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.

At an event organised by the M&A Community, participants emphasise that the water crisis and the political context are challenges, but they point to optimism for the sector.

On September 27, the M&A Community, a forum that addresses the investment
market, mergers and acquisitions around the world, promoted the webinar
“Projections of energy investment in Brazil”. The event was attended by Débora
, Partner at Tauil & Checker Advogados in association with Mayer Brown,
Wilson Chen, Vice President at Itaú BBA Project Finance, Eduardo Vargas Rêdes,
Leading Partner of the Infrastructure Sector Investment at KPMG, Chyou Pey Tyng ,
Senior Manager at ENGIE’s AIFA Team.

On the occasion, panelists debated about energy transition, renewable energies
(wind, solar, biomass and hydrogen), Gas-to-Power, privatization and M&A
activities in the energy sector and Project Finance and Financial Acquisition in the
energy sector.

In general, all participants agree that there are good conditions for the energy
sector to attract investments to Brazil, however, conditions such as the current
water crisis, the political context and even sector regulations are alert for investors.
Therefore, experts reinforce that the profile of these investors has been increasingly
cautious and less risky.

Conditions for investment

Brazil leads the Latin American energy market, which continues to attract foreign and domestic capital. The environment is positive with regard to acquisitions, private capital, project financing of energy generation and transmission assets.

Wilson Chen points that “the energy sector in Brazil stands out because we have a natural vocation for renewable energies, despite the infrastructure deficit. The sector’s regulations bring a lot of comfort to investors“.

Chen also recalls that this year has already been quite heated in terms of infrastructure debenture issues: “Until mid-July, the total of debentures incentivised reached R$24 billion, of which R$13 billion were from the energy sector, the same amount as all the whole last year.”

Débora Yanasse added that “the energy market remains heated both in debt and equity and we have been following new players, with different profiles entering the sector.”

About the optimism of the participants, Eduardo Rêdes teased those attending thedebate by saying: “we have been bringing positive messages. Can you imagine how stronger these businesses would be if we were living in a more stable environment?

Free Energy Market and diversification of the energy matrix

A business environment in which generating, trading and consumer companies can freely negotiate the supply of electricity, in accordance with the sector’s Regulation, was much discussed by the participants. Among the various advantages provided by this environment, Chyou Pey Tyng highlighted competitive prices, flexibility in negotiations, free choice of electricity supplier, cost predictability and socio-environmental responsibility as a differential.

Chyou Pey highlighted during the event that he has observed that coal and diesel have lost space to solar energy in the search for new energy matrices. Many questions were asked about nuclear energy. Pey says that although the investment makes sense in terms of diversification, the environmental impacts make nuclear energy lose some space compared to other matrices. “The private entity is hardly attracted to nuclear energy, precisely because of the added environmental risk.”

“In terms of return, renewable matrices bring much more return to investors than nuclear energy, so the generation of nuclear energy is a much more strategic issue than a viable one for private investors,” Rêdes comments.

As for the investment in hydroelectric energy, Pey recalls that “the cost of this energy is much cheaper, but today the technology allows the generation of solar and wind energy to be competitive.”

Lastly, when commenting on hydrogen as an energy matrix, participants highlighted that despite being a very preliminary issue, the market views this matrix with great interest.

We need to understand if there is interest on behalf of investors, how we would export this energy to Europe and the US and discuss regulations. Despite this, I have no doubts that hydrogen should indeed be on the Government’s agenda to attract investors,” concludes Yanasse.

Portugal has seen a rapid expansion of investment in renewable energy in recent years, especially in solar PV. There has been considerable consolidation in the market, with companies acquiring different technologies and merging with players that already have projects with guaranteed grid connections.

Portugal’s increasing demand for greener energy is now attracting considerable interest from international players. However, the market is dominated by a few large companies and there are challenges in obtaining finance, making it difficult for new entrants.

During the M&A Community webinar on 25 February 2021 we looked at the prospects for the Portuguese renewable energy market and how it might develop.

The speakers were José Luis Álvarez Director at Voltiq, Manuel Pessanha, Transaction Manager at KGAL, Luísa Carrilho da Graça, Senior Associate at GA_P and Rui Corrêa Henriques Head of Global Debt Finance Portugal at Santander Corporate & Investment Banking.

