What opportunities exist for U.S. energy companies in the Latin American renewables market? During today's OnPoint, Camilo Patrignani, CEO of Greenwood Energy, a company heavily invested in Latin America, discusses the opportunities for investors, as well as the challenges and regulatory uncertainty that are pervasive in the Latin American renewables space.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Camilo Patrignani, CEO of Greenwood Energy. Camilo, thank you for coming on the show.
Camilo Patrignani: Thank you very much for having me.
Monica Trauzzi: Camilo, Greenwood is heavily invested in the Latin American renewables market with a 3-gigawatt pipeline spanning the region. What's compelling from an investment standpoint about Latin America?
Camilo Patrignani: What's compelling about Latin America in my opinion is that it's a largely unsubsidized market where power prices are substantially higher than the U.S. in general, and you have a great solar and wind resource. So today the economics in Latin America are -- as an investor, of course, are much better than in the U.S. And at the same time, you're bringing energy security for those countries in Latin America, which is obviously very important for them, and reducing their costs. So there's everything to be compelling about, frankly.
Monica Trauzzi: So what's the market opportunity, then, for U.S. companies that could potentially be investing in Latin America?
Camilo Patrignani: Well, the American IPPs and also equipment manufacturers obviously have a head start. I mean, renewables started here seriously probably around seven or eight years ago, and in Latin America, it's just starting, you know, so in countries like Chile, there were 6 megawatts of solar capacity last year. So it's a market completely in its infancy. You know, there's been wind developments in Chile and in Brazil for maybe five years but, you know, solar, for instance, is completely underdeveloped. So you have an American company that is competing very hard for business in the U.S. They can go to Latin America, get an early start, potentially become a first mover in that market. So for independent power producers that are competing for rate, for projects in the U.S., for those -- the manufacturer wrecking, wind turbines, solar modules and mainly in the U.S., I guess, but you know, still, engineering firms, development firms, really any component of the value chain has a better opportunity, in my view, in Latin America than in the U.S. today.
Monica Trauzzi: OK. So it's a burgeoning market, but not all perfect. There are some government challenges, regulatory challenges. What are those regulatory challenges that exist?
Camilo Patrignani: Well, there are obviously many challenges. The regulatory challenges are, in some cases, that there is no regulation at all, you know, so -- and you need net metering regulation, for instance, if you want to develop distribution ration and provide this sort of power to, you know, small industries and residents -- and residential -- the residential sector. But you have it in countries like in Chile, they are amending their renewals law. In Colombia, they're launching their first law ... renewables. In Mexico, they're going through an energy reform that will -- it's in courts and will be probably down by mid-next year. And they're all -- pretty much all countries working very actively to get this developed as quick as possible.
You also have challenges to get that financing, so -- and there it comes to play in probably half of the countries, the involvement of multilaterals like IFC, IVV ... et cetera. Other challenges I would say is the interconnection systems. You find they're pretty saturated, the laws they're in today, although the population's growing, the middle class is also growing, you know, the infrastructure needs to cope and they don't have enough power yet, they don't have enough transmission assets and lines today. So you need to happen -- you need it all to happen in tandem for it to be proactive, right. So in pretty much any country where we're working in Latin America, we have an issue with transmission lines by which the government is promising to have it installed a certain megawatt capacity by a certain date, and our projects, we know, are going to be in line at least, you know, from that date onwards.
Monica Trauzzi: How is your company navigating all of these challenges? 'Cause you -- I mean, you see that market as a successful one to be investing in, so how do you navigate all that?
Camilo Patrignani: You know, it's -- it's frustrating to be in one single country and having to go through the ebbs and flows on one single country, so what we do is we diversify, and we are opportunistically investing in every single country, or willing to invest in every single country in Latin America and the Caribbean, and we have active projects in Mexico, Nicaragua, Guatemala, Honduras, Panama, Peru, Chile, Brazil, Argentina. So you get frustrated with Argentina, well, Mexico's advancing a little faster. So that's what we do, and we work hard. You know, we typically partner up with local teams that are very incentivized and they know the ways around the public sector, and the private sector if you're looking for power and purchase agreements, and we rely heavily on them and we support them with all the international components, you know, the financing, et cetera.
Monica Trauzzi: Sure. Now, you mentioned Mexico. Most analysts see a huge potential there for oil and gas development resulting from the energy reforms that that country is undergoing. You think that renewables will play a big role too, though. How does Mexico's energy reform impact the renewables market in that country?
Camilo Patrignani: Well, Mexico is the largest market in Latin America for renewables, in my mind. You know, maybe on par with Brazil, but definitely ahead on solar. The reform is tackling oil and gas and also renewables, so they have an incentive to obviously -- well, they don't have an incentive. They actually have a need to produce baseload power. They have a growth of energy demand of something like 6 percent a year, so they really need to get natural gas from the ground, they need to yield combined-cycle power plants, and they also need wind, solar and any resource they can tap into. They are aware that they're better off exporting natural gas and oil if they can and using their own solar resources and wind, which, by the way, they have both and in very large quantities. But many people in Latin America are looking to Mexico because -- and the U.S. as well because it's going to create a massive business opportunity, and a very interesting comp, an example, you know, of what can be done.
Monica Trauzzi: Global oil prices are low. They're expected to stay low for quite some time. How does that affect your business, and is that a negative for you?
Camilo Patrignani: Not at all. I mean, at this point, I'll just give you an example. In Panama, we signed a power and purchase agreement with the University of Panama for 44 megawatts of solar energy that we're going to be building in January, complete by the end of next year. It's 15 cents a kilowatt-hour. Power prices in Panama can be anywhere between 20 and 40 cents. They rely on hydro and on diesel. Oil prices can simply not get cheap enough to compete with solar. It just -- they can't. I mean, solar is so far ahead in terms of cost, and don't forget that we hit an oil production high, and it's been flat for a while and growing very slowly. So all the large basins, you know, in Saudi Arabia, et cetera, they are -- they're already at the maximum production output, so maybe prices continue declining a little bit more, but long term, I don't see any fundamental that can rally underpin the decline in pricing. But you're going to see 5 billion in middle class in 30 years from 2 billion today. All those people want to drive a car, have air conditioning, et cetera.
Monica Trauzzi: Very interesting perspective. We're going to end it there. Thank you for coming on the show.
Camilo Patrignani: Thank you so much.
Monica Trauzzi: I appreciate your time.
Camilo Patrignani: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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