Actis changes route but stays on growth path to 1.5GW in Brazil

IN DEPTH | The tender programme may have stalled but Actis's evolving strategy has propelled it into Brazil's wind power big league, writes Alexandre Spatuzza

When UK private equity firm Actis first started investing in Brazil in 2013, the road to expansion stretched clear ahead through bidding in government tenders.

But since 2015, M&A has supplanted Brazil’s stalled tender process as the route to growth, and the British company was quick to take this new opportunity, which catapulted it to the Brazilian big league in terms of contracted and operating wind and solar assets.

Its latest deal will be the acquisition of around 500MW of wind assets from Spain’s Gestamp in Brazil, Sérgio Brandão, energy director at Actis’ Brazil unit, told Recharge.

“During the tumultuous period before [President Rousseff was being impeached], we went shopping, buying from companies who were in some kind of trouble or were discouraged by the problems in Brazil,” he said.

By the end of the year, Actis’ three renewable energy investment vehicles – Atlantic Energias Renováveis, Atlas and the recently-created Echoenergia – should own close to 1GW of operating or close-to-completion projects with long-term PPAs.

“We are very optimistic about Brazil,” he said on the same day that the power regulator was clearing 9MW of wind turbines for commercial operations, part of Atlantic’s 207MW Santa Vitória do Palmar complex in Southern Brazil.

Brazil’s wind sector looks at the non-regulated market as auctions dwindle

Read more

Growth in Brazil’s renewable energy sector has come three ways for Actis.

Its first move was the 2013 acquisition of a 60% controlling block in Atlantic Energias Renováveis, which ended in a 100% take over at the end of last year, by when the company was already operating 240MW and building another 402MW.

The investment in Atlantic came via the Actis Energy Fund 3, which raised $1.4bn among sovereign funds, institutional and private investors in Europe and the US willing to take on risk to obtain high returns in emerging energy markets. Of that, about 27% ended up in renewable energy ventures in Brazil, said Brandão.

“Energy for us is renewables, natural gas – when it’s clean – and hydro only when there is no geological risk. So in Brazil it’s wind and solar,” he added.

Now Atlantic has 642MW in wind assets – and some 10MW of small hydro it inherited from the Atlantic which was created by a family business from southern Brazil – but has halted investments.

“Atlantic is valued, and now we have another six years until the end of the 10-year tenure when we will be preparing for divesting and obtain return for investors.”

"Other Latin American countries are less risky with their dollar-indexed PPAs, but Brazil is a big and important market"

Brandão is an engineer who built his career in the oil sector in Brazil and abroad before moving over to the financing sector to head Rio Bravo, another investment boutique in Rio de Janeiro that also invests in wind. He thinks Brazil is a risky country to invest in – so returns have to be high.

“Brazil is a complex country with a changing regulatory environment and there is a strong component of foreign exchange risk, which is only partly overcome by the indexation in the long PPAs,” he said. “Other Latin American countries are less risky with their dollar-indexed PPAs, but Brazil is a big and important market.”

The second opportunity for growth in Brazil came from abroad, when Actis bought PV assets from failing US renewables giant SunEdison. As well as projects in Chile and other Latin American countries, also gave Actis control of 220MW in stalled Brazilian solar projects with PPAs.

The company created Atlas Energias Renováveis – mirroring the global name – just to operate its solar investments, and is now building the three projects in the Northeastern state of Bahia that should be ready by 2019 when the 20-year PPAs will clock in.

The third growth avenue is Echoenergia. Created in 2017, the new Brazilian renewables company kicks off with 346MW of wind, which were acquired from local developer Casa do Ventos.

Echoenergia, which is headed by Edgard Corrochano, hired from Gamesa’s Brazilian unit, has money from the new $3bn Actis Energy 4 fund, which was launched last year, concluded in early 2017 – and could be even bigger than Atlantic.

“There is over double the amount of money in the Actis Energy 4, and investments in Brazil could account for 30%,” Brandão said.

With Atlantic concentrating on completing and operating wind assets, Echoenergia will be responsible for growth in the coming years.

Coffers full, Brazil's Casa dos Ventos gets ready for better days

Read more

Brandão predicts that with assets being studied for potential M&A, by 2021 Echoenergia could bring Actis's installed capacity to over 1.5GW in Brazil, mostly wind. That would put it side by side with CPFL Energias Renováveis – controlled by China’s State Grid – which now has 2.1GW of operating and near-completion assets, including 1.3GW of wind.

This does not include new PPAs that Actis is prepared to secure via tenders, whenever they restart in Brazil.

“If there is a tender this year, of course we’ll bid, but with discipline to guarantee minimum returns,” he said.

Brandão believes that government tenders are the only avenue of growth for greenfield projects in Brazil at the moment, because when the 20-year PPAs are combined with below-market-rate financing from the National Development Bank (BNDES), it’s possible to obtain a profit in the long term.

“In the non-regulated market contracts are too short because no large company will buy power for long-periods since there is instability in prices. They don’t want to get tied down for a long period of time,” he said.

But Brandão is sure the government will come around and restart tenders soon. Firstly because it needs to signal support to turbine makers in the country, and secondly because Brazil needs wind and other renewables to avoid switching on polluting thermoelectric power plants amid dwindling reservoirs of hydroelectric dams.

“Good policy dictates that contracting [through] tenders should continue,” he said.