Mexico has seriously upped its renewable energy generation in the past few years. Committed to diversifying its energy matrix and reducing its dependence on fossil fuels, the country has great potential for wind and solar projects, especially in regions such as Baja California, Sonora, Oaxaca, and Yucatan.

Since the energy market was opened up in 2013, competition in generation, transmission, and distribution has resulted in significant investment and today Mexico is home to the largest solar park in the Americas (Villanueva) and the largest wind farm in Latin America (Renosa).

Even with the various changes the country is facing, including an aging transmission network struggling to cope with rising demand, and regulatory uncertainty in a volatile political landscape, the new nearshoring trend is making Mexico even more attractive to foreign investors and experts are optimistic about the future.

The M&A Community hosted an online roundtable, chaired by Óscar Parra of Helm Investment Bank, to discuss the opportunities and challenges posed by the rapid evolution of Mexico’s energy sector.

What is the state of Mexico’s transmission infrastructure, and what requirements do you see going forward for the development of new renewable energy projects?

Horacio de Uriarte:

The energy reforms of 2013-14 gave the Federal Electricity Commission (CFE) a monopoly over transmission lines to ensure orderly growth, but with open access managed by the National Center for Energy Control (CENACE). It was envisaged that CFE would use various mechanisms, such as public-private partnerships, to attract private investment to fund expansion.

However, in 2018 the incoming federal administration canceled the bids for two new transmission lines: one connecting two isolated systems in Baja California to the national grid and another intended to transport wind energy from the Isthmus of Tehuantepec to the middle of the country.

So, the legal framework is there, but there has been no growth and very little investment.

Luis Manuel Quero:

I agree, and this is fast becoming one of the biggest challenges for Mexico’s energy sector. The aging infrastructure has led to network failures and blackouts in many parts of the country which are adversely affecting not only businesses but also households and the public sector. The trend for nearshoring is also increasing demand for energy.

Mexico urgently needs more investment and some innovative solutions and policies to promote energy efficiency and responsible resource use, which will require more cooperation between the public and private sectors.

Carlos Marrón:

Also, Mexico’s transmission system is based on old technologies and outdated power plants with a very high carbon footprint and it is not responsive to demand-side fluctuations. We need to amend the regulations to deliver what we need now, but without sacrificing network reliability and electricity quality.

Horacio de Uriarte:

I’d like to say that the tools are there, but they aren’t. The Energy Ministry issued a medium to long-term plan in 2020, the PRODESEN, but it doesn’t really offer opportunities for the private sector.

As well as new tools such as batteries and energy storage, Mexico needs improvements in smart grids and new networks and lines. What frustrates me is why CFE and CENACE don’t just say, “Let’s have a competition and see who can provide us with these tools and help us modernize.”

Plus, CFE ought to be making a profit from the transmission lines, so why aren’t they?

Lastly, the new guidelines for applying for generation permits seem to have been expressly designed to exclude private investors.

Óscar Parra:

We can also see that other countries such as Spain have strengthened their transmission and distribution systems to cope with intermittent generation sources like solar and wind. If Mexico wants to meet its renewable or clean energy generation goals, it will need to do the same.

What risks have you identified from a social perspective, particularly concerning permits and licenses?

Horacio de Uriarte:

There is an established process for developing a project and one of the key obstacles we’ve encountered is getting a decision on the social impact assessment: the analysis of direct and indirect impacts of a project on communities. This has to be approved before you can ask for a generation permit and at the moment such determinations are only being issued for projects that have unequivocal support from the Government and the President.

The Energy Commission’s new rules for requesting generation permits are rather opaque, but other environmental permits, such as water and crossings, are being granted.

Real estate rights have always been a complex issue in Mexico but in my experience, if the processes are followed correctly they are not a problem.

Carlos Marrón:

I can’t overstate how important it is to have a good relationship with the local community throughout the development and operation of a project, ideally ensuring their support for future development in the area. You particularly want to deflect the “not in my backyard” mentality.

We are also seeing renewed interest, including from multinationals. Because fundamentally the things that make Mexico attractive – size of population, carbon footprint, a diversified and industrialized economy – have not changed.

And what are the challenges when it comes to the environmental aspect?

Luis Manuel Quero:

From the developer’s point of view, it has been very difficult to implement projects in recent years despite Mexico’s great potential for renewables development. The Government’s position has created so much uncertainty that the market is currently at a standstill. So, I think what we need most is legal and regulatory stability.

The good news is that things are looking up. The CFE and CENACE are back in operation after COVID-19, providing greater certainty which is bringing developers back to the Mexican market.

As we see it, whoever wins next year’s election cannot let the energy sector continue to stagnate while demand increases.  

Horacio de Uriarte:

I was going to say the same. We have clients already acquiring real estate rights, initiating interconnection procedures with CENACE, and obtaining what permits they can. They are also working on large projects involving innovative technologies like green hydrogen.

Somebody said that even a 5% increase in flexibility would lead to a 100% improvement on where we are today. So, there is optimism in the market that development and greenfield projects are going to resume.

Luis Manuel Quero:

Mexico has always been a key market for our company. So, while waiting for more regulatory certainty we’ve concentrated on securing land near substations and nodes, carrying out hydrology and feasibility studies, and acquiring those permits that we could.

What alternatives do you see now for project financing?

