Analysis - Billion dollar JV bets on Chile heating up

CHILE: Mainstream Renewable Power has signed a $1.4 billion joint-venture deal with private equity company Actis to develop 600MW of renewables projects in Chile.

Goldwind's 1.5MW high altitude turbine
Goldwind's 1.5MW high altitude turbine

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The joint venture will purchase projects from Mainstream's Chilean pipeline. The venture will be split 60-40, with Mainstream taking the smaller share as well as managing the projects' development. The deal includes around 450MW of wind projects, with the remainder comprising solar. The aim is to complete the projects by the early 2016.

Mainstream has been involved in Chile since 2008 when after signing a deal in 2008 with local Chilean developer Andes Energy to pursue wind plant construction. The company now has a pipeline of around 3GW from which the 600MW has been taken to form the Actis JV. Mainstream head of head of procurement Barry Lynch said the projects chosen for the deal where the ones that were closer to development likely to be completed by early 2016. The deal will see both companies supply 60/40 financial backing for the projects in order to push them through.

Actis director of energy Lucy Heintz said Actis, a company specialising in emerging markets, had been working in Chile for the last three years although this was its first deal there of this nature.

She said: "It [Chile] was a compelling opportunity in that you have very high prices, installation prices coming down because of the global market and very high resources. We looked at the framework and there is support but its not as dramatic as it is in Europe. What's compelling about Chile is that renewable energy stacks up in its own right and it is relevant commercially."

There is no turbine deal in place, although Lynch suggested Goldwind, with its experience on high-altitude projects, was best-placed to secure the orders. The Chinese manufacturer is currently building the first project owned by the joint venture. He said the turbine deals "are on a project by project basis. We have a strong relationship with Goldwind and their turbines are quite suited to high altitudes. They've just completed a project in Equador. But project economics has to stand up to our own requirements. We would take the lead on it but Actis would be there all the way and would jointly take the final decision with us."

It is the second collaboration between Actis and Mainstream. Last year, the companies joined forces to win three South African tenders worth 238MW in 2012. Speaking about the Chile deal, Mainstream chief executive Eddie O'Connor said Mainstream could look to replicate it, with or without Actis, in other markets.

Heintz said: "We've been talking to Mainstream since 2008 about where we have overlapping activities. There are other markets where there is room for a competent developer like Mainstream. We remain resolutely an emerging markets investor. [Of potential markets] there is Brazil, Mexico and India, and to a lesser extent South Africa and of course Chile.

"The Natural resources in these markets are much better than in Europe. On our wind farm in Costa Rica we have a 40% capacity factor. When you add that to turbine prices coming down and high oil prices - Uruguay relies on imports as does Chile - it becomes very compelling."

Chile has a large pipeline under consideration, but the renewables sector is facing a watering down of support from the centre-right government of Sebastián Piñera, which wants to reduce its renewables target and remove financial support. Chile only installed 17MW in 2012 to take its overall capacity to 205MW. However, potential customers have also emerged from the mining sector's need to reduce emissions.

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