Top 10 takeaways from the Infralogic Investors Forum: Latin America 2022

Data Insight Inside Infra 2 December

Top 10 takeaways from the Infralogic Investors Forum: Latin America 2022

Investment activity in Latin America bounced back to record a strong performance in 2021 following the Covid-19 pandemic. However, political changes in major markets – Brazil, Chile, Colombia and Peru – mean that investors are still waiting for clarity on future investment opportunities and the political backing that new governments will provide to existing and future projects.

Recordings of all the sessions from the day are available here.

1. Blackouts possible in Mexico:     

Panelists debating How to ride the turbulence in Mexican energy markets said that they expect consumer demand for power in the North American country to grow as much as 3% in three years, which will force the government to rely more on the private sector for energy projects. If there are no new power plants coming online by 2025, the public could start seeing blackouts, said Aniceto Huertas, a partner at Beel Infrastructure Partners. While the current governing party, Morena, may win the next elections, the primary candidates are more open to private investment in the energy sector, panelists said. 

2. Mexican energy and power M&A reactivating:

 Alejandro de la Vega, a Deloitte partner for Infrastructure Investment Banking and Financial Advisory Spanish Latin America, said that while Deloitte is seeing more merger and acquisition activity in the sector, there are still questions about the fate of existing greenfield projects. Developers are trying to keep them alive “on life support” but are avoiding making big investments in them, he said. He also sees opportunities in the oil and gas sector. 

3. Adoption of E-vehicles expected to grow:

Participants in the Panel: Is Latin America ready for the next generation of transportation? were optimistic about the boom in the use of electric buses in Latin America, prompting competition for investment between countries. Juan Ricardo Noero, the managing director of fund manager Augment Infrastructure, said, “As a trend, it is sexy.” The city of Bogotá this week announced a bidding process for 7th Avenue to use e-buses. While it is expensive, it is a political decision made by these countries, panelists agreed, saying that vehicles are being brought by government and then operated by concessionaires in a structure that is similar to, but not strictly, project finance. Wade Aust, the managing director for advisory firm Altantra, said Colombia and Chile have set higher standards, banning the use of gasoline-run cars after a certain date. However, the lack of charging infrastructure as well as concerns over the costs and abilities to travel long distances without more charging points is slowing the wider adoption of the technology. 

4. Green hydrogen to be game changer in Latin America:

International experts on the Green hydrogen – the future of energy exports? panel said that the industry will stir geopolitical changes and transform the energy sector in the region but adequate policies and infrastructure are needed. Rodrigo Rodriguez Tornquist, a Sustainable Development and Climate Change Policy Specialist and Argentina's former Ministry of Environment and Sustainable Development, said the development of the green hydrogen industry should be designed in a strategic manner, and require long term policies, regulations, social permitting and financial resources as well as technical expertise. He said it must be a more cost-efficient alterative to natural gas but believes that green hydrogen has a key role to play in ensuring energy supply. Alejandro Perellón, investment director at Americas, Hy24, said changes will not happen overnight because developers still need to know that customers will be there in projects for the long-term. Lenders need to better understand performance guarantees before they and equity providers are willing to take risks, he said. He cited the Inflation Reduction Act (2022) in the United States as a well-structured incentive program that will provide billions in climate and clean energy investment incentives and which will propel the green energy industry although it may divert attention to the US. 

5. To produce hydrogen, LatAm needs more infrastructure:

Peter Nørby Svendsen, who works in project development for Power-to-X, European Energy, said the ancillary infrastructure needs to be there for Latin America to be able to produce generation capacity from green hydrogen. He said that the European Union is interested in expanding ties with Latin America, which will help propel investment in such green hydrogen projects and that Latin American countries could also use green hydrogen to develop other products such as green steel – similar to how there is new technology in Europe to turn plastic into green hydrogen – and this could be replicated in the region. 

6. A renewable powerhouse:

Market experts on the Power production and renewable energy panel pointed to global inflation, unstable electricity prices, the stability of power grid infrastructure and the increasing implementation of storage solutions as some of the challenges to the growth of renewables solutions in the region. André Clark Juliano, Siemens Energy Latin America senior VP, said that the world’s leading economies are not doing enough to meet 2050 net-zero carbon emissions targets but highlighted Latin America as a potential “powerhouse” for renewables, natural gas and green hydrogen. “Thinking of renewables as a way of export is new and Brazil, Colombia and Chile are beginning to think like that,” Clark said. 

7. Local challenges for high tech green solutions:

Participants in the Investment opportunities in the energy transition and energy storage panel said that seeking greener energy solutions has become a subject of debate not only among global leaders, but also in informal conversations among ordinary people, spreading knowledge and awareness of the challenges in implementing new technologies. Despite the political willingness to keep the topic a priority, panelists said the energy transition in LatAm could be more challenging than in developed regions because of high supply chain costs, the devaluation of local currencies and the relative lack of local expertise to implement technologies such as charging stations for electric vehicles and large-scale power batteries. 

8. Political change in Brazil causing anxiety and apprehension: 

Speaking at the panel Infrastructure investment opportunities in Brazil, post election, Rodrigo Rocha, a partner at Vinci Partners, said that while there is anxiety among investors awaiting the new government’s infrastructure investment plans, he believes that there may be more PPP contracts than there were under the outgoing administration of President Jair Bolsonaro. Beatriz Souza, director, head of Investors Relations at BTG Pactual’s Private Capital Group, said she expects interest rates to come down in the short-term and there is hope that the macroeconomic picture will improve and investors will be able to continue expanding their presence in the market. 

9. BNDES’s changing role in Brazil: 

Gabriel Ervilha, the head of Investor Relations at Brazilian Development Bank BNDES, told the audience that the bank’s role has evolved significantly in the past few years. The DFI institution has been structuring a lot of contracts and helping prepare privatization and concession contracts, rather than just providing loans to projects. He highlighted the increasing participation of bonds and commercial lenders in financing Brazilian infrastructure and energy projects and the bank’s role in acting as an LP to sector-focused funds, where the bank has committed millions of reais. 

10. Origo Energia, one of the first Brazilian distributed generation platforms:

In the final session of the day, Suhitha Reddy, the managing director of Augment Infrastructure, described the thesis behind the company's investment in Origo Energia, a Brazilian distributed generation platform. The company, which provides clean electricity for 10%-15% cheaper to subscribers through its agreements with local distribution companies, already has over 30,000 clients. With Augment’s USD 85m investment in a controlling stake, Reddy said that the company is looking to expand its capacity in the Brazilian solar market and add facilities to the company’s already >150 MWp portfolio. 

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