Carlos Marrón:

Development costs are all increasing globally. Demand for equipment is high and there are widespread supply issues. Interconnection costs have also risen, while energy prices are falling. Margins are getting tighter; when you add global inflation and higher interest rates, it becomes increasingly difficult to close the gap between costs and revenue.

Because there has been so little construction financing in Mexico in recent years we’ve not really had to deal with this yet and I think it will be a challenge. But there are structuring options available and innovative ways to capture revenue streams for unconventional renewable technologies and hybrid developments.

Luis Manuel Quero:

Recent interest rate hikes have definitely impacted project profitability, but it’s manageable. In Mexico, the project financing market has been stagnant for several years, with few projects to finance, and regulatory instability making potential investors more cautious. But once there is more certainty and regulatory stability, this will change.

Horacio de Uriarte:

Project finance for new renewable projects barely exists at the moment because the banks are asking for corporate guarantees, but there is still a lot of interest in M&As for projects that are already operational.

Is there an appetite from banks and even developers to access credit lines with these interest rates?

Horacio de Uriarte:

I would say that the banks are very interested in financing brownfield projects that are already approved and in operation but they are still wary of greenfield projects.

Carlos Marrón:

I think that once things pick up, we will find that delays will also have added to development costs and both land and the interconnection process are now more expensive.

There will need to be economic innovation, perhaps moving away from bilateral PPAs and looking to international carbon bond markets for new revenues?

What can Mexico expect after the presidential elections next year?

Horacio de Uriarte:

None of us has a crystal ball, but there is some optimism because the next administration will have to take a pragmatic approach. Power outages have been increasing, while demand has been growing year on year, even without the challenges of nearshoring. This cannot continue.

Luis Manuel Quero:

I totally agree. There will be improvements, regardless of which party or which president wins.

Nearshoring is already a reality in Mexico, arguably the next most significant opportunity after the North American Free Trade Agreement. But for Mexico to take full advantage of this trend, the country needs a government that will drive productivity, eliminate bureaucratic hurdles, address regional security issues and establish a stable legal and regulatory framework to protect both domestic and international investors. 

On the plus side, Mexico benefits from its geographic location, multilingual workforce and lower operational costs, as well as a favorable regulatory framework and free trade agreements with the United States and Canada, not to mention tax incentives and double taxation treaties with numerous European countries. This makes Mexico a very attractive destination.

Carlos Marrón:

This potential transformation is particularly exciting for the northern part of the country, which has world-class solar resources that had lost some of their appeal and could now be exploited to their full potential.

Horacio de Uriarte:

Indeed, because nearshoring and clean energy go hand in hand. Companies are coming to Mexico actively seeking green energy sources, and looking for distributed generation or utilities with traceability to prove that they are using clean energy.

I have no doubt that Mexico will experience a new boom in renewable and clean energy, driven by the nearshoring trend.

Q&A Session

The event was followed by a Q&A section where our experts responded to various questions put by the audience.

There have been various news articles about electricity generation, for instance nuclear power stations with thorium and molten salt reactors. Does this count as clean energy in Mexico?

Horacio de Uriarte:

Yes, Mexican legislation does class nuclear as clean energy. But nuclear power generation is restricted to the CFE.

Are there any restrictions or special conditions for repatriating capital and dividends in Mexico?

Carlos Marrón:

Very few at an international level; Mexico is one of the most foreign-friendly countries in that regard. Even when it comes to tax agreements, I would say there are very few, if any, restrictions, or special conditions.

What do you think of the CFE’s recently announced transmission project? How much interest do you believe they can generate in the market, considering the current conditions?

Luis Manuel Quero:

The projects announced by CFE don’t go far enough. More investment and network reinforcement is needed, and at the moment, this is not happening. So, I believe that there will be public-private cooperation in the years to come to ensure sufficient investment.

Why, if there is so much demand, isn’t there significant investment? Is this a political or regulatory issue regarding transmission line saturation?

Horacio de Uriarte:

We have a regulatory framework that is friendly to private investment and cooperation between the public and private sectors. Since the CFE has a monopoly of the transmission lines, it has all the tools to forge public-private partnerships so the private sector can build and finance lines that would eventually be owned by the FCE. But the two projects arranged towards the end of Enrique Peña Nieto’s presidency were canceled by the current administration and the only current transmission line projects are being publicly funded.

What are the consequences of not meeting the commitments in the energy development plans, such as PRODECEN?

Horacio de Uriarte:

Essentially, none. The plans issued by the Energy Ministry are intended to provide clarity and predictability to the sector and potential investors but they are not public policy.

However, while there may be no legal consequences, the private sector relies on these plans, especially the PRODECEN, which provides detailed information about where new transmission lines will be built or reinforced. So if proposed developments fall through because lines are not built/upgraded as outlined, private investors will lose confidence, deterring them from future investments.

The regions of Baja California and Yucatan are expected to implement clean generation technologies. What are the technical parameters for this?

Carlos Marrón:

Technical requirements do vary with geography so there are different opportunities in different regions. For instance deciding to go for storage or play with exposure to the local marginal price, injecting energy at the real-time price rather than seeking a long-term PPA, can make more or less sense depending on location, but the regulation and laws, as well as the technical framework, are the same.

Do you think desalination plants combined with wind energy, aside from the CAPEX, are feasible with this government?

