Wind companies still positive about Brazil

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Ilaria Valtimora
July 14, 2017
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This content is from our archive. Some formatting or links may be broken.
Wind companies still positive about Brazil

Businesses in Brazil have spent the last two years assailed by the country’s worst-ever recession. Even so, in 2016, wind farms of 2GW were completed in Brazil, making it the fourth-largest nation globally for total installations last year.

There remains an appetite to keep developing. In our first Finance Quarterly report, published on Tuesday in partnership with headline sponsor DNV GL, we identified that over 2GW of projects changed hands in Brazil in the three months ending in June.

In April, Brazilian utility AES Tietê Energia finalised the $193m acquisition of the 386MW Alto Sertao wind complex in the state of Bahia, from Renova Energia. In May, US investment firm First Reserve was reportedly in talks to acquire wind farms totalling 759MW from Brazilian energy company Queiroz Galvao Energy.

Finally, UK investor Actis bought two wind farms totalling 346MW from Brazilian developer Casa dos Ventos and unveiled plans to buy the 416MW of wind schemes that Spanish firm Gestamp owns in the country, for $762m. These purchases are for Actis’s second investment vehicle in Brazil, Echoenergia, established in May.

How do we explain the activity that we saw in the last quarter?

First, it shows a continued willingness by key developers to recycle capital so they can keep building. Renova, Quieroz Galvao and Casa dos Ventos have talked about selling projects since last year, in order to extract the capital needed to invest in the construction of new projects. And, for the buyers, it shows they still see the value in buying operational projects in this key South American market.

Second, it follows improvements in the economy.

Brazil has spent the last two years in recession, with GDP growth down 3.8% and 3.6% in 2015 and 2016 respectively. As a consequence, demand for electricity fell 0.9% in 2016, and led the Brazilian government to scrap its auction for new wind capacity.

However, the country’s GDP growth rate was 1% on a quarter-over-quarter basis in the first three months of 2017 and a similar figure is expected for the second quarter. This is consistent with the International Monetary Fund forecasting that Brazil’s economy should grow up to 0.7% in 2017 - its first positive result in three years - and 1.4% in 2018.

It has been a tough few years for developers, but improvements in the economy suggest that there are development opportunities for those who have hung in there; and the fact they have successfully sold projects suggests that buyers believe that energy demand is there for the projects to generate stable returns.

Also, the central bank has cut its benchmark interest rate by 4% since October, and this sits now at 10.25%, with further cuts expected until it reaches 8.25% by December. For wind investors and developers, this means that is now cheaper securing credit to finance construction projects.

Of course, this doesn’t mean that the country has become a safe haven for investors all of a sudden. Brazil has still some challenges to face, the largest of them political.

Brazi's President Michel Temer is implicated in a corruption scandal for allegedly discussing bribes with a businessman, and the lower house of Congress is set to vote this month on whether he should face trial for corruption. Political uncertainty of this kind could yet harm the economy and discourage wind investors.

Brazil’s government also has to find a solution to encourage the development of new wind projects in the country. In March, it announced a reverse auction to be held in July where developers could terminate any contracts awarded in previous auctions, if the scheme was no longer viable, to then re-tender the capacity in an auction in September. But the government has indicated that this plan has changed.

Deputy energy minister Paulo Pedrosa said in a conference at Sao Paulo this month that it is impossible to guess when Brazil will resume licensing for wind projects.

There are reasons to be positive. Improvements in the economy should shore up energy demand, and give the government the confidence to start tending once more. But whether this deal activity is a short-term spike in activity or a long-term trend, we’ll find out in our next Finance Quarterly report on 10th October.

Businesses in Brazil have spent the last two years assailed by the country’s worst-ever recession. Even so, in 2016, wind farms of 2GW were completed in Brazil, making it the fourth-largest nation globally for total installations last year.

There remains an appetite to keep developing. In our first Finance Quarterly report, published on Tuesday in partnership with headline sponsor DNV GL, we identified that over 2GW of projects changed hands in Brazil in the three months ending in June.

In April, Brazilian utility AES Tietê Energia finalised the $193m acquisition of the 386MW Alto Sertao wind complex in the state of Bahia, from Renova Energia. In May, US investment firm First Reserve was reportedly in talks to acquire wind farms totalling 759MW from Brazilian energy company Queiroz Galvao Energy.

