RENEWABLE ENERGY INVESTMENT DRIVERS FOR ALTERNATIVE AND IN LATIN AMERICA. Milbank, Tweed, Hadley & McCloy LLP ALLAN T. MARKS.

Transcription

1 DRIVERS FOR ALTERNATIVE AND RENEWABLE ENERGY INVESTMENT IN LATIN AMERICA ALLAN T. MARKS Partner Milbank, Tweed, Hadley & McCloy LLP INSTITUTE OF THE AMERICAS XVII Annual Latin American Energy Conference May 13 & 14, 2008 La Jolla, California

2 2 AGENDA 1. Drivers for alternative and renewable energy investment 2. Latin America: The Big Picture 3. Specific alternative energy opportunities 4. Where do we go from here?

3 3 ALTERNATIVE & RENEWABLE ENERGY Wind Solar Geothermal Biomass Hydro Waste-to-energy Landfill gas Ethanol Biodiesel

4 4 WORLD ENERGY PRODUCTION

5 5 COAL USE STILL RAPIDLY INCREASING

6 6 GLOBAL CO 2 INTENSITY OF ENERGY

7 7 GLOBAL CO 2 EMISSIONS

8 8 AGENDA 1. Drivers for alternative and renewable energy investment 2. Latin America: The Big Picture 3. Specific alternative energy opportunities 4. Where do we go from here?

9 DRIVERS FOR ALTERNATIVE ENERGY Historically high oil and gas prices Economic incentive to pursue alternatives Alternative energy sources can now compete on price 9

10 RISING COSTS OF COMPETING RESOURCES Rising global demand for energy Rising oil and gas prices Capacity constraints across networks Macroeconomic effects of falling dollar Soaring construction costs Renewables increasingly can compete on cost, maximizing transitional value of subsidies 10

11 DRIVERS FOR ALTERNATIVE ENERGY Technological innovation High energy prices justify R&D investments Lower cost More reliable More efficient Global liquidity flight to quality assets Energy projects provide stable cash flows Private equity and other sources of relatively inexpensive capital are chasing deals 11

12 DRIVERS FOR ALTERNATIVE ENERGY Global warming & environmentalism Greenhouse gas emissions a growing concern Public interest creates political will Sustainability 12

13 13 TIPPING POINTS

14 GREENING OF PUBLIC POLICY Energy sector development critical to increasing GDP per capita Rising global standard of living creates environmentally-minded middle class Global climate change creating new sense of urgency 14

15 RESULTS OF GREEN ENERGY POLICIES Tax and regulatory incentives favor renewable and alternative energy PTCs and ITCs, and accelerated depreciation RPS mandates Brazilian and Mexican programs Monetizing carbon emissions CDM under Kyoto, European CER markets Local GHG regulation: AB 32 (California), future carbon regulation (tax or cap & trade) 15

16 TOWARD CARBON TRADING UNDER KYOTO Most Latin American countries are Kyoto Annex II countries, eligible for Clean Development Mechanism (CDM) projects Carbon credits issued under the CDM program (CERs) are worth 7 to 16 per metric tonne in the European carbon futures markets Each CER represents a reduction of one tonne of CO 2 -equivalent emissions CDM acts as another revenue stream available for international project finance, facilitating access to sources of capital (at least to 2012) 16

17 17 CLEAN DEVELOPMENT MECHANISM as of May 2008 (represents 135 million CERs)

18 DRIVERS FOR ALTERNATIVE ENERGY Changing Incentives Post-Kyoto: new carbon emissions reduction credits Local tax incentives and subsidies vary Forward price curve for carbon 18

19 AGENDA 1. Drivers for alternative and renewable energy investment 2. Latin America: The Big Picture 3. Specific alternative energy opportunities 4. Where do we go from here? 19

20 LATIN AMERICA: THE BIG PICTURE Central America has good resources for wind and geothermal energy Chile and Argentina have very little installed renewable capacity, but growing interest in Kyoto CDM incentives as Annex II Countries 20

21 LATIN AMERICA: THE BIG PICTURE Argentina is pursuing biomass and LFG projects Brazil and Mexico have the greatest potential for substantial gains in renewable energy sources. They are energy importers despite substantial oil and gas reserves developed by sophisticated, technologically advanced national oil companies 21

22 LATIN AMERICA: THE BIG PICTURE Mexico, Brazil and Chile may lead in wind power development GWEC estimates that cumulative installed wind energy capacity in Latin America will grow 800% by 2012, to 4.5 GW, still a small fraction of global total 22

23 LATIN AMERICA: THE BIG PICTURE Venezuela, Peru, and Bolivia have extensive hydrocarbon deposits and are net energy exporters, dampening interest in alternative energy 23

24 24 AGENDA 1. Drivers for alternative and renewable energy investment 2. Latin America: The Big Picture 3. Specific alternative energy opportunities 4. Where do we go from here?