Luis Manuel Quero:

As far as I know, there are no desalination plants in Mexico but I’m not aware of any significant barriers to other types of power plants, desalination, or water reuse facilities in this administration’s energy sector agenda. So, from a regulatory perspective, setting up desalination plants in Mexico would be possible. The country does have significant water shortages, particularly in the northern regions.

How do you see the application of incentives to boost the entry of renewables into the market, similar to what’s happening in Colombia with smaller plants and in Chile with stabilized prices for small to medium-scale generation?

Carlos Marrón:

Both regimes have excellent regulatory frameworks. The PMGDs in Chile have been tremendously successful, not only in terms of their impact on the local system but also in the international financial market.

I believe that one quick and easy measure for Mexico would be to raise the 500kW cap on distributed generation. Also, providing clarity on how batteries can participate in the power system is crucial. Mexico’s energy strategy needs to include energy storage rather than just relying on centralized generation with extensive transmission lines.

A brighter future

Mexico’s energy sector has been struggling to meet growing demand, even without the added pressure from nearshoring.

In spite of an open market and a commitment to renewables, in recent years proposals for new transmission lines and renewables projects have stalled because of political uncertainty and delays in issuing permits. But this is set to change: experts believe that whoever wins next year’s elections will see the energy sector as a priority and take the necessary steps to improve capacity and exploit clean energy sources.

There will undoubtedly be great opportunities in the coming years, particularly for companies wanting to invest in distributed generation or utilities with traceability to back up their green credentials.

The energy industry is going through a structural transformation, influenced by geopolitical events and dramatic climate changes. Russia’s invasion of Ukraine, for instance, causing a major disruption in the energy supply responsible for raising average costs: Europe saw an increase more than double if compared to 2019 levels, India’s prices are up 80%, and Japan’s more than 30%. 

How is the energy market going to evolve? What technologies will have a predominant role in the immediate and remote future? What will be the main drivers in terms of investments in the energy sector?

Farley Pereira, Venture Capitalist at VOX Capital, has shared his interesting ideas on the evolution of the energy industry which, from his perspective, has many points in common with the Internet. Let’s see how.

The transformation of the energy industry

The entire energy industry is going through a moment of inflection. The power grid value chain is being redesigned at an unmatched pace, and its volatility (driven by advances in the production of renewable energy and the reduction in the share of fossil fuels) has been increasing creating a scenario of competitive intensity never before witnessed by the industry.

A new energy industry is emerging, based on distributed energy resources (DERs), that produces energy supply and controls demand, whose competitiveness increases every year as technological developments lower the unit cost of production.

The American market is a good example of the transformational moment for the energy industry as a whole exemplified by the following trends:

1. Increased participation of solar energy in the energy matrix and dissemination of the distributed solar energy generation model.

2. Diffusion of distributed generation and advances in energy storage technology, bringing more resilience to the market.

3. Diffusion of electric vehicles, impacting the current configuration of energy consumption balance.

These technological changes have inevitably created space for numerous new business model configurations taking advantage of the restructuring of the energy market value chain.

A decentralized model

The electrical grid infrastructure of the future will slowly abandon the concepts of centralized generation and demand management by an energy operator as we know today. It will be a decentralized environment with millions of intersections between generators and consumers, balancing the flow of energy in real time. In a way, it will be very similar to a network of nodes, just like the Internet.

This new network configuration demands the emergence of a tech stack that helps deliver the full potential of new technologies. It is exactly with this tech stack vision that we base our investment thesis in the market. Let’s take a look at what changes the market might experience…


Energy providers are not usually known for providing a pleasant end-customer experience. The application layer – an abstraction layer that specifies the shared communication protocols and interface methods used by hosts in a communications network – presents a great opportunity for improving UX/UI aimed at engaging end consumers and companies.

The browser was perhaps the first application, in business terms, to embrace and deliver the potential of the Internet. It really impacted the financial vision of how that technology could be used. We believe that a substantial part of the value of the new configuration of the energy value chain will be captured by applications.


The deregulation of energy markets, or simply put, the ease of consumption as a direct consequence of global market opening, activates a very basic need in mass consumers who find themselves deprived of the opportunity to participate in the market.

With the opening of the market comes the possibility of creating different energy plans for consumers. However, the volatility of consumption and supply makes it super risky for consumers to choose to be directly in control of their energy supply. As a consequence, it is very likely that analytics companies working on structuring energy consumption and supply data will be gaining ground as a necessary solution for integrating offers in the energy transition.

Distributed energy resource management systems

Here, we are basically talking about software that would function as an operating system for distributed energy resources and networks. Software establishes the rules by which the network, devices, and intermediaries must function and interact with each other. There are numerous solutions that perform such functions, but especially in Brazil with current market conditions, willingness to pay for this type of solution has always been low. With regulatory migrations in the energy market, we can expect the emergence of this type of player.

Connectivity Services

We have observed the profusion of vertical APIS players in the logistics and especially financial services markets. These players create a standard infrastructure for interoperability between

devices and networks. We believe that the electrification process of cities will generate the need for this type of connectivity environment.

Energy storage devices

Also, in this case we have a clear parallel, as batteries will be acting as the AWS of energy savings. The ability to store energy produced in a decentralized manner and turn it into a transactional asset is possibly the biggest disruption to the modern energy structure.