Finally, UK investor Actis bought two wind farms totalling 346MW from Brazilian developer Casa dos Ventos and unveiled plans to buy the 416MW of wind schemes that Spanish firm Gestamp owns in the country, for $762m. These purchases are for Actis’s second investment vehicle in Brazil, Echoenergia, established in May.

How do we explain the activity that we saw in the last quarter?

First, it shows a continued willingness by key developers to recycle capital so they can keep building. Renova, Quieroz Galvao and Casa dos Ventos have talked about selling projects since last year, in order to extract the capital needed to invest in the construction of new projects. And, for the buyers, it shows they still see the value in buying operational projects in this key South American market.

Second, it follows improvements in the economy.

Brazil has spent the last two years in recession, with GDP growth down 3.8% and 3.6% in 2015 and 2016 respectively. As a consequence, demand for electricity fell 0.9% in 2016, and led the Brazilian government to scrap its auction for new wind capacity.

However, the country’s GDP growth rate was 1% on a quarter-over-quarter basis in the first three months of 2017 and a similar figure is expected for the second quarter. This is consistent with the International Monetary Fund forecasting that Brazil’s economy should grow up to 0.7% in 2017 - its first positive result in three years - and 1.4% in 2018.

It has been a tough few years for developers, but improvements in the economy suggest that there are development opportunities for those who have hung in there; and the fact they have successfully sold projects suggests that buyers believe that energy demand is there for the projects to generate stable returns.

Also, the central bank has cut its benchmark interest rate by 4% since October, and this sits now at 10.25%, with further cuts expected until it reaches 8.25% by December. For wind investors and developers, this means that is now cheaper securing credit to finance construction projects.

Of course, this doesn’t mean that the country has become a safe haven for investors all of a sudden. Brazil has still some challenges to face, the largest of them political.

Brazi's President Michel Temer is implicated in a corruption scandal for allegedly discussing bribes with a businessman, and the lower house of Congress is set to vote this month on whether he should face trial for corruption. Political uncertainty of this kind could yet harm the economy and discourage wind investors.

Brazil’s government also has to find a solution to encourage the development of new wind projects in the country. In March, it announced a reverse auction to be held in July where developers could terminate any contracts awarded in previous auctions, if the scheme was no longer viable, to then re-tender the capacity in an auction in September. But the government has indicated that this plan has changed.

Deputy energy minister Paulo Pedrosa said in a conference at Sao Paulo this month that it is impossible to guess when Brazil will resume licensing for wind projects.

There are reasons to be positive. Improvements in the economy should shore up energy demand, and give the government the confidence to start tending once more. But whether this deal activity is a short-term spike in activity or a long-term trend, we’ll find out in our next Finance Quarterly report on 10th October.

Businesses in Brazil have spent the last two years assailed by the country’s worst-ever recession. Even so, in 2016, wind farms of 2GW were completed in Brazil, making it the fourth-largest nation globally for total installations last year.

There remains an appetite to keep developing. In our first Finance Quarterly report, published on Tuesday in partnership with headline sponsor DNV GL, we identified that over 2GW of projects changed hands in Brazil in the three months ending in June.

In April, Brazilian utility AES Tietê Energia finalised the $193m acquisition of the 386MW Alto Sertao wind complex in the state of Bahia, from Renova Energia. In May, US investment firm First Reserve was reportedly in talks to acquire wind farms totalling 759MW from Brazilian energy company Queiroz Galvao Energy.

Finally, UK investor Actis bought two wind farms totalling 346MW from Brazilian developer Casa dos Ventos and unveiled plans to buy the 416MW of wind schemes that Spanish firm Gestamp owns in the country, for $762m. These purchases are for Actis’s second investment vehicle in Brazil, Echoenergia, established in May.

How do we explain the activity that we saw in the last quarter?

First, it shows a continued willingness by key developers to recycle capital so they can keep building. Renova, Quieroz Galvao and Casa dos Ventos have talked about selling projects since last year, in order to extract the capital needed to invest in the construction of new projects. And, for the buyers, it shows they still see the value in buying operational projects in this key South American market.

Second, it follows improvements in the economy.

Brazil has spent the last two years in recession, with GDP growth down 3.8% and 3.6% in 2015 and 2016 respectively. As a consequence, demand for electricity fell 0.9% in 2016, and led the Brazilian government to scrap its auction for new wind capacity.

