The renewable energy market is growing globally. As solar products become less expensive to operate and set up, more emerging markets are able to finance these installations and generate renewable energy. Eternum Energy is a company created to help navigate the renewable energy space and provide resources to reduce carbon footprints of Latin American companies.
Today, The Understory Podcast hosts Marcelo Lando, the CEO of Eternum Energy. Marcelo’s career in energy began in 2010, and he has worked in sustainable energy development in Europe, the US, and Latin America. In this episode, he discusses the differences in growth and financing between these markets, common finance practices, and expansion techniques into Latin America. Marcelo paints a clear picture of the growth opportunities in the region and Eternum Energy’s role in the Latin American renewable energy market.
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Episode Transcript:
JJ (Host of The Understory Podcast): Hi everybody. Welcome to another episode of The Understory Podcast. Understory is a global community of entrepreneurs and companies that are trying to make our world more sustainable.
Today we are very excited to have Marcelo Lando, who is the CEO and Founder of Eternum Energy, join us today on the podcast. Marcelo, welcome!
Marcelo Lando (CEO & Founder of Eternum Energy): Thank you JJ. It's a pleasure to be here today, and it is wonderful to be speaking to an audience of entrepreneurs.
JJ: I I know that you're a serial entrepreneur and that you have amazing experience. To start off, maybe tell us a little bit more about your background and your journey before we dive into the work that you're focusing on now.
Marcelo: Wonderful. My main interest is in businesses that help solve some kind of social challenge. I began my adult career very much interested in microfinance after an internship at the Grameen Bank in Bangladesh. With other exceptional entrepreneurs in Argentina, we co-founded a microfinance organization. We grew this existing microfinance project into a microfinance organization which was later acquired by a Peruvian bank.
After spending some time in social impact investment at an Argentinian company, where I'm originally from, I decided to move over to the US and attend the University of Chicago. While I was in Chicago, I became extremely interested in renewable energy as a way to solve some of the worst consequences of climate change. I took a subject in Geophysical Sciences which was probably the most difficult subject in the whole of my MBA career.
After that, without prior energy experience, I joined a fantastic global power company called AES. Almost six months after joining that company, I moved into a joint venture that was created around 2010 to grow solar energy globally. We were well-funded and we very quickly scaled solar, mainly in Europe and afterwards in the US and other locations until the company was sold in 2015. I came back to Argentina with a former colleague, a wonderful individual and friend from Spain, where we created a company to develop solar energy assets in a market that was only beginning.
JJ: That's a fantastic summary of your background. I think it's fair to say that you were ahead of the curve when you were already thinking about renewable energy. This was 10+ years ago when climate tech and a lot of other sustainability topics were not as embraced as it is today in the business world, so we are talking to an expert here today. I'm sure we have a lot to talk about.
Marcelo: Hopefully that doesn't mean that I'm very old JJ!
JJ: No, no! Let's talk about renewable energy and then we will talk about solar. A lot of the topics around solar that we've been talking about here at The Understory has predominantly focused on the US, in part because we're based in the US and that's a lot of knowledge that people have. Let's talk about what's happening in climate tech and renewable energy in LatAm, and I can't think of a better person to give us that perspective than you.
Marcelo: Wonderful. I think it's very interesting to focus on the differences of developing renewable energy projects in Argentina and climate tech in Argentina and the rest of LatAm. I would say that there are three very important differences.
The first is the timing of when the market began in each individual country and region. In around 2008-2010, there was a huge growth in Western Europe due to the incentives that renewable energy provided - around 7X subsidy into the renewable energy price of the market. That was a great incentive for companies such as ours in that time to grow in Spain, France, Italy, Bulgaria, and Greece. So we did all those countries at that time. Investors began to worry that the subsidy of these renewable energy projects was too large, and it was a very understandable preoccupation that investors had. Because of this, there was a bust in Europe for renewable energy, but the market continued to grow in the US. We had thousands of professionals from Europe moving to the US to develop renewable energy in the US, and this was around 2010-2012.
