Why Denham Backs FRV for Solar Projects

In many developing areas of Latin America, getting traditional electricity is difficult and sometimes costly. Fotowatio Renewable Ventures (FRV) changed its focus to emerging markets for solar power, with the addition of its largest shareholder, Denham Capital.

Many of these projects are also in developing countries in Latin America, the Middle East, and Africa, which FRV’s chief investment officer, Javier Huergo, calls “the future of [solar] energy.” The company has an office in Madrid, where it started in 2007, building the largest solar farm in Europe, but it stopped doing projects in Europe in 2010 after the Eurozone crisis. FRV then began focusing on projects in Australia and other markets where there was a need for solar energy.

“What we call emerging markets are those with emerging economies, but also emerging solar markets, including Australia,” Huergo says. “We’re focused on places where we can develop assets without, or with minimum support from governments. We want to do business in countries where electricity prices are high, and solar technology can provide a good solution to their dire power needs.”

Those scenarios are happening in Latin America and Africa, he adds, and in many countries the solar projects can provide electricity at lower prices than more conventional power sources.

One of the latest projects for FRV is La Jacinta, which Huergo says is the largest solar farm in Latin America outside of Chile, and it also was the recipient of an $81.9M loan from the Inter-American Development Bank (IDB). “It’s a big milestone for the industry,” he says. “It’s the first solar project financed by the IDB [in Uruguay]. We were proud of having been able to assure the IDB that solar outside of Chile is worth investing in.”

FRV’s move from building solar farms in Europe to building them in emerging markets coincided with Denham Capital becoming its largest shareholder after General Electric exited the business in 2010. The company was looking for a new cornerstone shareholder to help in the expansion to emerging markets, and shifted its focus to those regions thereafter.

Denham decided to become majority shareholder, and primary funding party, in FRV because “the execution team and management team is one of the best in the business,” says Justin DeAngelis, a director at the firm who is responsible for origination, analysis, structuring, valuation, and execution of investments for the Power Deal Team.

“Power development isn’t for the faint of heart,” DeAngelis says. “The key mitigant for us as an investor is picking the right team to manage it. FRV understands how to read the situation and how to get through the permitting process and technical constraints. In some emerging markets, the regulatory regime may not be fully developed.”

There is a lot of forward activity in Latin America that FRV is a part of. They are waiting for the outcome of energy reforms in Mexico and, when that’s resolved, FRV will complete development of its solar projects there. Also on the horizon are projects in Honduras, Nicaragua, and Guatemala, as well as going forward with the 150MW allocation to FRV in Brazil’s solar auction process.

As the cost of delivering solar energy has fallen significantly, the number of players entering the market has increased. But Huergo believes the competition is a good thing. “The only way to improve the industry is forcing other players to compete,” he says, and adds: “Solar is extremely reliable in some conditions. It’s a real solution to electricity needs.”