25 25 MEXICO: GENERATION MIX 70 GW Geothermal and wind ND Hydro Combined cycle Dual Steam (Fuel oil) Gas turbine Nuclear Coal Source: SENER, Prospectiva del Sector Eléctrico

26 26 WIND RESOURCES: MEXICO The Mexican Wind Energy Association (AMDEE) estimates the development of at least 3,000 MW of new wind power capacity by 2014 La Ventosa, Oaxaca could support up to 2,600 MW of installed capacity

27 27 WIND RESOURCES: MEXICO Baja California wind plants under development to sell power to into U.S. market

28 LOCAL INCENTIVES FOR RENEWABLE ENERGY: MEXICO Federal tax law allow for 100% depreciation in the first year for all renewable energy capital investments. (Ley del ISR, art. 40) Fiscal credit of 30% to R&D (CONACYT) (Ley del ISR, art. 219) Law for the Use of Renewable Energy Sources (LAFRE) (December 2005) sets goal for 2012 renewables 8% of generation mix (not including large hydro projects) creates a trust to support RE projects, rural electrification, biofuels and technological R&D. Source: Tercera Comunicación Nacional ante la Convención Marco de las Naciones Unidas Sobre el Cambio Climático 28

29 MEXICO: GEOTHERMAL Mexico is the 3 rd largest producer of geothermal electricity (behind U.S. and Philippines) 955 MW of installed capacity as of 2003 US DOE estimates that Mexico could reach up to 8,000 MW of geothermal Sources: US Energy Information Administration / GENI 29

30 BRAZIL: HYDRO Almost 85% of Brazil s power comes form renewable sources, mainly hydropower Brazil is third largest hydropower producer, after Canada and China 70,000 MW installed, with potential for 6,000 MW more 30

31 31 WIND RESOURCES: BRAZIL PROINFA program led to over 100MW of new wind projects in 2008, with more under way Extension of PROINFA uncertain; taxes and import duties are constraints More than 5,000 MW of proposed wind energy projects have already been registered with Agência Nacional de Energia Elétrica (ANEEL) Source: Global Wind Energy Council

32 32 SOLAR POWER Large PV generating facilities Distributed solar generation (e.g., bigbox retailers, hotels) Rural applications Source: GENI

33 BIOFUELS: ETHANOL Corn price shocks are driving up the cost of food staples, and causing shifts in the type of corn that is planted throughout North America Dramatically rising North American corn demand in part results from recent rapid expansion of grain-based fuel ethanol in the United States due to governmental subsidies and farm lobby U.S. Ethanol Capacity: 112 ethanol biorefineries: 5.5 billion gallons 77 new ethanol plants under construction + 7 expansions: 6.1 billion gallons 33

34 ETHANOL: BRAZIL 30 years of effort, investment and incentives to encourage biofuels to displace oil imports Brazil's sugar cane-based ethanol yields nearly eight times as much energy as corn-based options The use of ethanol in Brazil was greatly accelerated in the last few years with the introduction of ''flex fuel'' engines More than 70% of the cars sold in Brazil, over 1 million last year, have flex fuel engines Source: New York Times 34

35 ARGENTINA: BIOMASS Growing interest in LFG and agricultural waste projects Representative Projects: Puente Gallego LFG Recovery Project González Catán and Ensendad LFG Project General Deheza: Electricity Generation Based on Peanut Hull and Sunflower Husk 35

36 36 AGENDA 1. Drivers for alternative and renewable energy investment 2. Latin America: The Big Picture 3. Specific alternative energy opportunities 4. Where do we go from here?

37 WHERE DO WE GO FROM HERE? Same challenges exist for all energy development: Cost Inconsistent public policies Nationalism/populism Allocation of costs and benefits Lack of transparency Execution risk 37

38 WHERE DO WE GO FROM HERE? Rare alignment of encouraging factors: Government policies Political will Technological change Commercial incentives Diverse capital sources 38

39 WHERE DO WE GO FROM HERE? Alternative energy meets many development challenges Sustains real per capita GDP growth to help alleviate poverty in the region Mitigates the social and environmental costs of development Can help balance of payments Facilitates sustainable development 39

40 40 CONTACT DETAILS Allan T. Marks Partner Global Project Finance Milbank, Tweed, Hadley & McCloy, LLP