M&A Renewables Activity in ChileSeptember 11, 2013

Allan T. MarksPartner Milbank, Tweed, Hadley & McCloy LLP

Chilean International Renewable Energy Congress

Santiago, Chile

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Overview

• Chile in Context

• Current Considerations

• Looking Over the Horizon

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SECTION 1

Chile in Context

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Chile In Perspective

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500

1000

1500

2000

2500

LatAm Renewables M&A ActivityIn 2012

M&A Activity inUS$ millions

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Chile In Perspective

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100001200014000

LatAm Non-Conventional Renewables Installed Capacity

in 2012

InstalledCapacity in MW

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What has Opening of Chilean Market to Renewables Meant for M&A activity in Chile?

• Significant Increase in Project Development

• Non-Conventional Energy Resources’ (NCER) share of the national energy matrix has grown from 2.4% in 2004 to 4% in 2011

• NCER’s electricity output in July 2013 represented 6% of all output

• Increased M&A Pipeline

• $450 Million in M&A Activity in 2012

• Greater investor interest in Chilean pipeline

• Increased attention for Latin America

• Helped by:

• Significant decrease in equipment costs

• Some NCER sources achieving grid parity

• Inexpensive financing

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Non-Conventional Renewable Energy Installed Capacity

Source: CER

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SECTION 2

Current Considerations

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Growth Drivers for Non-Conventional Renewables

• Government Regulation Opens the Door for More Equal Footing for Non-Conventional Renewables

• Mandated open access to the grid

• Renewable portfolio standard of 10% by 2020 being raised to 20% by 2025

• Flexibility for large consumers to negotiate offtake arrangements

• Uniquely Suited to Incorporate Non-Conventional Renewable Resources

• Significant wind, solar, geothermal, and wave resources

• Hydrocarbon production deficit

• Steady growth in energy demand along with a long-term steady growth in the economy

• Large mining consumers in the north with a need for locally produced energy and a reduced carbon footprint

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Key Legal Considerations

• Legal Constraints to Pipe Flow

• Permit processing times and uncertainty around qualification

• Financing Considerations:

– Difficulty for lenders to obtain a security interest in local accounts

– Difficulty for non-bank foreign lenders to qualify for reduced interest withholding rate

– Perfection of security interest in project assets is elaborate by comparison to other markets

• Land rights acquisition process can be cumbersome

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Key Market Considerations

• Energy Market Constraints

• Insufficient transmission capacity between load centers and the remote locations ideal for renewable energy projects

• Investor appetite for long-term unhedged energy price fluctuation?

• Offtaker appetite for long-term offtake commitments at fixed pricing?

• Cash flow from spot sales may be impacted by system operator payment process

• Access to Financing

• Local bank market is efficient but has limited capacity

• Many banks lack experience with wind and solar projects and with non-recourse project financing generally

• Long term bond financing not a viable option

• Intercreditor issues and challenges for offshore financing

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External Considerations

• Increased Competition for Investment

• Mature renewable energy sources attract investment in other Latin American countries, including Mexico and Brazil

• Reduced gas prices exert downward pressure on electricity prices outside Chile

• M&A Trends in the Short Run

• Firms may seek to consolidate

• Cash-strapped developers may be acquired or may sell projects under development to developers with stronger balance sheets

• Future M&A activity depends on a healthy pipeline of projects today

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SECTION 3

Looking Over the Horizon

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Looking Over the Horizon

• Healthy Development Pipeline, Which Should Result in Increased M&A Activity in the Future

• 4,227 MW of NECR capacity under environmental review

• 8,620 MW of NECR capacity approved, pending construction

• 416 MW of NECR in construction

• Low NECR Prices Should Fuel Growth

• Wind energy prices already close to grid parity

• Some projects benefiting from energy hedging rather than PPAs

• Downward trend in equipment cost, particularly in Solar PV

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Looking Over the Horizon (cont.)

• Demand Should Remain Strong

• Development has yet to catch up with RPS requirements

• Overall long-term economic growth is predicted

• Long term copper prospects remain strong and medium term pressure on mining costs provides incentives for investment in renewable energy serving mines

• US Tax Credits Expiring and European Feed-In Tariffs Cut Backs Should Free Up Investment Resources Looking for Alternative Income Sources

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Speaker Biography

Allan Marks is a partner in the Los Angeles office of Milbank, Tweed, Hadley & McCloy and a member of the firm’s Project Finance Group and Latin America Practice Group. He joined the firm in 1990.

Primary Focus & Experience

Mr. Marks routinely represents developers, investors, lenders, and underwriters in the development and financing of complex infrastructure projects worldwide, with special expertise in the energy, infrastructure and transportation sectors. He has participated in numerous project financings, acquisitions, restructurings, securities offerings and private placements for a variety of sophisticated institutional clients. He speaks and publishes frequently on renewable energy, public-private partnerships, cross-border financing issues, infrastructure investments, deregulation and emerging markets. Mr. Marks has worked on transactions throughout Asia, Europe and the Americas.

Allan T. Marks+1-213-892-4376amarks@milbank.com

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