M&A Renewables Activity in Chile September 11, 2013 Chilean - - PowerPoint PPT Presentation

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M&A Renewables Activity in Chile September 11, 2013 Chilean - - PowerPoint PPT Presentation

Nov 01, 2023 27 likes •201 views

M&A Renewables Activity in Chile September 11, 2013 Chilean International Renewable Energy Congress Allan T. Marks Partner Santiago, Chile Milbank, Tweed, Hadley & McCloy LLP Overview Chile in Context Current

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M&A Renewables Activity in Chile

September 11, 2013 Allan T. Marks Partner Milbank, Tweed, Hadley & McCloy LLP

Chilean International Renewable Energy Congress Santiago, Chile

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Overview

  • Chile in Context
  • Current Considerations
  • Looking Over the Horizon
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SECTION 1

Chile in Context

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Chile In Perspective

500 1000 1500 2000 2500

LatAm Renewables M&A Activity In 20 12

M&A Activity in US$ millions

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Chile In Perspective

2000 4000 6000 8000 10000 12000 14000

LatAm Non-Conventional Renewables Installed Capacity in 20 12

Installed Capacity in MW

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What has Opening of Chilean Market to Renewables Meant for M&A activity in Chile?

  • Significant Increase in Project Development
  • Non-Conventional Energy Resources’ (NCER) share of the national energy matrix has grown from 2.4%

in 2004 to 4% in 2011

  • NCER’s electricity output in July 2013 represented 6% of all output
  • Increased M&A Pipeline
  • $450 Million in M&A Activity in 2012
  • Greater investor interest in Chilean pipeline
  • Increased attention for Latin America
  • Helped by:
  • Significant decrease in equipment costs
  • Some NCER sources achieving grid parity
  • Inexpensive financing
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Non-Conventional Renewable Energy Installed Capacity

Source: CER

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SECTION 2

Current Considerations

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Growth Drivers for Non-Conventional Renewables

  • Government Regulation Opens the Door for More Equal Footing for Non-Conventional

Renewables

  • Mandated open access to the grid
  • Renewable portfolio standard of 10% by 2020 being raised to 20% by 2025
  • Flexibility for large consumers to negotiate offtake arrangements
  • Uniquely Suited to Incorporate Non-Conventional Renewable Resources
  • Significant wind, solar, geothermal, and wave resources
  • Hydrocarbon production deficit
  • Steady growth in energy demand along with a long-term steady growth in the economy
  • Large mining consumers in the north with a need for locally produced energy and a reduced carbon

footprint

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Key Legal Considerations

  • Legal Constraints to Pipe Flow
  • Permit processing times and uncertainty around qualification
  • Financing Considerations:

– Difficulty for lenders to obtain a security interest in local accounts – Difficulty for non-bank foreign lenders to qualify for reduced interest withholding rate – Perfection of security interest in project assets is elaborate by comparison to

  • ther markets
  • Land rights acquisition process can be cumbersome
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Key Market Considerations

  • Energy Market Constraints
  • Insufficient transmission capacity between load centers and the remote locations

ideal for renewable energy projects

  • Investor appetite for long-term unhedged energy price fluctuation?
  • Offtaker appetite for long-term offtake commitments at fixed pricing?
  • Cash flow from spot sales may be impacted by system operator payment process
  • Access to Financing
  • Local bank market is efficient but has limited capacity
  • Many banks lack experience with wind and solar projects and with non-recourse

project financing generally

  • Long term bond financing not a viable option
  • Intercreditor issues and challenges for offshore financing
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External Considerations

  • Increased Competition for Investment
  • Mature renewable energy sources attract investment in other Latin American countries, including Mexico

and Brazil

  • Reduced gas prices exert downward pressure on electricity prices outside Chile
  • M&A Trends in the Short Run
  • Firms may seek to consolidate
  • Cash-strapped developers may be acquired or may sell projects under development to developers with

stronger balance sheets

  • Future M&A activity depends on a healthy pipeline of projects today
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SECTION 3

Looking Over the Horizon

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Looking Over the Horizon

  • Healthy Development Pipeline, Which Should Result in Increased M&A Activity in the Future
  • 4,227 MW of NECR capacity under environmental review
  • 8,620 MW of NECR capacity approved, pending construction
  • 416 MW of NECR in construction
  • Low NECR Prices Should Fuel Growth
  • Wind energy prices already close to grid parity
  • Some projects benefiting from energy hedging rather than PPAs
  • Downward trend in equipment cost, particularly in Solar PV
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Looking Over the Horizon (cont.)

  • Demand Should Remain Strong
  • Development has yet to catch up with RPS requirements
  • Overall long-term economic growth is predicted
  • Long term copper prospects remain strong and medium term pressure on mining costs provides incentives

for investment in renewable energy serving mines

  • US Tax Credits Expiring and European Feed-In Tariffs Cut Backs Should Free Up Investment

Resources Looking for Alternative Income Sources

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Speaker Biography

Allan Marks is a partner in the Los Angeles office of Milbank, Tweed, Hadley & McCloy and a member of the firm’s Project Finance Group and Latin America Practice Group. He joined the firm in 1990. Prim ary Focus & Experience

  • Mr. Marks routinely represents developers, investors, lenders, and underwriters in the

development and financing of complex infrastructure projects worldwide, with special expertise in the energy, infrastructure and transportation sectors. He has participated in numerous project financings, acquisitions, restructurings, securities offerings and private placements for a variety of sophisticated institutional clients. He speaks and publishes frequently on renewable energy, public-private partnerships, cross-border financing issues, infrastructure investments, deregulation and emerging markets. Mr. Marks has worked on transactions throughout Asia, Europe and the Americas.

Allan T. Marks

+1-213-892-4376 amarks@milbank.com

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