Megatrends affecting Latin America and the Caribbean

• ↑ Technological advances, ∆ + MW per resource
• ↑ Access to NCRE, ∆ reg. framework, developer invest via: (i) auctions & (ii) auto supply.
• ↑ LT funding, historically low borrowing, investment grade countries, local cap markets,
• ↓ Price of NCRE, slowdown in China (equipment cheaper & dev. tech), Europe crisis
• ↑ Demand (MW) ≈ maintain prices ↑

• Latin America and the Caribbean (LAC) shifted to Non-Conventional Renewable Energy (NCRE) (i.e., Wind & others)
• Mexico has best wind resources in the world, superior Europe and US
• The shift from hydro to NCRE (i.e., wind & others) ≈ environmental and social.
• Focus on competitive on-grid parity without Feed-In-Tariffs (FIT)

Wind Technological Advances

↑ MW p/resource via:

• Direct drive turbines
• ↑ MW per resource (12-MW prototype)
• Enhancement of pitch blade
• Shallow off-shore wind = prices ↓

Access to Developers

Auto-suppliers, Brazil, Mexico

Long-Term Financing

Funding critical to NCRE - Brazil’s BNDES, ≈ TJLP + 4% spread ≈ US¢5.5/KWh

Local bond issuance

Export Credit Agency (ECA) ≈ 70% equipment ≈ 50% project cost ≈ turbine w/ECA financing

Price

Wind turbine cost from US$2 million p/MW → US$1.2 million p/MW (2013)

Electricity Demand

↑ middle class in LAC ≈ 2x electricity demand (Mexico ↑ pop. 1 million ≈ 1-GW/yr.)

↑ demand will maintain prices ≈ ↑, due to: (i) inefficiencies of the LAC energy markets (public sector monopolies); (ii) Long-term legacy of inefficient generation

Wind Energy vs. Natural Gas Generation

Opportunities

Energy is a regulated commodity ≈ varies from country to country (countries ≠ equal)

NCRE resources ∆ each country & within a country (similar to oil & gas reserves)

NCRE exploitation lies in the route of access & pricing

Advantages of Wind

• Free fuel & limited operational expense;
• Off-takers pay fixed rate / cap for life of project
• No cost uncertainty
• once debt amortized energy undercuts all fossil-fuel sources

Renewable Energy Highly dependent on the Capital Structure

Cost of Capital

Cost of Capital Investment	O&M & Fuel Cost	Equity/Debt	ROE & PPA Price
Wind 81%	19%	Influence More	→ ROE & PPA
Natural Gas 26%	74%	Influence Less	→ ROE & PPA

Typical Debt/Equity 70/30

No country has the combination of enabling factors as the US: experience in conventional Oil & Gas, existing infrastructure, clarity of land ownership, and ownership of the resources on / under the land.