What to expect from energy market in 2024

The Economist Intelligence’s Energy Outlook 2024 forecasts an increase of 1.8% (compared to 2023) in global energy usage, largely driven by strong demand in Asia. These projections confirm the prediction of the International Energy Agency which besides estimates that of the around USD 2.8 trillion invested in energy in 2023, more than USD 1.7 trillion is going to clean energy, including renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification.

At the same time, despite still-high prices, unresolved disruption issues in the supply chain, and an unprecedented growth for renewable energies (+11% compared to 2023), the fossil fuel industry will reach record levels.In 2023, the M&A Community started a chapter dedicated to energy, hosting a series of events focused on the energy sector and investments in Brazil, Chile, and Colombia, Singapore, Mexico and Iberia. We are working right now to define the agenda for 2024 energy-related events, so if you want to stay up-to-date about the most recent trends in the industry, be sure to follow us here and on LinkedIn.

Brazil produces almost 7% of the world’s renewable energy and is a global leader in biofuel and hydropower technologies. The country’s historic reliance on hydro for power generation is changing as market reforms have incentivized investment in PV, wind, and bioenergy.

Private equity has been focused on energy transition and clean industries, but carbon tech is now moving up the agenda. Investment in the Brazilian electricity sector is expected to reach $94 billion by 2029, including utility-scale generation, distributed generation, and transmission projects.

The M&A Community, in association with iDeals, convened a panel of renowned experts to discuss what is happening in the Brazilian energy market right now and to share their insights into the opportunities that lie ahead.

Below is a summary of the discussion chaired by Raphael Niemeyer.

Brazil’s conversations about energy are focused on energy transition, decarbonization, and the opening up of the market, but what is currently happening in the Brazilian energy sector?

Rafael Kelman:

Last year, PSR’s study for the World Bank looked at Brazil’s energy sector and concluded that the country is in an ideal position to decarbonize.

Brazil has a single national transmission network, extensive hydroelectric resources, excellent wind and solar potential, and a vast coastline, natural advantages that other countries lack.

With a small question market over potential market interventions, our view is that Brazil’s energy transition offers significant business opportunities.

We’re already used to diversified power generation in Brazil, but the sector has been heavily subsidized. How can we ensure that new technologies are financially viable?

Guilherme Oliveira Arantes:

Energy transition has become big news for us and there are several possible approaches. Electrification is one, as is renewable energy, but we would argue that energy efficiency has to be the first priority. Then we can look at bioenergy, green hydrogen, carbon capture, and other options appropriate to each region.

As Rafael mentioned, almost half Brazil’s energy matrix is already renewable. After starting with hydro, we successfully added wind and solar and there is now great potential for hydrogen, storage, and offshore wind.

How does BNDES see the future for Brazil’s renewables?

Guilherme Oliveira Arantes:

If we compare this scenario with the EU’s ambition for 50% renewables by 2030, we clearly have breathing space, though we can’t afford to be complacent or other countries will overtake us.

We need to identify demand and policy incentives and develop new ways to finance them. And BNDES, as a development bank, should take the lead, as we did for wind.

Carbon credits are a way of indirectly rewarding certain activities, as are energy efficiency certificates. What is CCEE’s role in this?

César Pereira:

As the Brazilian energy market operator, we’ve been supporting certification initiatives for several years now and we’re just piloting one for energy in hydrogen production, which we can tailor to meet the client’s needs, including to meet any international standard.

We’re also partnering some initiatives in Renewable Energy Certificates, and we’ve launched a central hub, “a platform of certification platforms,” which could potentially be used for international certification as well.

With 92% of last year’s energy consumption met by renewable energy, Brazil is clearly ahead of the field but we need to ensure suitable market conditions if this trend is to continue.

As well as discussions of ways to promote new technologies and energy sources, CCEE is working on opening up the market by using new contracting mechanisms such as capacity auctions.

How much value does energy transition and decarbonization truly add to a product, and how far is the market willing to pay a premium for it? 

Rafael Kelman:

We’re already seeing some companies taking voluntary measures, such as Scania announcing it will use green steel for its trucks, something that Brazil can already produce competitively.

Then the EU’s CBAM (Carbon Border Adjustment Mechanism) is going to tax imports based on their carbon footprint which could give Brazilian exporters a competitive edge if their production process is cleaner than that of, say, an Asian exporter. So the demand is already there. 

What opportunities are there for exports?

Rafael Kelman:

BNDES has a role to play in developing funding mechanisms for emerging technologies that involve higher risks but have promising futures.

Further down the line, there will be a huge global market for sustainable aviation fuels, which Brazil already produces, so we could become a major player in this market.

One thing we do need to do is improve our international image. If we can drastically reduce deforestation, our other advantages will become more credible, and this will help our energy transition.

Talking about deforestation, could we use carbon credits to pay for the maintenance and restoration of forest areas? Is there a role for BNDES in that?

Guilherme Oliveira Arantes:

We’re still finalizing our strategy but the bank will definitely continue to support the development of a carbon market, both regulated and voluntary measures.

The message I really want to get across is that we need to seize this opportunity to transform our potential into actual opportunities and development. If we think beyond just exporting energy, Brazil could also contribute to the global energy transition, for instance by exporting hydrogen.

We should explore the potential for electrification e.g. for transport, and produce more green products, both for domestic consumption and export. We need a strategy and we need the right incentives.

