Acquisition - CPFL aims to lead Brazilian market

BRAZIL: Brazilian power giant, CPFL Energia, plans to conclude the acquisition of local renewables company Ersa in four months as part of a strategy to lead the sector in the country. The new company will be one of the biggest renewable power generators in Latin America with 42% of its budget to 2016 to be invested in wind power.

by Alexandre Spatuzza 1 June 2011

In late April, CPFL bought a 63.9% controlling stake from shareholders of Ersa for an undisclosed amount. The remaining 43.1% will remain in the hands of six investment funds that own the company.

The new company, known as CPFL Energia Renovaveis, will have installed capacity of 648MW, made up of 210MW in wind farms, 278MW small-scale hydro-electric plants and 160MW in biomass thermal power plants.

The fusion comes at a time when the wind sector is starting to consolidate and is ready to reach scale size. Brazil has 744MW of wind farms in operation. Government incentives and demand for cleaner power from the corporate sector has attracted equipment suppliers in recent years.

According to company president Miguel Saad, the country has a wind power potential of about 100GW. "Practically all the main wind power suppliers are now in Brazil," he said. "This will result in cheaper prices for wind power."

Although the new company, which will be controlled by the CPFL Group, is waiting for regulatory approval, staff of both businesses are already working to join the assets and are developing plans to continue expansion. This includes entering new projects in government power auctions and buying up other smaller companies.

"CPFL Energia Renovaveis will be the leader of the renewable sector and we plan to keep in this position," says Saad. "The sector is going through a consolidation, which means we will be buying companies as long as they provide adequate investment return for shareholders."

Saad declined to specify what rate of return he expects from acquisitions but said they are aligned with returns for wind power investments in other countries.

The company plans to have 4.4GW of renewables installed by 2016, of which 1.2GW is already being developed. Of the total, 45% will be wind power.

For July's renewables auction, the company has already put aside nine projects with combined capacity of 278MW - 150MW will come from five projects in CPFL Energia's portfolio, and 128MW from four projects in Ersa's original portfolio, said Saad.