liston Investement Fund REC INVESTMENT FUND – Renewable Energy Capital

GBD Network has identified in the energy sector a potential market for investment development based primarily on the acquisition of assets in the power generation industry in Peru. Our investment strategy focuses primarily on: investing in the development of none-conventional renewable energy projects from its earliest stages, with special emphasis on hydro generation projects of small and medium scale (10MW to 60MW), mainly run of river type.

The focus of our investment strategy is based on three main conditions:

The Market: Nowadays Peru has adequate conditions for the purchase of energy from renewable sources mainly hydric, because this type of generation reports the lowest marginal cost, which gives the generator proper support in case there would be a negative impact on the purchase price of energy.

Also, hydroelectric plants with a maximum size of 20MW are able to access to an auction process for the purchase of energy that gives a contract type PPA with the State for 20 years allowing it to place the energy generator in the Short-Term Market, a resulting price in the market complemented with a premium set by the regulator (OSINERGMIN) in such a way to ensure a yield not less than 12%.

The Investment: The type of projects that REC INVESTMENT would focus in shows efficient investment ratios that are around USD1.8 to USD2.1 million per MW of installed capacity. If we also consider the possibility of incorporating future small scale projects along the water resources identified (typically a waterfall) then the efficiency of investment is even greater.

The efficiency level consigned is related to the time of execution of this type of project, substantially lower than those of large hydroelectric plants, being for a big hydroelectric plant four years and for medium and small 1 or 2 years. This condition creates a positive externality to the country's generation system, as it allows exploiting more efficiently the water potential in Peru, since it the time of completion of projects is less

Technical and regulatory: The regulatory framework in Peru has established a set of favorable conditions for generation from renewable sources, particularly for hydroelectric plants projects on the scale that the fund aims to make inroads. In that sense, the regulatory framework establishes administrative simplification to exonerate the implementation of the EIA for this kind of project (This condition creates significant savings in pre-operating costs plus a positive reduction in implementation time)

It has set a target of 5% of total consumption target for generation from non-conventional renewable source. On the other hand, these projects receive less social resistance to query time for the project approval by the community due his recognized low environmental impact.

Finally, when analyzed technical externalities that this type of project generates to the National Grid (SEIN in Spanish) shows those small or medium scale hydroelectric plants generate positive impacts in SEIN as the installation of the same in several different areas of the country can reduce transmission losses, increase the dynamic stability of the power lines, thus, transportation capacity in this manner enabling the concept of decentralized generation.

This last point is very important since it generates favorable conditions for the promotion of investments in this sector based mainly on the need to reduce the loss of transmission and distribution in the system, which the 2011 was of the order of 19.3 TWh, almost 10% of total energy consumption.