We have to understand our strengths and fight to be as competitive as possible in the global trade arena.

Earlier we touched upon the oversupply of energy generation projects. Given the upcoming phased deregulation, how might the retail market affect prices? Are there opportunities for Brazil to finance technologies abroad?

Guilherme Oliveira Arantes:

There are, especially with hydrogen. Since we don’t need it ourselves at this point, why not take advantage of the EU’s subsidies?

We also have to decide which technologies we should develop ourselves and when it might be better to take advantage of what others are doing.

And we need to set up domestic supply chains so we don’t end up relying on foreign technologies in areas such as new forms of electrification or applications for hydrogen.

Paving the way towards a richer and greener future

Recently, the Brazilian government announced plans to pass legislation to regulate offshore wind and green hydrogen by the end of the year. In June, the government auctioned more than 6,000 kilometers of transmission lines in the first of three tenders aimed at boosting Brazil’s capacity to transport renewable energy. 

Eletrobras has announced that it expects to invest between 70 billion and 80 billion reais ($16.92 billion) over the next five years, involving at least 15 M&A deals in renewable energy and transmission assets.

As the largest energy market in LatAm, Brazil offers investment opportunities in other sub sectors too. The power regulator (Aneel) forecasts that Brazil will add 10.3 GW of new power generation capacity in 2023, almost all from centralized wind and solar.

Private equity and strategic investors are always looking for the next big opportunity. They analyze trends, evaluate risks, and try to determine where the smart money is going. 

For decades, oil and gas were considered a safe bet. They powered the world and drove massive profits. But times are changing. Renewable energy is on the rise, and investors are taking notice.

A total of $1.7 trillion will be spent on clean energy projects in 2023. Private equity investment in renewable energy and cleantech surged to over $26 billion in 2022. Solar and wind are outpacing fossil fuels for new power generation. As costs have plummeted, renewables have become more economically viable. 

The economics of renewable energy are improving

As an investor, the economics of renewable energy are becoming increasingly appealing:

  • The cost of solar panels has dropped over 80% since 2010. Solar is now the cheapest source of new electricity in many parts of the world.
  • The cost of wind power has also fallen by around 50% over the last decade. According to Lazard, a leading financial advisory firm, wind and solar are now the two cheapest sources of new electricity generation in the U.S.
  • Battery technology. Improvements and cost declines in battery technology have made renewable energy storage possible.
  • Government policies. ax incentives, rebates, and renewable energy targets have helped drive growth in the renewable energy market. Over 150 countries have renewable energy targets and policies in place.
  • There is increasing recognition that climate change poses huge economic costs and risks. Investing in renewable energy mitigates these costs and risks. A transition to renewable energy could save the global economy trillions of dollars according to some estimates.

Policy actions driving sustainable, low-carbon power

With strong government support through financial incentives, mandates and policy changes worldwide, renewables have become increasingly attractive investments compared to oil and other fossil fuels. 

  • Investment Tax Credit (ITC) and Production Tax Credit (PTC). Tax incentives like ITC and PTC in the U.S. reduce the cost of renewable energy projects and generation, spurring development. The ITC offers a tax credit for solar and geothermal systems, while the PTC provides tax credits for wind and other technologies.
  • Renewable Portfolio Standards (RPS). RPS require utilities to source a certain percentage of electricity from renewables. As of 2021, 29 states have mandatory RPS and 8 states have voluntary goals. RPS stimulate demand and fund new renewable projects.
  • Feed-in tariffs guarantee renewable energy producers a fixed price for the electricity they generate and feed into the grid. Governments offer long-term contracts for energy from renewables like solar and wind. This incentive reduces risk for investors and accelerates adoption.
  • Competitive procurement encourages renewable development through auctions and tenders. Governments solicit bids for renewable energy and award long-term power purchase agreements to the lowest bidders. This market-based mechanism has significantly reduced costs.
  • Bans and targets for fossil fuels are also driving the transition to renewables. Some countries have banned oil-fired power plants and coal mining or set targets for phasing them out. This policy-driven shift is propelling investments in solar, wind and other alternative energy sources.
  • Solar energy. In the U.S., the solar investment tax credit has been instrumental in the expansion of solar energy and the European Union’s emissions trading system has also made renewable energy more competitive.

Technological improvements are driving down costs

Technological improvements in renewable energy generation and storage have significantly reduced costs, enabling renewable energy to compete economically with fossil fuels.

Smart grids and digital technologies

Modernization of electrical grids into “smart grids” with advanced meters, sensors, and software has enabled greater integration of renewable energy. Smart grids can instantly respond to changes in renewable energy supply and demand, routing power efficiently where it’s needed. They also provide utilities with more insight into the performance and costs of renewable energy systems.

As a result, investor confidence in renewables is growing

Investor confidence in the renewable energy sector has been steadily growing as the technologies have improved, costs have declined, and concerns over climate change have intensified.

According to Bloomberg New Energy Finance, global investments in clean energy rose to $332.1 billion in 2019, surpassing fossil fuels for the fifth year in a row.

