Michael Harrington
Director of Energy for Latin America
Actis Capital
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Insight

New Fund Targets Vast Renewable Portfolio

Wed, 02/24/2016 - 15:23

Having a renewable energy platform over 500MW in markets such as Brazil and Chile prompted Actis Capital to confidently enter Mexico as a natural next step. To do so, the private equity fund established Zuma Energía with the intention of investing over US$300 million and installing over 500MW in the country. Actis has constructed, operated, and developed over 14,000MW in emerging markets, so the firm is comfortable with all technologies, including hydroelectric, oil, and gas. According to Michael Harrington, Director of Energy for Latin America at Actis Capital, wind energy projects make sense in Mexico due to the strong wind resources, installation costs, and sophisticated financial systems that can fund these projects. In September 2014, Zuma Energía acquired the PE Ingenio wind farm in Oaxaca, which was commissioned to Acciona Energía. “The reason we chose PE Ingenio as Zuma Energía’s first acquisition was that the project was already established,” explains Harrington.

Soon after the acquisition of PE Ingenio, Actis sold 30% of its stake in Zuma Energía to Mesopower Group. Actis has identified over 3,000MW in projects, of which 250MW are tangible, according to Harrington. “All these projects are acquisition-based and can be found in various states, with some in advanced stages and others still going through the land permitting process. As a global firm, we have been approached by many international players.”

Harrington says that prior to making investment decisions, it is important to assess and evaluate the macro-level components of a country. This entails exploring the sophistication of the energy sector and the ease of interaction with the authorities. In renewable energy, Actis examines asset considerations such as resource endowment, an element that made Mexico attractive for the equity fund. The next aspect to look at consists of the cost components. “One of Mexico’s advantages is that it is competitive in terms of installation costs. The cost of installing a wind park is roughly US$2 million per megawatt, but in Central America, this cost approaches US$3 million. These inputs help us tailor a risk return profile that meets our needs.” In spite of the ease in carrying out projects, Harrington stresses that the reforms need to be implemented quickly to make sure that the capital keeps flowing and that the end users benefit.