Companhia Energetica de Minas Gerais, the Brazilian state-controlled utility, may invest in Renova Energia SA (RNEW11) to consolidate its foothold in the nation's expanding market for wind power, according to a regulatory filing.
Talks with Cemig's Light SA unit are "ongoing" and "confidential," Renova said today in the filing with Brazil's stock regulator, after Valor Economico SA published a story yesterday that said Light would acquire a 50 percent stake in the Sao Paulo-based renewable energy developer.
At least two other electricity producers in Brazil are pursuing acquisitions of clean energy developers to position themselves for an anticipated boom in wind farms.
"Utilities want to enter wind now so they have the know- how and scale" to "be more aggressive in future auctions," for power contracts, Ricardo Correa, an analyst at Rio de Janeiro-based brokerage Ativa SA Corretora, said today in a phone interview.
Renova was awarded contracts for 14 wind farms in a government-organized auction for wind projects in 2009 and another six in an auction in 2010, according to the Sao Paulo- based electricity trading board Camara de Comercializacao de Energia Eletrica, known as CCEE. The wind farms have a combined capacity of 423 megawatts.
Renova also owns three small hydroelectric plants with a combined capacity of 41.8 megawatts in Bahia. Cemig has minority stakes in three wind farms in Ceara, in the country's northeast. Renova rose 9.7 percent to 34.15 reais in Sao Paulo trading this week.
'Calling the Shots'
Light, a Rio de Janeiro utility, is negotiating the possible purchase of a stake in Renova, and "it's Cemig that's calling the shots here," Correa said. Cemig owns about 27.8 percent of the shares in Light and has been "aggressively," buying up assets in transmission and now wind.
Antonia Velez, investor relations director for Cemig, which produces about 7 percent of the country's electricity, said it was too early to say whether an investment in Renova would be a "partnership of a merger."
Other Brazilian utilities are buying renewable energy companies. Cia. Paranaense de Energia-Copel, of Curitiba, received approval to purchase a 49.9 percent stake in four wind farms owned by Dreen Brasil Investimentos e Participacoes SA, according to a regulatory filing yesterday.
CPFL Energia SA (CPFE3) said April 7 it had agreed to buy Jantus SL, a holding company for Fortaleza-based wind farm owner SIIF Energies do Brasil Ltda. Sao Paulo-based CPFL is also forming a renewable energy company with Energias Renovaveis SA that plans to build 4,375 megawatts of renewable energy projects, 45 percent of which would come from wind, according to a company presentation.
Developing Market
The wind market is still developing in Brazil and not as lucrative as in other countries, Correa said.
Prices for wind power contracts averaged 131 reais ($82) a megawatt-hour in two August auctions, the cheapest average rate for wind sold through government incentive programs anywhere in the world according to Bloomberg New Energy Finance. Renova's power contracts were on average 121 reais, 7,6 percent lower, according to CCEE.
High Costs
Construction costs for Brazilian wind farms can be 20 percent higher than in Europe and the U.S., Roberto Honczar, who was then Renova's chief financial officer, said in an interview in March. He has since left the company.
"Cemig isn't worried about generating value," from Renova's wind projects, Correa said. "It wants to position itself for future growth," he said.
Brazil has 51 wind farms amounting to about 1 gigawatt of installed capacity, up from 587 megawatts at the end of 2009, according to New Energy Finance. The national energy agency Empresa de Pesquisa Energetica expects to have 12 gigawatts online by the end of the decade.
"Brazil's wind market still hasn't really taken off," Correa said. The U.S. has 133 gigawatts of wind capacity in operation or under development and China has 159 gigawatts, according to New Energy Finance.