Many major investment firms, such as for example BlackRock, have pledged to divest from fossil fuels in favor of renewable energy. This trend is expected to accelerate in the coming years, supported by the fact that:

  • Renewable energy investments are seen as a growth industry with strong long term prospects
  • Fossil fuel investments are riskier due to volatile oil prices and the possibility of assets becoming stranded
  • Younger investors, in particular, prefer to invest in ethical companies focused on environmental and social impact

The deep connection between climate change and economy

The effects of climate change are too dire to ignore

The effects of climate change are becoming too catastrophic to ignore. As global temperatures rise, extreme weather events are increasing in frequency and severity, sea levels are rising, and natural disasters are displacing millions of people.

Volatility and uncertainty

The oil industry is prone to market volatility from geopolitical events, natural disasters, and other factors that can quickly disrupt supply and demand.

Environmental and social governance

There is growing pressure from shareholders, regulators, and the public for companies and investors to consider environmental, social and governance (ESG) factors. The oil industry scores poorly on ESG due to pollution, carbon emissions, and the impact of climate change. In contrast, renewable energy investments are well aligned with ESG principles and sustainable business practices. For investors, renewable energy projects are an opportunity to gain ESG exposure and meet sustainability goals.

Countries aim for energy independence

Many countries rely heavily on imported oil and natural gas, leaving them vulnerable to supply disruptions and price spikes. By transitioning to domestically-produced renewable energy, countries can gain energy independence and security. For example, China now leads the world in solar panel production and has enough solar capacity to power its largest city, Shanghai. Morocco will soon get over half its electricity from solar and wind. Costa Rica already runs on over 95% renewable energy.

Major oil companies like BP and Shell have invested billions in renewable energy projects and technologies. Google, Amazon, and other tech giants also invest heavily in wind and solar to power their data centers and operations. While the transition is happening gradually, the pace is accelerating. The companies and countries that move fastest to adopt renewable energy will be best positioned to thrive in a low-carbon future. Overall, the rise of renewable energy is a trend that will only continue to grow.


Apr 20, 2023

The Colombian energy mix, still predominantly hydropower supplemented by various fossil fuels (mainly gas), has recently started a gradual shift towards the renewables sector, with the development of large-scale national projects.

New energy project auctions, longer-term contracts, income guarantees and tax reforms have already made a difference, with new M&A, particularly for solar projects, and growing interest from international investors.

Growing investments in renewable energy projects

  • April 2023. Enerfín, the Elecnor Group’s renewable energy subsidiary, announced they had obtained a $57 million loan for a 129 MW solar project, their first ever investment in Colombia.
  • May 2023. The renewable energy developer, Verano Energy, completed the purchase of three photovoltaic solar parks in Colombia, with a total of 296 MWp, under the new resolution of the UPME (Unidad de Planeación Minero-Energética), the Colombian regulator that delivers or assigns interconnections.

The second half of 2023 promises to be much more dynamic than the first 6 months of the year. New reforms and massive investment in energy transition, renewables, healthcare, digital transformation, agribusiness and tourism are on the horizon and promise to make Colombia an ever more attractive destination for foreign investment.

The Colombian M&A landscape in 2023

To provide its members with valuable insights into the latest developments in the Colombian energy market and a heads-up on likely investment opportunities in this dynamic sector, on 20 April 2023, the M&A Community, in partnership with iDeals, organized a round table discussion with three leading industry experts.

Oscar Parra started the discussion by explaining that hydro was an obvious choice for a country with so many large rivers and reservoirs and there are various tax incentives that make hydro projects more profitable. 

Government initiatives boost renewable energy

Traditionally hydro projects were sold via short-term power purchase agreements (PPAs) but, to facilitate the financing of new projects and stimulate renewables in the country, the government introduced auctions for 15-year contracts, which guarantee a predictable fixed income. 

Another new mechanism is reliability charge auctions, which allow projects to guarantee income. 

“We can see this as a clear demonstration of the government’s commitment to the sector,” commented Oscar.

And it is not only hydro that benefits. When UPME published its list of 2022 connection requests, there were 843 new projects with a total capacity of approximately 57,000 megawatts, 5,700 of which were solar. 

The fourth reliability charge auction, due to open next month, is expected to attract even more successful bids for solar projects.

All in all, the government has invested heavily in the renewable energy sector and this has encouraged many international players to invest

Oscar Parra

All of this would explain the growing interest of investors in Colombia. But are there other reasons to justify their focus on the country? 

Elena thinks that Colombia’s strong legal and judicial framework gives them confidence. There is also a clear appetite for risk: Colombia is seen as one of the most desirable countries to invest in LatAm and the January bond issue was four times oversubscribed. 

“Another super-important aspect is that the figures add up”, said Elena. Renewable projects in Colombia are profitable without the need for subsidies. Also, since the pandemic, energy prices have been going up and there is no sign of them falling any time soon, with international pressures such as the war in Ukraine and the rise in commodity prices exacerbated by local factors such as delays in issuing environmental permits.

There is also a new El Niño event due, and if hydro is affected and we have to rely on geothermal, prices will rise again

Elena Bugalla

The downside of the price rises is that the central bank has been raising interest rates to curb inflation. This is making short-term debt unaffordable and projects are being assessed in relation to a future scenario in 2-3 years when investors expect that both inflation and interest rates will have normalized.

“In the short term, higher interest rates are putting pressure on profitability and reducing the options for leveraging new projects, but Colombia has the right legal framework and conditions for investment. All in all, the appetite is there and I think the sector is super robust,” concluded Elena. 

