latam Energy

Energy investments – future prospects in Brazil

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
Yanasse
, 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.