GCZ Ingenieros (GCZ), a Peruvian company with over 20 years of experience in the construction and operation of small hydro power plants, founded Hidroelectrica Santa Cruz (HSC) in 2006. HSC builds and operates small hydro power plants along the Santa Cruz River in Ancash, Perú. HSC’s plants produce run-of-the-river hydroelectricity that uses the natural flow and elevation drop of the Santa Cruz River to temporarily divert portions of the water flow in order to generate electricity.
In recent years, the Peruvian demand for energy has being growing in conjunction with the country’s strong macroeconomic performance; however, the lack of efficient energy supply sources has driven up energy prices. The energy projects slated to be put into operation in the upcoming years are mainly natural gas based and do not cover this projected increase in demand, meaning that the country will remain dependent on older, diesel power generators. This presents a country wide need for more modern energy generating techniques, such as hydroelectricity. Hidroelectrica Santa Cruz specifically needed financing for the construction and operation of its first power plant, Santa Cruz I.
In 2007, SEAF’s Fondo Transandino Perú partnered with GCZ to make a capital injection in HSC to construct the new company’s first plant. Since then, SEAF has made additional investments in the company through its Latam Perú and Latam Growth Funds.
With this financial and business assistance from SEAF, HSC completed its second plant, SC II, in June 2010 and has begun planning the construction of two more: Huasahuasi I and Huasahuasi II.
HSC’s electricity generating technique dramatically minimizes negative impacts of the plant on the environment by avoiding the traditional creation of an enormous reservoir of water that floods large tracts of land and reduces the downstream river flow.HSC also has a positive impact on the rural mountain communities along the Santa Cruz River. The company provides these communities with free electricity and sources the majority of its workforce from local communities during both construction and operations. In addition HSC secures approval from all the surrounding communities before its constructs a hydroelectric plant, ensuring a positive and synergistic relationship.
In 2010 as a non-polluting renewable energy source, HSC successfully registered carbon emission reduction credits with the Chicago Climate Exchange. In addition, the company won a renewable auction from the Peruvian government for its four plants, whereby the government ensures a competitive and fixed tariff on the sales of the plants’ energy outputs for the next 20 years. The attractive prices, together with the risk reduction on future cash flows, will result in a large appreciation in company’s value.
A Completed Exit
In February 2012, SEAF made a successful exit from HSC by selling its shares in HSC to a Brazilian firm that develops renewable energy projects in Latin America. Latam Growth Fund Director Harry Schuster said the exit demonstrated a significant accomplishment. He stated, “This exit marked the first time that a private equity fund has made a strategic exit from an investment in Peru. At the same time, SEAF’s investment left HSC stronger than ever, while shoring up the area’s infrastructure, and increasing the efficiency of local business and improving their access to other markets. By targeting investment to this medium-sized enterprise, we supported the development of local, income-generating industries, and created new job opportunities for the local community.”