Uruguay’s FERRERE has helped German turbine manufacturer Nordex sign an agreement with state energy company UTE to build a wind farm that could become the first renewable energy in the country to receive financing from the country’s pension funds.

Nordex signed an agreement with a UTE trust on 20 February. In the US$275 million deal, the German company will supply wind turbines for the 142 megawatt project, located in the Tacuarembó region in north-central Uruguay, and it will build access roads, crane pads, a power collection network and a meteorological mast.

The state-owned energy company will now seek central bank approval for a public tender offer that will allow Uruguayan pension funds and small private investors to buy certificates of participation in the trust to fund the Tacuarembó project. “This project is truly exceptional because it is the first time that UTE has created a special purpose vehicle to partially fund an energy project through the capital markets,” says FERRERE associate Sebastián Ramos. UTE plans on obtaining 30 per cent of the wind farm’s financing from pension fund investment, which would make this the first example of pension funds being able to fund a renewable energy project. “That’s US$90 million in funding, which, for Uruguay is pretty substantial, especially if you consider that the biggest securities offering UTE has ever done was for US$120 million,” says Ramos.

The deal is the latest step in a strategy by UTE to drastically develop the country’s renewable energy matrix. Its financing structure marks a shift from funding models it has adopted in the past, which saw the state-owned company either build projects itself or through power purchase agreements. More deals like this are set to follow, with UTE planning to build a further three wind parks, producing between 100 to 120 megawatts each, under the same structure. The deal comes a few months after Uruguay lifted restrictions limiting pension fund investment, amending Act 19.149 to allow Uruguayan pension funds to firmly commit to purchase securities by local public and private companies, financial trusts and investment funds. The amendment was considered a necessary precursor to such investment in infrastructure projects.

Uruguay’s government is aiming to base more than 50 per cent of its energy on renewable sources by 2015, announcing back in 2008 an ambitious goal to become the global leader in wind energy production. The strategy, which has provoked a boom in project finance work for Uruguay’s law firms, fits into the government’s long-term policy to achieve energy independence from neighbouring Brazil and Argentina.

FERRERE has helped Nordex strike energy deals in the country before, assisting the German company back in February 2013 when it forged an agreement with UTE to supply, install and operate a wind farm in Artigas in northern Uruguay.

Article published in Latin Lawyer on Friday, 28 February 2014.