The process

Prior to 2019 companies could obtain a production license from a grid operator without any guarantee of future access to the grid, because the grid operators were not licensing entities. This led to a backlog of license applications which, combined with a lack of grid capacity, meant that many viable projects were unable to obtain connections.

Portugal then introduced a system of capacity lots, which reduced the number of licenses required but did nothing to promote the most effective projects. So, in June 2019 the legislation changed to make the granting of the connection the first step.

There are now three possible routes:

  1. Auctions (of which there have been two for solar PV, with the first also including storage). This route is preferred by many players as it does not involve the grid and offers the greatest cost predictability.
  2. Direct requests to the relevant grid operator/distributor. The process is currently quite opaque and time-consuming, making the real costs difficult to estimate.
  3. A connection agreement with a grid operator that includes payments for any grid expansion works. This is a very competitive process that lacks flexibility, so is seen as something of a gamble as it depends on future energy prices.

In March 2020 DGG announced that pending projects now accounted for 253GW of power, with peak daily consumption in Portugal being around 12GW. However, projects with guaranteed connections only amounted to 17GW and it was not clear how many of the others would actually be realized.

Assessing the pros and cons.

It is difficult to compare progress on the different agreements, and the timeline for projects will, in any case, vary according to how much work to the grid is required.

One clear difference is that the auction route imposes very tight deadlines, albeit that those for 2020 were longer than for 2019. The original deadline for the 2019 auction was only six months, later extended by three months and then a further six, primarily because of the impact of Covid-19.

This is still tight. Acquiring rights over land is time consuming, particularly for solar PV where the required timescale is three decades, or in areas with smaller properties where there are more landowners involved in the negotiations. Once the title is issued it takes another 12-18 months to obtain a production license and there are other licenses required (construction, connection etc.) and possibly an Environmental Impact Assessment (which can take up to a year) to submit, with penalties for missed deadlines.

However, tender projects are now benefiting from the new Government committee which is ensuring faster and better access to relevant stakeholders.

The players

These can broadly be split between those with direct access to consumers (retailers and utilities) and those engaged with equipment. Manufacturers are able to compete because they tend to concentrate on product development. However, as well as the consumer contact, utilities have another big advantage over e.g. investment funds because can also operate in storage and ancillary services. Also, investors are looking for a return within a certain timeframe, whereas utilities may well be considering non-financial gains over a longer period.

Batteries have been popular because the UAL was more favorable to them; but the calculation methodology could change to incentivize investors for other technologies. We already know that the next auction will be looking at unconventional sources so storage may not be included.

Lenders are primarily concerned with the remuneration model but this is a challenge for everyone. Renewables are now a preferred asset class for project financing; the technology is very mature; and the main variable is legislation, though in Portugal this has been very stable.


Looking at the last round of tenders, there were two main types: projects with feed-in tariffs (FIT) and projects following the general remuneration model.

For the first auction, FIT projects sold their output to the last resort supplier at a price determined by the auction closing bid. There was a change for the second auction, with the plant receiving a ± premium over the closing day price to match the closing auction price. For non-FIT projects, the output is sold at a fixed monthly MWph contribution to the national electricity system.

For the first auction there were also storage projects, with a fixed payment per MW, plus, when the wholesale price exceeded a defined strike price, a payment of 90% of capacity awarded, multiplied by the difference between the wholesale price and the strike price.

It is generally accepted that there is no longer any need to subsidize investment in renewables, leaving remuneration dependent on company revenue. The auction model with FIT distorts the market (producers are essentially subsidizing the system), but other models are harder to finance.

The banks need to do more to understand merchant risks and incorporate these into their models while producers also need to understand that less predictable revenue means less leverage.

We need to consider ways of mitigating merchant risk and protecting the market, such as insurance mechanisms. Faced with a low FIT of e.g. 15 Euros and a future energy price of e.g. 30 Euros, new projects could become impossible to finance without some kind of reserve mechanism and/or higher debt service cover.

There could be further consolidation in the market, which needs to be monitored.

The project finance contractual scheme does distribute the risks to those better able to cope, but if you remove one of the controls, e.g. regulation, then you are at the mercy of the market. We do not know if the PPA market is mature enough to cope with all the projects currently in development – some will be financed with equity, but investment grade PPA is always easier to sell to the banks.