However, the country’s GDP growth rate was 1% on a quarter-over-quarter basis in the first three months of 2017 and a similar figure is expected for the second quarter. This is consistent with the International Monetary Fund forecasting that Brazil’s economy should grow up to 0.7% in 2017 - its first positive result in three years - and 1.4% in 2018.

It has been a tough few years for developers, but improvements in the economy suggest that there are development opportunities for those who have hung in there; and the fact they have successfully sold projects suggests that buyers believe that energy demand is there for the projects to generate stable returns.

Also, the central bank has cut its benchmark interest rate by 4% since October, and this sits now at 10.25%, with further cuts expected until it reaches 8.25% by December. For wind investors and developers, this means that is now cheaper securing credit to finance construction projects.

Of course, this doesn’t mean that the country has become a safe haven for investors all of a sudden. Brazil has still some challenges to face, the largest of them political.

Brazi's President Michel Temer is implicated in a corruption scandal for allegedly discussing bribes with a businessman, and the lower house of Congress is set to vote this month on whether he should face trial for corruption. Political uncertainty of this kind could yet harm the economy and discourage wind investors.

Brazil’s government also has to find a solution to encourage the development of new wind projects in the country. In March, it announced a reverse auction to be held in July where developers could terminate any contracts awarded in previous auctions, if the scheme was no longer viable, to then re-tender the capacity in an auction in September. But the government has indicated that this plan has changed.

Deputy energy minister Paulo Pedrosa said in a conference at Sao Paulo this month that it is impossible to guess when Brazil will resume licensing for wind projects.

There are reasons to be positive. Improvements in the economy should shore up energy demand, and give the government the confidence to start tending once more. But whether this deal activity is a short-term spike in activity or a long-term trend, we’ll find out in our next Finance Quarterly report on 10th October.

Businesses in Brazil have spent the last two years assailed by the country’s worst-ever recession. Even so, in 2016, wind farms of 2GW were completed in Brazil, making it the fourth-largest nation globally for total installations last year.

There remains an appetite to keep developing. In our first Finance Quarterly report, published on Tuesday in partnership with headline sponsor DNV GL, we identified that over 2GW of projects changed hands in Brazil in the three months ending in June.

In April, Brazilian utility AES Tietê Energia finalised the $193m acquisition of the 386MW Alto Sertao wind complex in the state of Bahia, from Renova Energia. In May, US investment firm First Reserve was reportedly in talks to acquire wind farms totalling 759MW from Brazilian energy company Queiroz Galvao Energy.

Finally, UK investor Actis bought two wind farms totalling 346MW from Brazilian developer Casa dos Ventos and unveiled plans to buy the 416MW of wind schemes that Spanish firm Gestamp owns in the country, for $762m. These purchases are for Actis’s second investment vehicle in Brazil, Echoenergia, established in May.

How do we explain the activity that we saw in the last quarter?

First, it shows a continued willingness by key developers to recycle capital so they can keep building. Renova, Quieroz Galvao and Casa dos Ventos have talked about selling projects since last year, in order to extract the capital needed to invest in the construction of new projects. And, for the buyers, it shows they still see the value in buying operational projects in this key South American market.

Second, it follows improvements in the economy.

Brazil has spent the last two years in recession, with GDP growth down 3.8% and 3.6% in 2015 and 2016 respectively. As a consequence, demand for electricity fell 0.9% in 2016, and led the Brazilian government to scrap its auction for new wind capacity.

However, the country’s GDP growth rate was 1% on a quarter-over-quarter basis in the first three months of 2017 and a similar figure is expected for the second quarter. This is consistent with the International Monetary Fund forecasting that Brazil’s economy should grow up to 0.7% in 2017 - its first positive result in three years - and 1.4% in 2018.

It has been a tough few years for developers, but improvements in the economy suggest that there are development opportunities for those who have hung in there; and the fact they have successfully sold projects suggests that buyers believe that energy demand is there for the projects to generate stable returns.

Also, the central bank has cut its benchmark interest rate by 4% since October, and this sits now at 10.25%, with further cuts expected until it reaches 8.25% by December. For wind investors and developers, this means that is now cheaper securing credit to finance construction projects.

Of course, this doesn’t mean that the country has become a safe haven for investors all of a sudden. Brazil has still some challenges to face, the largest of them political.

