Cheapest Wind Energy Spurring Renewables Deals: Corporate Brazil

January 29, 2013 by  
Filed under Green Energy News

Acquisitions of renewable-energy
companies in Brazil will rebound from a four-year low as wind-
farm developers seek buyers and European companies expand, the
industry’s biggest legal and financial merger advisers said.

Machado Meyer Sendacz Opice Advogados, the Sao Paulo-
based law firm that handled the most deals in the industry last
year, expects to double its deal count to 10 in 2013, said
Ricardo de Lima Assaf, a partner in the infrastructure
department. Grupo BTG Pactual SA (BBTG11), the world’s top financial
adviser on renewable-energy deals, also sees a rebound as
European developers turn to Brazil amid subsidy reductions at
home, said Vittorio Perona, a partner responsible for energy in
the lender’s investment banking department.

“We’re seeing more deals in execution by us and other
companies than this time last year,” Perona said in a telephone
interview from Sao Paulo. “The biggest driver of MA activity
will be wind.”

Brazil is in the early stages of a renewable-energy boom,
and most of its roughly 80 wind farms were built in the past
four years, Perona said. Consolidation will take place as it did
in the U.S. and Europe, he said. Iberdrola SA (IBE) of Spain and EON
SE of Germany already have made purchases in Brazil.

Needing Growth

Wind-energy developers in Brazil probably will need scale
to be profitable after agreeing to sell power for record low
rates at a December auction, Assaf said. That will help drive
mergers and acquisitions after deal volume in the industry fell
61 percent to $1.1 billion last year, the lowest since 2008,
according to data compiled by Bloomberg New Energy Finance.

Enerfin Sociedad de Energia SA, Renova Energia SA (RNEW11), EGP-
Serra Azul and Bioenergy Geradora de Energia Ltda. submitted the
lowest offers for power contracts in the Brazilian auction.
Bioenergy said it’s not looking for a buyer. Enerfin Sociedad de
Energia, Renova Energia and EGP-Serra Azul didn’t respond to
calls and e-mails seeking comment.

Prices for wind power have been steadily falling in
government auctions since 2009. Developers in the December
auction signed contracts to provide wind power at an average
87.94 reais ($43.94) per megawatt-hour, 13 percent less than the
rate in the 2011 sale and 41 percent less than the 2009 price,
according to the website of Brazil’s national energy agency
Empresa de Pesquisa Energetica.

Developer Goals

Developers bet they could produce energy more cheaply as
turbine-makers, struggling with a shortage of deals in other
parts of the world, cut prices of their equipment.

Utilities in Brazil may consider buying stakes in wind
developers to acquire expertise in the country’s rapidly
expanding wind market, Bruno Piagenteni, an analyst at Sao
Paulo-based Coinvalores brokerage, said in a telephone interview
from Sao Paulo yesterday.

“Projects have very tight margins of return,” Machado
Meyer’s Assaf said in telephone interview from Sao Paulo. “If
something unexpected happens, margins may go to zero. When that
happens, a project isn’t profitable and you have to turn to

Iberdrola, Spain’s biggest utility, is investing about 2.6
billion euros ($3.5 billion) on renewable energy over the two
years through 2014. Chairman Ignacio Sanchez Galan said in a
Dec. 2 interview in Doha that Brazil would be the second biggest
destination of that spending, after the U.K.

EON’s Position

EON, which is Germany’s biggest utility, agreed in April to
buy 10 percent of Brazilian billionaire Eike Batista’s MPX
Energia SA (MPXE3)
for about 850 million reais and formed a joint
venture to develop projects in South America, according to a
statement from EON on April 18.

The company didn’t immediately respond to e-mails and calls
from Bloomberg News seeking more information on the venture. EON
plans to develop 20 gigawatts of conventional and renewable-
energy capacity in Brazil, or 20 percent of total generation
capacity, through the venture.

Enel Green Power, the renewable-energy unit of Italy’s
largest utility Enel SpA (ENEL), said in March it planned to add 460
megawatts of wind capacity in Brazil by 2016. A press official,
who didn’t want to be named because of company policy, declined
to discuss current efforts in an e-mail today.

Smaller developers will struggle the most, said Arthur Lavieri, chief executive officer of India-based Suzlon Energy
Ltd. (SUEL)
’s Brazil unit. Large companies may have cheaper
construction costs, and will be able to operate wind farms at a
profit even if they are selling the power at low rates.

No Choice

“The prices of megawatt hours are coming to a point where
unless you have scale, it’s very difficult for you to achieve
results,” he said in an interview in the outskirts of Sao
Paulo. Some developers may decide that the prices they were
awarded at auctions were too low, fueling buyouts, he said.
“There are developers today that have no other choice.”

France’s GDF Suez (GSZ) has the potential to expand abroad
through its local Tractebel Energia SA (TBLE3) unit, BTG’s Perona said.
Tractebel officials declined to comment on whether the company
would consider buying wind projects.

The state-controlled utility Centrais Eletricas Brasileiras
didn’t respond to e-mailed inquiries.

Bioenergy Geradora, the Sao Paulo-based wind developer that
submitted one of the low bids in December, isn’t seeking to be
acquired, CEO Sergio Marques said in a telephone interview from
Sao Paulo. He said the wind farms will be completed and some of
the power plants in the company’s portfolio may be less
profitable than others.

Machado Meyer advised Norway-based SN Power during its
acquisition of 41 percent of Brazilian wind developer Desenvix
Energias Renovaveis SA. It also worked on CPFL Energias
Renovaveis SA’s purchase of BVP SA last year. BTG Pactual was
the financial adviser in both transactions.

Doubling Wind

Installation of wind power in Brazil has nearly doubled in
two years to about 1,800 megawatts, which is about 1.5 percent
of total grid capacity, Yayoi Sekine, an analyst at Bloomberg
New Energy Finance’s Sao Paulo office, said in an e-mail.

While acquisitions of smaller players are set to increase,
the prices reached in the December auction aren’t indicative of
where prices for wind power are going in Brazil, Elbia Melo,
executive president of the Sao Paulo-based wind-industry trade
group, Associacao Brasileira de Energia Eolica, said in a
telephone interview from Sao Paulo.

“Those prices don’t reflect the true cost of wind,” she
said. “Too many developers were competing for too few
contracts” to sell energy, which drove prices to unsustainably
low levels.

Buying developers and their pipeline of projects is easier
than developing projects from scratch, which requires three
years of wind measurements and environmental permits, Luiz
Gustavo Sant’Anna, director of Porto Alegre, Brazil-based
Renobrax Energias Renovaveis Ltda., said in a telephone
interview from Porto Alegre.

To contact the reporter on this story:
Stephan Nielsen in Sao Paulo at

To contact the editors responsible for this story:
Reed Landberg at;
Jessica Brice at

Enlarge image
Cheapest Wind Energy Spurring Renewables Deals

Cheapest Wind Energy Spurring Renewables Deals

Cheapest Wind Energy Spurring Renewables Deals

Adriano Machado/Bloomberg

Prices for wind power have been steadily falling in government auctions since 2009.

Prices for wind power have been steadily falling in government auctions since 2009. Photographer: Adriano Machado/Bloomberg

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