Following the speakers there were a number of questions from the audience, only some of which we were able to deal with on the day.

  • Spain too is seeing massive consolidation within the renewables sector and the Panel was asked what the future might hold.

We expect more players to move into the market, with companies wanting to decarbonize their operations seeing a PR opportunity, as well as potential financial rewards. However, the industry is well developed and very competitive so it is difficult for new entrants to gain a foothold.

  • Does the Panel have advice for foreign companies wanting to invest in Portuguese renewables?

Try joint ventures, but choose your partners carefully. A local partner will know the regulations, licensing process, land rights issues and the language. They may also already have a pre-qualified project and be seeking investors.

  • Will there be other project finance mechanisms? How about for batteries?

There could be solutions involving floor hire and other insurance mechanisms to provide a safety net for the banks. Larger transactions could be solely merchant financed, although the returns are likely to be smaller. We have no idea what might happen with batteries.

  • What are the prospects for off-shore wind in Portugal?

The potential for floating rather than fixed structures is considerable. The National Plan for Energy and Climate 2020-2030 envisages 200MW of wind power by 2030. There is an existing project to generate 25MW in a site that has been identified as a pilot zone for testing ocean-related renewables, with legislation already in development. However, the licensing process needs to be simpler and we expect to see proposals shortly.

  • Is there any update on hybrid projects with a single grid connection?

This could be included in new legislation that would also allow transfer to a third party. But while “dual fuel” options are seen as a way to maximize the use of grid infrastructure, different renewables are not necessarily available in the same location. So it is not clear how this would work in practice, but some players are looking at the options.

The chaos this year on the oil market seems to have echoed into other energy sectors, leaving investors in a state of uncertainty. However, this temporary setback is just a short pause before the next energy boom, predicts Legend Yi from the leading global energy consulting group, Wood Mackenzie.

Recently, he joined an M&A Community talk show to discuss the current state of affairs on the energy market. In the first part of his presentation, he drew a broad picture of the global energy sector. Here are some of the recommendations he gave investors looking across the globe for electricity projects. 

Talking about the electricity industry, how, where, and when to invest?

From an investment point of view, you should of course go to the most profitable place. For this, there are several criteria. The cycle in the electricity sector is rather long, the profit you might make is different at various stages. In general, if you have a solid capital, you can look for a long-term stable return, like in the developed countries with lasting policies and where the overall infrastructure is available. 

For small and medium-sized companies with less capital, one might consider what we call high-risk countries like South-Eastern Asia. Other companies are looking at Africa, the Middle East. The ROI there is going to be higher since the electricity price levels are much higher than those of developed countries. 

There are though, several factors of uncertainty at the early stages, like exchange rate volatility, ways of guaranteeing credit in different countries, delays, etc. So, for small and medium investors it is best to control the duration of the project. 

How to hedge those risks?

First of all, limit the time of your participation. One can wait for the final of the early stages and then quit. Second, in terms of construction, especially for Chinese companies, one can buy a lot of major equipment in the domestic market using yuan. The risk of paying local fees in the local currency will then be significantly smaller. 

Additionally, you can invest in complementary projects in the country. For instance, if the exchange rate is not favorable for you to convert to your domestic currency, you can invest in other local projects. 

Plus, it is vitally important to pay attention to the country itself, don’t only think about microanalysis but also on a macro level. 

Could you give us an example?

Let me tell you about the case of Vietnam in 2018. Companies and financial groups from China, South Korea, Japan were heavily investing in solar energy projects in the country. Everything seemed to be going well — government support, tax incentives, construction permits, predictions were of optimistic ROI. 

However, a lot of people didn’t pay attention to the situation with the power grids in the country. Earlier projects managed to connect to the existing projects whereas the later ones didn’t get a spot and were forced to freeze. The existing power grids in the country were so weak that, in fact, energy from Northern Vietnam couldn’t get to the southern parts. 

So, keep in mind that few countries in South-Eastern Asia have good infrastructure. It means you should not only get to know the project itself, but also its surroundings.

How to find good projects in less developed countries?

Let’s take the example of Bangladesh. It’s growing very fast at the moment. You can see the whole country building viaducts, railways, airports. There is a tremendous amount of investment in infrastructure. Hence, there will be a huge demand for energy soon. So, Bangladesh has been investing in coal and solar power in recent years. 

