It seems that if you want to play in Peru you have to be big; that – or you have to act big. Recent winning bids in Peru’s renewable energy auction came in at record breaking prices of $47.98/MWh and $36.84/MWh for solar and wind energy, respectively. Two winning developers – Enel Green Power and Enersur S.A. – are large, global companies, headquartered in Europe. Grenergy S.A., a smaller but ambitious developer from Spain, won its seat by reducing its bid after the first round to come in beneath Enel at $36.84/MWh. Previous successful bidders in the country, including Spanish developer Solarpack who has built more than 60 MW of solar PV in Peru, were completely shut out of the running in this auction.
Public RFPs get crowded, and developers know they have to be aggressive and willing to go to the limit. With high bid bonds of $50,000/MW and a very large set-aside of solar and wind, it was set up to be a competitive bid. But even developers familiar with Peru couldn’t have predicted the results. “What came out of the bid shocked everyone”, Bruce Levy, CEO of BMR Energy remarked. “There were big players that tried to monopolize the bids and they did it methodically…carpeting the field with low bids and stifling the competition, muscling out the other players.”
The winning projects weren’t just record setting in cost, Enel’s solar and wind projects will also be the largest project sizes for solar (180 MW) and wind energy (126 MW) facilities in Peru. Many of the smaller developers might be pushed to build projects of this size, let alone make the costs work. Bloomberg New Energy Finance’s Head of Latin America, Lilian Alves said, “[Enel] is big … they can push for lower prices, start construction off balance sheet, finance with corporate debt, and possibly use other tools like green bonds.” Large companies with a global project footprint typically have the ability to obtain lower prices on modules and turbines, pushing costs down even further. Speaking with several smaller sized developers, they all echoed that $47/MWh would not be an economic win. Grenergy doesn’t have the footprint of an Enel or an Enersur, but they were willing to submit a record breaking bid to swim with the big fish and get into the market. What sort of margin, if any, they will be able to achieve on the project remains to be seen.
Why were developers willing to go the limit? By Latin American standards, Peru is a highly attractive country for renewable energy developers. There is an abundance of untapped and high quality solar and wind resources, the energy markets are relatively straightforward, politics are stable, and the economy is humming along. According to Carlo Zorzoli, Enel Green Power’s Head of Latin America, “Renewable energy resources in Peru are among the best in the world and coupled with long term power purchase agreements indexed to strong currencies this enables the development of projects with high power generation capacities.” Zorzoli appears confident that the projects will end up in the black and adds that “the downward cost trajectory taken by renewable technologies and the optimisations carried out by our team make the perfect recipe for the offering of competitive prices on the Peruvian market while meeting our company’s profitability expectations.”
Bid pricing clearly also reflects the perceived long-term opportunity for renewable development in Peru. For companies like Enel a low bid to establish a strong footprint in the market, while the economics might appear unfavorable, translates into a track-record and steady momentum for future projects.
So if you’re a smaller developer, what do you do? You could be looking into other market sectors or other countries where excessively high bid bonds and the presence of massive global players aren’t an issue. Or conversely, you could try to stack your chips and come to Peru’s next renewable auction, ready to win at any cost, possibly getting swept up in the excitement of winning a bid without actually having the means to deliver at the proposed cost, and the project could fall apart – as is currently happening in Brazil. Peering down the road a couple of years, Peru will likely reform its renewable standard, and could potentially open up to development beyond government-led RFPs. When it does, if pricing is still at rock bottom, it could be an undesirable market for smaller players. It would seem for now that the big players, or at least those acting big, have carved out a place for themselves in Peru.
Written by Julie Taylor, Editorial Director, New Energy Events
