Opportunities, risks and challenges for investing in renewable energy in emerging markets

Workshop: Sustainable Investing in Emerging Markets

Agenda

• Where to invest in Renewable Energy in Emerging Markets

• Global Green Economy Index

• Opportunities in Renewable Energy

• Hydro

• Biomass

• Wind

• Solar

• Challenges and risks

• Finance

• Regulations

• Project Management

• Recommendations

• Risk management

• Financial Structures

• Local Partners

Global Green Economy Index Top 10 Emerging Markets

Perception Rank Performance Rank

China 13 Costa Rica 3

Costa Rica 14 Colombia 14

Brazil 15 Peru 16

India 16 Kenya 17

South Africa 22 Brazil 18

United Arab Emirates 25 Chile 19

Kenya 26 Uruguay 22

Malaysia 27 Mauritius 23

Mexico 28 Zambia 24

Indonesia 31 Ethiopia 26

Netherlands 5 Netherlands 21

Senegal 60 Mongolia 60 Source: Global Green Economy Index 2014; Dual Citizen LLC

• Approximately 10 Emerging Markets within Top 25 – 30 countries

• Better than or the same as countries like The Netherlands, UK and USA

• Costa Rica #3 in Performance

• Latin America and Africa top performers of emerging markets

• Performance of Emerging Markets is many times better than Perception

Global Green Economy Index Top 10 Emerging Markets

Country Highlights

Brazil Cleantech market and investment in renewables

Chile Avoiding deforestation and renewables

China Investments in green development

Colombia Renewable Energy, sustainable tourism, leadership green economy

Costa Rica Efficiency and preservation of natural capital

Kenya Low Carbon economy and green leadership

Mauritius Air quality and agriculture

Uruguay Low Carbon economy and renewables

Zambia Efficiency and renewables

Highlights of top emerging market performers

• Despite diversity in the reasons, Renewable Energy is one of the highlights of most of these countries

Opportunities for investments in Renewables

• Hydro

• Long tradition

• Long periods of river flow

measurements

• Large operational portfolios

• Infrastructure available

• Regulation, developers, suppliers, investors, financing

• Environmental licences follow rigid process

• Still huge potential

• Large (> 1,000 MW) and small (<30 MW) projects under development

• Need to filter out best projects and developers

• Biomass • Co-generation from residues

• Stable supply, reduced investment • Solves environmental problem • Chips from wood mills, rice husk • Suger cane bagasse

• Brazil has large installed capacity • Seasonality complements hydro plants • High leverage has reduced financial capacity for new investments

• Grown industrial biomass • Climate will be an advantage in many emerging markets • Stable long term supply is challenge • Technology may be challenge, sensitive for type of biomass • Eucalypt • New plants may require long approval process (elephant grass, algae)

• Infrastructure available • Partnerships between technology supplier, biomass provider and

investor/developer may be necessary

Opportunities for investments in Renewables - 2

• Wind

• Relatively new; strong growth

• Both under development and under construction

• In Brazil: good winds

• Usually only short periods of measurements available; may bring performance risk in the future

Opportunities for investments in Renewables - 3

• Construction risk relatively low

• Has become relatively cheap

• Availability of global suppliers guarantees low pricing

• Environmental licence process still relatively smooth

• New areas still to be explored in most emerging markets

• Solar

• Smart and connected grids

• Distributed generation

• Off shore wind

• Questions:

• Technology

• Sponsors

• Finance

• Subsidies

• Regulation

Opportunities for investments in Renewables - 4

Challenges for investing in emerging markets

• Financing

• Risk profile of most countries has improved over the years

• Wide variety in country ratings

• Chile AA- / Brazil BBB- / Costa Rica BB

• Multilateral agencies and development banks have strong interest in investing in renewable energy and infrastructure in emerging markets

• Project Finance and Turn Key are challenges

• Need for strong sponsors and corporate guarantees as residual risks remain

• Long term power supply agreements may be a challenge

• Regulations

• Regulations in emerging markets in general are complex

• Markets and frame works tend to be more volatile

• Close relationships with governmental bodies are vital

• Project & time management may be a great challenge due to

• Complex regulations

• Lack of trained staff at regulatory bodies

• Challenge to advance in regulatory, environmental, engineering, financing processes, all in parallel

Investors need to be prepared for all these challenges

Challenges for investing in emerging markets - 2

Recommendations Pay special attention to:

• Be optimistic about the opportunity – not about market conditions

• Long term investments in cyclical business

• Markets are volatile

• Be prepared for the unpredictable

• Risk management

• More than in other markets, special attention needs to be paid at risk management

• From early identification, problem solving to mitigation

• Design loop

• The most expensive power is the power that is not generated

Recommendations: pay special attention to

• Financing

• Pricing isn’t everything; vulnerability is!

• Changes always occur and tend to hit you at the worst moment

• Hedge down side in order to guarantee your loans can be paid off

• Prefer flexible structures that leave options open

• Longer tenors, or possibility for early repayment

• Interest depending on power prices

• Team up with local partners

• Local knowledge, experience, network and language skills

• Align interest, values, financial capacity, strategy

• Before you start and during the project

Thank you

Maurik Jehee

maurik.jehee@rboenergia.com.br

+ 55 31 3399-6841