What are the benefits of Bangladesh? The price of electricity is relatively high. The infrastructure is being developed. You just have to pay attention to the power grids and your potential opportunity to get connected. Thirdly, 10 to 20 million Bangladeshis work overseas, sending lots of dollars back home, so the country is never short of foreign liquidity. Fourthly, there are few political and security risks.

What can I recommend? Study the country at both micro and macro levels. Second, find the right local partners. They will help you to communicate with the government and warn you in a timely manner about policy changes. Third, think data and conduct — or request — a thorough analysis of their current and future trends, gather a database to help you with the projects to come. 

2020 looks like being the biggest black swan event since WWII. The global pandemic has affected the mentality of investors all over the world. Both the present and the future are now being defined by uncertainty. To offer some clarity to what is happening and to provide a number of different perspectives is the mission of the M&A Community. 

Recently, M&A Community hosted a talk show to discuss investment opportunities and risk analysis in the global energy industry. We were joined by Legend Yi from the leading global energy consulting group, Wood Mackenzie. He shared his opinions concerning the current situation on the global energy markets, the future of renewable energy, and gave some recommendations for investors looking for electricity projects all over the world. 

Why are investments in the energy sector worth paying attention to today, amidst the economic downturn caused by the pandemic?

Looking at recent years, we can surely state that globally, our demand for energy is much higher than it used to be. It is still rising, regardless if we are talking about developed countries, those developing or less developed ones. Moreover, there will be a stable upward trend in the future as well. 

Yes, in China, in February-March 2020 we observed a substantial decrease in energy consumption that, of course, was caused by Covid-19 and the subsequent lockdown. But as soon as in April, we were seeing a gradual increase again. There are several reasons for this. Firstly, most countries introduced policies to stimulate their economies, thus creating additional demand. Secondly, both households and industries are going to increase their energy consumption. We can expect explosive growth in the future.

For these reasons, I believe that right now is a great time to invest in the energy or electricity sectors. 

Even in the most negative scenario, where the pandemic lasts for half a year, the demand for electricity may not increase for one or two years, or maybe even three. Even in the worst case, the demand rebound will simply be delayed until 2024-2025. However, the current situation shows that this is highly unlikely. 

Moreover, energy investments take time. You cannot simply build a power plant in a day. If you invest today, starting the construction cycle, the time that output starts is the time when the demand will have recovered to its highest point. Anyway, in the long run the payoff is going to be rather good.

The current blow to another source of energy, the oil industry, is obvious. Nevertheless, renewables have been steadily growing as a high-profile field in recent years. Is it also a hot spot for investments?

There are many reasons attributed to the collapse of oil prices. It is not purely due to the pandemic. There are also political reasons, like watching some big-time gambling with some of the most serious players on the market moving prices and output. Secondly, the drop in oil prices has also brought coal and gas prices down. Another factor contributing to this is the present falling demand for electricity. 

Nevertheless, renewable energy is attracting investment. For instance, in China you can see the rapid development of solar and wind energy, lots of research has been conducted, and new technologies are constantly emerging. The cost of this kind of energy can compete with traditional coal-energy prices in many places. There are also natural advantages to investing in new energy sources since, in the case of gas and coal, you also need a large amount of infrastructure support, such as ports and pipelines. 

The construction cycle for the new kinds of energy is also shorter. Even something like a complex offshore wind farm can be completed in a year. A 100-megawatt solar plant in China can be completed in four or five months. So, in these terms, especially compared to thermal or hydro-energy, capital risk is much less.

Many countries are encouraging as much investment in renewable energy as is possible. 

Take for instance countries in Southeast Asia. Places like Indonesia, Thailand, Bangladesh are rapidly growing and construction is in full swing. This means the demand for electricity in the region will grow. Renewable energy in these places is a hot spot for investment. South Korea, Japan, the Chinese state and private capital, some funds in Germany and the US are already investing in Southeast Asia. 


Legend Yi predicts that sooner or later, the demand for electricity will grow. Developing countries seem to be one of the most lucrative places for potential investors as governments are fostering large infrastructure projects and are ready to welcome foreign capital. However, ROI promises seem to be optimistic as well, he states, also warning about possible risks. For how you can define and tackle them as well as where and how to find a suitable spot for energy investments, read here.