2W Energia targeting Brazil’s ‘second wave of investments’

2W Energia targeting Brazil’s ‘second wave of investments’

Brazil’s renewable energy platform 2W Energia recently issued 475mn reais (US$92.4mn) in green debentures for the 139MW Anemus wind project, in Rio Grande do Norte state.

Certified as a green bond, the operation is a milestone for the sector as it was enabled only by a portfolio of energy sales contracts for small and medium-sized companies in the free power market. 

The project will have 33 wind turbines, supplied by WEG, with generation planned to start in September 2022. 

The CEO of 2W Energia, Claudio Ribeiro, spoke with BNamericas about its undertakings in Brazil, where he sees the electric power market experiencing a “second wave of investments.”

BNamericas: Why is the Anemus operation unprecedented?

Ribeiro: The novelty lies in two factors. First, generation has always been financed by development banks, such as BNDES and BNB. The capital market has always been very averse or lacking education to finance greenfield projects, except for large corporations. And BNDES and BNB had much more competitive rates.

But the capital market is more competitive today, while BNDES and BNB have made their rates more expensive, which has led companies to seek the capital market as an option.

The second is that, whether via development banks or capital markets, the financier would always ask about the PPA [power purchase agreement] and the "prime name" before approving the loan, since this was convenient for them, with a revenue guarantee of 15 years.

However, this is a perverse logic because it is anti-competitive, as the developer, when selling the PPA to a large company like Vale, or regulated auctions cannot suggest the optimal price. This ends up going against the macro-planning of the country, because there is no investor willing to take a risk to have a low rate of return, because the other end pays a reduced price. 

BNamericas: And this is changing?

Ribeiro: Yes, because there are not so many groups interested in selling in the regulated market anymore, since prices are too low. 

On the other hand, from a macro point of view, there won't be only a [company like] Vale buying for 15 years anymore, because the electric sector is going to liberalize, even though initially at the margins, as consumers [of smaller size] in the electric sector are still finding ways to get rid of the distributor.

Editor’s note: Consumers must have at least 500kW of contracted demand and be connected to a medium or high voltage network to be able migrate to the free power market. 

And those who are coming are willing to buy energy from greenfield projects. They are not Vale, and they buy energy in three- or five-year contracts. So the second innovation is that our project was able to finance itself via the capital markets, with smaller consumers for shorter terms, but with a hyper-dispersed portfolio.

The capital markets have learned to price the risk and serve these smaller consumers. 

BNamericas: The venture has also financing from US fund Darby International Capital? 

Ribeiro: No. Darby has co-financed the equity of 2W Energia. This is not a senior debt of the project. That debt is the debenture. 

BNamericas: Some 57mn reais of the US$45mn financing closed with Darby were expected to go toward growth projects like an IPO. Is this still on the horizon?

Ribeiro: Yes, we still have this driver in execution, but an IPO is something that is done out of convenience or necessity. The need is no longer pressing, at least not for the next two years.

We are already publicly traded, so we are ready to do it at any moment. The question is to do the optimal valuation point that the market signals to us.

The fact that we have closed the Anemus financing is an important milestone to prove that it is possible to finance our next projects in the pipeline. 

BNamericas: What does the “second wave of investments in the Brazilian energy market,” in which you position the company as a leader, involve?

Ribeiro: The first wave of the renewable market was through [federal renewable energy incentive program] Proinfa, which encouraged entrepreneurs to invest in generation to sell to distributors at auctions.

Now the industry is so developed that auctions are no longer needed and the industry are starting to finance themselves with PPAs from smaller consumers.

Our mission here is to get close to this smaller consumer in Brazil, who pays the second highest electricity tariff in the world, and help it pay a more competitive bill.

BNamericas: What are your main projects in operation and in development?

Ribeiro: Anemus starts operating in September 2022. It will be our first. The second one is called Kairós, in Capuí, Ceará state, with 260MW of installed capacity, for which we already got financing approval from BNB. 

The bank knocked on our door and offered cheaper money, so we went ahead. We are dividing it into two phases: Kairós 1 should start operating in January 2023. It is in the structuring and financing phase, and will have part of Darby's money to finance this equity. 

BNamericas: How much does the company expect to grow in the coming years?

Ribeiro: Besides Anemus and Kairós, we have another 600MW to implement by 2025 in wind, solar, and hybrids, totaling 5bn reais in investments. 

In addition, we are launching a brand for distributed generation [DG], called Wave. We have two 5MW solar plants in Minas Gerais. 

It is the first incursion of 2W into the DG business, and this is important because now we are starting to relate to B2B and SMEs and to businesses that still have no load to migrate to the free market. 

From a commercialization point of view, we currently trade around 1GWa per month on our commercialization platform. The idea is that the retail platform will reach 5,000 consumers from today’s 200. [This could be boosted by the fact that] there is a contingent of 50-70,000 consumers that have load above 500kV that have not yet migrated to the free market.

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