Alejandro warned that while some brownfield projects have been refinanced, very few greenfield projects are in the financial closure phase. This is because the Colombian market is not as mature or as evolved in terms of market practices as, for instance, a country like Chile. 

“It’s also important to note that the auction PPAs mentioned at the beginning of the session are financial PPAs, with all the risks that implies,” explained Alejandro. 

Challenges and risk mitigation

Another challenge is that Colombia’s expertise in construction risks was mainly acquired on transport infrastructure projects, so there can be a disconnect when it comes to working with the more standardized international specs for a solar or wind project. 

The rapid drop in the exchange rate at the beginning of 2022, the fact that project revenues are in pesos, and also that most energy generation equipment is imported, are three factors that put financiers in the delicate position of having to find ways to mitigate exchange rate volatility.

According to Alejandro, there are two ways of mitigating the risk:

  • First. By building a cushion into your financial model, e.g. some type of derivative to cover the difference between revenue in pesos and funding in pesos. You can establish a disbursement schedule linked to the EPC or supply contract, where specific dates are set to exchange pesos for dollars at a fixed exchange rate.
  • Second. The company secures dollars at a fixed exchange rate that allows them to assume their commitments under the EPC, or whatever contract it may be, in dollars. At the same time, they can contain the funding in pesos from the bank and merge it into the long-term revenue of the PPA.

For Oscar, it’s also worth mentioning that the reliability charge mechanism is a way for some of these projects to access revenues in dollars. But it’s important to be aware of the risk faced by both financiers and investors.

Elena highlighted that last year, interest rates rose month on month and they’re now around 12-13%, with upper limits for long-term infrastructure projects around 8-9%, which gives a debt cost of around 20% or more, making the project unaffordable. But in recent months, the Colombian government launched some programs through development banks that allowed commercial banks to be funded at more competitive rates and this is now an alternative way of financing projects.

  • Rising energy prices and potential environmental factors impact profitability
  • Central bank’s interest rate hikes affect short-term debt affordability
  • Market practices and construction expertise pose challenges for greenfield projects
  • Exchange rate volatility requires risk mitigation strategies in financial models

Following the main discussions the panel was invited to participate in a Q&A session.

Elena, how do you see the outlook for investment, and is the delay in constructing the main distribution networks slowing investment?


I think the first thing to point out is that Colombia already has a fairly good network. What is happening, particularly in relation to wind projects in the isolated area of La Guajira to the north, is that construction of the collector transmission line has been delayed because they haven’t carried out the consultation required for the environmental permit. This isn’t just an issue for renewables, it affects several projects, and not just in Colombia. So, I think that any investor looking at Colombia needs to make sure they do thorough social and environmental due diligence and this will help mitigate the risks.

How does the El Niño phenomenon affect energy prices?

Rafael Kelman:

As we mentioned at the beginning, most of Colombia’s energy generation is from hydro, and because of its geographic location, the country is vulnerable to certain climatic phenomena, particularly the El Niño event, which generates droughts roughly every four to six years. When this occurs, the water levels in reservoirs and rivers decrease and we have to switch to other, more expensive, sources of energy generation. These are mostly thermoelectric plants that use fossil fuels to generate electricity. The higher generation cost is passed on to the spot price, leading to significant price increases.

Do forwards only cover the short term? What other instruments have been used?


We’ve always used forwards to cover the construction period, at least for projects with a construction schedule. The project cost is linked to the project risk so the use of forwards mitigates or even eliminates the exchange rate risk during the construction period. There may be other instruments but it’s a question of what the bank will accept, especially in Colombia where valuation is such a big issue. Unfortunately, like all risks, it’s ultimately the shareholders who carry it. 


It depends on what you are trying to fix, but you can only achieve so much. You could put in a derivative until the plant begins operating, so when repayments begin, you already have a fixed amount that will be repaid in pesos. Or, you have to resort to guarantees through a standby that you include in the EPC that covers this type of risk or assign it to the project shareholder. There are other options, such as long-term synthetic equity, but they aren’t really recommended because they use up the leverage capacity of the project and remove a lot of flexibility, i.e. if you are going to prepay the debt, you cannot refinance. So these are not solutions that we are seeing used for project finance in practice.

How do investors view the current government’s attempt to intervene in CREER and control the prices of generators?


I think that CREER has done a very good job so far. It seems to me that in Colombia, the most developed sectors are likely to be in the electricity industry. A pricing intervention doesn’t make much sense, because price increases often have nothing to do with generation. And when they tried to pass the decree it was overturned in the Council of State. So, I think ultimately this reassures investors that Colombia has a rule of law and that the rules of the game are respected. But in my view intervention is never a good thing.


And if I can add to that, from our experience in investment banking, we’ve seen that political risk generates a lot of noise, a lot of uncertainty, but the truth is that these projects have a lifespan of 25 to 30 years and an investor is not focusing on a 2 to 3-year period, but much further down the road. We’ve seen that there are players that are really interested in investing in Colombia. Only this morning we announced the financial closure of a 130-megawatt solar project, which I think demonstrates that international investors are willing to bet on Colombia, despite all the noise that is currently being generated.

Should coal-fired power plants migrate to renewable energies or stay with coal and gas to guarantee reliability?


