Acquisitions of renewable-energy companies in Brazil will rebound from a four-year low as wind- farm developers seek buyers and European companies expand, the industry’s biggest legal and financial merger advisers said.
Machado Meyer Sendacz & Opice Advogados, the Sao Paulo- based law firm that handled the most deals in the industry last year, expects to double its deal count to 10 in 2013, said Ricardo de Lima Assaf, a partner in the infrastructure department. Grupo BTG Pactual SA (BBTG11), the world’s top financial adviser on renewable-energy deals, also sees a rebound as European developers turn to Brazil amid subsidy reductions at home, said Vittorio Perona, a partner responsible for energy in the lender’s investment banking department.
“We’re seeing more deals in execution by us and other companies than this time last year,” Perona said in a telephone interview from Sao Paulo. “The biggest driver of M&A activity will be wind.”
Brazil is in the early stages of a renewable-energy boom, and most of its roughly 80 wind farms were built in the past four years, Perona said. Consolidation will take place as it did in the U.S. and Europe, he said. Iberdrola SA (IBE) of Spain and EON SE of Germany already have made purchases in Brazil.
Wind-energy developers in Brazil probably will need scale to be profitable after agreeing to sell power for record low rates at a December auction, Assaf said. That will help drive mergers and acquisitions after deal volume in the industry fell 61 percent to $1.1 billion last year, the lowest since 2008, according to data compiled by Bloomberg New Energy Finance.
Enerfin Sociedad de Energia SA, Renova Energia SA (RNEW11), EGP- Serra Azul and Bioenergy Geradora de Energia Ltda. submitted the lowest offers for power contracts in the Brazilian auction. Bioenergy said it’s not looking for a buyer. Enerfin Sociedad de Energia, Renova Energia and EGP-Serra Azul didn’t respond to calls and e-mails seeking comment.
Prices for wind power have been steadily falling in government auctions since 2009. Developers in the December auction signed contracts to provide wind power at an average 87.94 reais ($43.94) per megawatt-hour, 13 percent less than the rate in the 2011 sale and 41 percent less than the 2009 price, according to the website of Brazil’s national energy agency Empresa de Pesquisa Energetica.
Developers bet they could produce energy more cheaply as turbine-makers, struggling with a shortage of deals in other parts of the world, cut prices of their equipment.
Utilities in Brazil may consider buying stakes in wind developers to acquire expertise in the country’s rapidly expanding wind market, Bruno Piagenteni, an analyst at Sao Paulo-based Coinvalores brokerage, said in a telephone interview from Sao Paulo yesterday.
“Projects have very tight margins of return,” Machado Meyer’s Assaf said in telephone interview from Sao Paulo. “If something unexpected happens, margins may go to zero. When that happens, a project isn’t profitable and you have to turn to utilities.”
Iberdrola, Spain’s biggest utility, is investing about 2.6 billion euros ($3.5 billion) on renewable energy over the two years through 2014. Chairman Ignacio Sanchez Galan said in a Dec. 2 interview in Doha that Brazil would be the second biggest destination of that spending, after the U.K.
EON, which is Germany’s biggest utility, agreed in April to buy 10 percent of Brazilian billionaire Eike Batista’s MPX Energia SA (MPXE3) for about 850 million reais and formed a joint venture to develop projects in South America, according to a statement from EON on April 18.
The company didn’t immediately respond to e-mails and calls from Bloomberg News seeking more information on the venture. EON plans to develop 20 gigawatts of conventional and renewable- energy capacity in Brazil, or 20 percent of total generation capacity, through the venture.
Enel Green Power, the renewable-energy unit of Italy’s largest utility Enel SpA (ENEL), said in March it planned to add 460 megawatts of wind capacity in Brazil by 2016. A press official, who didn’t want to be named because of company policy, declined to discuss current efforts in an e-mail today.
Smaller developers will struggle the most, said Arthur Lavieri, chief executive officer of India-based Suzlon Energy Ltd. (SUEL)’s Brazil unit. Large companies may have cheaper construction costs, and will be able to operate wind farms at a profit even if they are selling the power at low rates.
“The prices of megawatt hours are coming to a point where unless you have scale, it’s very difficult for you to achieve results,” he said in an interview in the outskirts of Sao Paulo. Some developers may decide that the prices they were awarded at auctions were too low, fueling buyouts, he said. “There are developers today that have no other choice.”
France’s GDF Suez (GSZ) has the potential to expand abroad through its local Tractebel Energia SA (TBLE3) unit, BTG’s Perona said. Tractebel officials declined to comment on whether the company would consider buying wind projects.
The state-controlled utility Centrais Eletricas Brasileiras SA (ELET6) didn’t respond to e-mailed inquiries.
Bioenergy Geradora, the Sao Paulo-based wind developer that submitted one of the low bids in December, isn’t seeking to be acquired, CEO Sergio Marques said in a telephone interview from Sao Paulo. He said the wind farms will be completed and some of the power plants in the company’s portfolio may be less profitable than others.
Machado Meyer advised Norway-based SN Power during its acquisition of 41 percent of Brazilian wind developer Desenvix Energias Renovaveis SA. It also worked on CPFL Energias Renovaveis SA’s purchase of BVP SA last year. BTG Pactual was the financial adviser in both transactions.
Installation of wind power in Brazil has nearly doubled in two years to about 1,800 megawatts, which is about 1.5 percent of total grid capacity, Yayoi Sekine, an analyst at Bloomberg New Energy Finance’s Sao Paulo office, said in an e-mail.
While acquisitions of smaller players are set to increase, the prices reached in the December auction aren’t indicative of where prices for wind power are going in Brazil, Elbia Melo, executive president of the Sao Paulo-based wind-industry trade group, Associacao Brasileira de Energia Eolica, said in a telephone interview from Sao Paulo.
“Those prices don’t reflect the true cost of wind,” she said. “Too many developers were competing for too few contracts” to sell energy, which drove prices to unsustainably low levels.
Buying developers and their pipeline of projects is easier than developing projects from scratch, which requires three years of wind measurements and environmental permits, Luiz Gustavo Sant’Anna, director of Porto Alegre, Brazil-based Renobrax Energias Renovaveis Ltda., said in a telephone interview from Porto Alegre.