local legal firm Barros & Errazuriz. To help kickstart the effort, the Chilean government will structure its long-term energy auctions into “time blocks,” allowing solar and wind companies to bid to produce electricity only at particular times, say, when it’s sunny and windy, as opposed to when it is calm and cloudy. Chile’s biggest wind energy generators include Acciona; Enel Green Power; Australia’s Pacific Hydro; and Pattern Energy Group, which is partly owned by local mining giant Antofogasta Minerals. Despite being one of Latin America’s fastest-growing economies, Colombia has yet to join the renewable-energy bandwagon as it has yet to launch a long-term renewable power auction. Nevertheless, the country has been able to build one wind farm and more are expected ahead of the first long-term renewable power auction, which is expected to be launched next year, said Alejandro Lucio, executive director of SER Colombia, a local industry group. Empresas Publicas de Medellin, for example, which owns the country’s only wind farm, is conducting preliminary studies to build a new farm with 11 times more capacity than its existing one, according to a February report by global law firm Norton Rose Fulbright. And Colombia’s third-largest power generator, Isagen, which last year was taken over by Brookfield Renewable Energy Partners, has received environmental clearance to build two wind farms in the northernmost state of La Guajira, one of Latin America’s gustiest regions. By the Latin American reporting team of Mergermarket, a unit of the newly rebranded Acuris, with analytics by Elizabeth Lim in New York. The team includes Carlos Martinez in Bogota, Colombia; Bruna Maia Carrion in Sao Paulo; Adriana Curiel in Mexico City and Ana Toral in Santiago, Chile.