The great thing about thermoelectric power plants is that they can produce continuous electricity because their energy generation is not contingent on the availability of a natural resource. Whereas a hydroelectric plant depends on the availability of water, so in a drought, it produces less electricity, making it an intermittent source of generation.

The downside is that a thermoelectric plant needs a continuous supply of fuel to produce the same amount of energy throughout the year. Some new renewable technologies are environmentally friendly, such as energy generation with biomass, where a new forest is planted that will capture carbon emissions as it grows and then the timber is used to produce energy. This could become an alternative, renewable fuel supply for thermoelectric plants.

How is the solar self-consumption market evolving in Colombia, how do you see appetite from investors, and what kind of foreign investors are there in this sector in Colombia?


This is a sector that is really starting to grow, mainly because of rising prices but also because of shortfalls in supply. For instance, in certain parts of the country, especially in the north, there are power outages which are a major headache for the industry. So, there is quite an appetite for solar self-consumption. If we go back to what we were discussing earlier: the challenge is how to leverage a project while dealing with the pressures of short-term interest rates. So, I think the appetite is there, and the investors are there, but the market is a bit complicated at the moment.


Yes, I would say that it’s a very interesting alternative for the end consumer since the generation cost of a solar panel will only be around 200 pesos per kWh, whereas the rate they would pay to a supplier could be as much as 500-700 pesos per kWh. So, this is a cost-saving opportunity for end consumers, and we have seen various international players investing in this type of project in Colombia.

Although we are going through challenging times with the water crisis and political and economic uncertainties, the Brazilian energy industry is still one of the major targets for foreign investment. While energy inflation in Brazil is the second highest in the world, just behind Norway, the country is enormously  important in terms of generating clean energy (hydroelectric, wind, solar, and hydrogen). 

As discussions on minimizing environmental impacts make headlines the world over, investors are looking for opportunities to invest in clean and renewable energies. 

Recently the M&A Community held their webinar “Projeções de investimento em energia no Brasil” (Predictions for investments in energy in Brazil). Below, the moderator of the discussion, Débora Yanasse, Partner at Tauil & Chequer Advogados in association with Mayer Brown, talks about the energy sector in Brazil and its key opportunities and challenges:

In general, how would you rate the electricity industry in Brazil?

This is an extremely strong industry. Since the first change back in the 1990s, we have had several decades of new market openings, thanks to factors such as a solid regulatory framework and strong independent regulation. This is an extremely mature market with many opportunities for investment, in virtually all segments. More recently  renewable energy sources, such as wind and solar energy, have generated even more opportunities.

In terms of energy trading, a relatively small free market has continued to grow. This accounts for 30% of the total market at present but has been showing signs of expansion.

On the consumer side, recent tariff increases have led individuals to gamble on energy production projects as well, showing that it is a market that continues to attract both foreign and domestic investment.

What is the importance of the free energy market for this context? What is its current status?

This is an ever-growing market. An increasing number of people choose to switch their energy provider, instead of remaining with the public sector. As supply becomes diversified, consumers opting for the private option will have more freedom to control price by choosing a product that is financially more attractive to them.

Migration to the private sector is growing year on year, although there are some legal and regulatory conditions and barriers. However the Ministry of Mines and Energy is taking steps to reduce these obstacles, so that an ever-growing number of consumers will have the right to choose their own supplier. 

How do you see the privatization of Eletrobras?

This is happening within the context that the key energy distribution player in our country now has opportunities to improve its efficiency, and obtain even more funds from abroad. Discussions on the privatization of the company are in response to the various crises it has faced which are blamed on previous federal government administrations. Once privatized, Eletrobras will be better able to recover its market value and attract more investments.

During the September event, the general atmosphere was that of optimism for 2022. Why is that?

Brazil is again experiencing a water crisis, which demonstrates the need to diversify both energy generation and the electricity grid.

Another significant change we are seeing  in Brazil is investors’ interest in hydrogen-generated energy, which not only helps diversify the grid, but also decarbonize energy distribution.

Regardless of the election results, I believe that 2022 will again be distinguished by investors’ interest in the energy generation market, especially now that the New Regulatory Framework for Distributed Generation has been approved.

How does the political environment impact these investments?

I believe that a possible and indeed likely scenario is a reduction in the number of privatizations. Companies will tend to wait for the election results before making this type of decision, which does not mean that we should expect a reduction in the pace of fund raising or the increasing number of people entering the free market.

Why is it important to diversify the energy grid? How is Brazil positioned in terms of clean energy sources?

One should always bear in mind that Brazil has one of the cleanest energy grids in the world. Our challenge is not to “clean more”, but rather to offer more clean options in addition to hydro-electric, which is currently our main green source of power. 

Two energy sources that should stand out, particularly for their potential in specific areas of Brazil, are wind and solar energy. The latter has even more potential, considering that our country has the highest insolation in the world. As for wind energy, this already accounts for 10% or our energy matrix, and should continue growing.

There are also discussions of hydrogen as another energy source as technological advances make this option more viable.

Today, although our comments may suggest the contrary, it would be true to say that Brazil is one of the greatest energy matrix powers in the world, and by making the right decisions, it could gain further prominence.

Does Brazil, with its clean energy potential, have a major differential to attract foreign investments in this sector?

The search for new and cleaner energy sources is not confined to Brazil, but is a global quest. This definitively encourages foreign investors to see Brazil as offering excellent prospects for investment.