Brazi's President Michel Temer is implicated in a corruption scandal for allegedly discussing bribes with a businessman, and the lower house of Congress is set to vote this month on whether he should face trial for corruption. Political uncertainty of this kind could yet harm the economy and discourage wind investors.

Brazil’s government also has to find a solution to encourage the development of new wind projects in the country. In March, it announced a reverse auction to be held in July where developers could terminate any contracts awarded in previous auctions, if the scheme was no longer viable, to then re-tender the capacity in an auction in September. But the government has indicated that this plan has changed.

Deputy energy minister Paulo Pedrosa said in a conference at Sao Paulo this month that it is impossible to guess when Brazil will resume licensing for wind projects.

There are reasons to be positive. Improvements in the economy should shore up energy demand, and give the government the confidence to start tending once more. But whether this deal activity is a short-term spike in activity or a long-term trend, we’ll find out in our next Finance Quarterly report on 10th October.

Businesses in Brazil have spent the last two years assailed by the country’s worst-ever recession. Even so, in 2016, wind farms of 2GW were completed in Brazil, making it the fourth-largest nation globally for total installations last year.

There remains an appetite to keep developing. In our first Finance Quarterly report, published on Tuesday in partnership with headline sponsor DNV GL, we identified that over 2GW of projects changed hands in Brazil in the three months ending in June.

In April, Brazilian utility AES Tietê Energia finalised the $193m acquisition of the 386MW Alto Sertao wind complex in the state of Bahia, from Renova Energia. In May, US investment firm First Reserve was reportedly in talks to acquire wind farms totalling 759MW from Brazilian energy company Queiroz Galvao Energy.

Finally, UK investor Actis bought two wind farms totalling 346MW from Brazilian developer Casa dos Ventos and unveiled plans to buy the 416MW of wind schemes that Spanish firm Gestamp owns in the country, for $762m. These purchases are for Actis’s second investment vehicle in Brazil, Echoenergia, established in May.

How do we explain the activity that we saw in the last quarter?

First, it shows a continued willingness by key developers to recycle capital so they can keep building. Renova, Quieroz Galvao and Casa dos Ventos have talked about selling projects since last year, in order to extract the capital needed to invest in the construction of new projects. And, for the buyers, it shows they still see the value in buying operational projects in this key South American market.

Second, it follows improvements in the economy.

Brazil has spent the last two years in recession, with GDP growth down 3.8% and 3.6% in 2015 and 2016 respectively. As a consequence, demand for electricity fell 0.9% in 2016, and led the Brazilian government to scrap its auction for new wind capacity.

However, the country’s GDP growth rate was 1% on a quarter-over-quarter basis in the first three months of 2017 and a similar figure is expected for the second quarter. This is consistent with the International Monetary Fund forecasting that Brazil’s economy should grow up to 0.7% in 2017 - its first positive result in three years - and 1.4% in 2018.

It has been a tough few years for developers, but improvements in the economy suggest that there are development opportunities for those who have hung in there; and the fact they have successfully sold projects suggests that buyers believe that energy demand is there for the projects to generate stable returns.

Also, the central bank has cut its benchmark interest rate by 4% since October, and this sits now at 10.25%, with further cuts expected until it reaches 8.25% by December. For wind investors and developers, this means that is now cheaper securing credit to finance construction projects.

Of course, this doesn’t mean that the country has become a safe haven for investors all of a sudden. Brazil has still some challenges to face, the largest of them political.

Brazi's President Michel Temer is implicated in a corruption scandal for allegedly discussing bribes with a businessman, and the lower house of Congress is set to vote this month on whether he should face trial for corruption. Political uncertainty of this kind could yet harm the economy and discourage wind investors.

Brazil’s government also has to find a solution to encourage the development of new wind projects in the country. In March, it announced a reverse auction to be held in July where developers could terminate any contracts awarded in previous auctions, if the scheme was no longer viable, to then re-tender the capacity in an auction in September. But the government has indicated that this plan has changed.

Deputy energy minister Paulo Pedrosa said in a conference at Sao Paulo this month that it is impossible to guess when Brazil will resume licensing for wind projects.

There are reasons to be positive. Improvements in the economy should shore up energy demand, and give the government the confidence to start tending once more. But whether this deal activity is a short-term spike in activity or a long-term trend, we’ll find out in our next Finance Quarterly report on 10th October.

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Full archive access is available to members only

Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.