Latin America did not pick up in renewable energy until around 2015-2016, with some exceptions, notably Uruguay and Chile. The great benefit of that is that Latin America is entering into a very fast growth curve when costs of installations are only a fraction of what they were 10 years ago. Basically, in the last 12 years, costs have gone down between 85 and 90%. This is a very important incentive for markets that had not yet developed renewable energy and are doing so now.
I would say that the second very important difference is that because it’s a relatively new market, regulation is not adapted to renewable energy. Most of the changes in regulation and all the modern changes in regulation have happened in Europe and the US. In Latin America, with some minor exceptions, regulation is for an old economy, and it's very important that regulators have the ability to modernize the regulatory framework. And that is slowly happening.
I would say that the third difference is political and macroeconomic instability in some countries of Latin America compared to the US and Europe. Not that the US and Europe do not have their own turmoil, but in Latin America this has a much bigger impact into the financing of projects. Financing is such a key driver in renewable energy assets because you have to invest all the money upfront, so you need to finance around 70% or 80% of your asset with debt. If the interest rate goes from say 8% to 15%, then that automatically eliminates projects.
JJ: That's such a helpful overview. I think pointing out these three key differences and putting it in relative terms of how impactful renewable energy opportunities in LatAm is incredibly helpful.
Marcelo, talk about emerging opportunities using LatAm with the backdrop of the key differences that you've seen and having worked in all these areas and geographies.
Marcelo: I would say that probably one of the most clear emerging opportunities in Latin America is smaller-scale renewable energy projects. These are not residential projects, as those that typically in the US are done by Sunrun or Tesla into residential customers, but these are mostly commercial and industrial projects. These are on-site generation for commercial and industrial facilities in order to cut part of the costs of the utility bill. Traditionally in Europe and in the US (which are the reference markets by large) commercial and industrial segments did not typically grow until there was about 3-4-5 years of huge growth in utility scale projects, which are these very large interconnected projects to the grid. What we've seen is that thanks to technology and reduction in costs, the commercial and industrial market is not waiting for the utility segment to mature and is growing very fast in parallel with utility scale. There are still not many players in that space, so I think that there will be a lot of activity in the commercial and industrial segment in Latin America.
JJ: Got it. And you mentioned financing. For the opportunities that you see today, how is the financing done? Maybe give our audience a little bit of color. Is it through commercial banks? Is it through special loan arrangements? Is it similar or different than how it's being done in the US?
Marcelo: Well, that's a great question JJ, because in every market is very different. Let me present two very extreme cases. In Colombia, it is done by local banks that provide around 70-80% of the cost of utility scale projects, and in the case of commercial and industrial projects, sometimes up to 100%. Without any upfront money, companies are able to have on-site generation and save from day one. That’s what we see as the most attractive market in Latin America currently. On the other extreme, we are talking about turmoil in Argentina, which has grown fantastically well in the past few years in renewable energy. The projects are done with full equity because the current political and macroeconomic turmoil, there is absolutely no financing for long-term projects. As an example, you cannot get a mortgage to buy a house, and there is absolutely no long-term loans. Even though companies cannot finance a project, many of them are still continuing along with development and providing full equity up front and thinking of doing refinancing and taking out a portion of the investment around 2-3 years after achieving operations
JJ: Got it. Very interesting and as you say, very different. Let's say that I'm a CEO of a US based company looking to enter the renewable energy and climate tech space in Latin America. What are some of the recommendations that you will provide to my company?
Marcelo: I think that the most important advice that I would be able to give to somebody looking to enter Latin America from abroad is to look for a trusted local partner that can provide aligned incentives into the long-term success of the business. I think it’s not only critical, but it also provides a competitive advantage with regards to others. There are some fantastic ventures in the US, Europe and even other markets that typically have advanced technology that can be coupled with the local expertise of a local company that does not have that. Advanced technology and know-how are two very powerful ingredients to grow very fast.
JJ: And think about it from the investor side. There's been huge waves of climate tech investors funding from some of the wealthiest individuals to large organizations. What can they do more in Latin America, just given the opportunity and where the business cycle is? What's your view?
Marcelo: I think we've got two factors here. One is that there's so many opportunities in the developed world with this accelerated transition to a low carbon economy that I see that many companies are too busy chasing opportunities elsewhere. But that provides additional opportunities to those that say “Look, the market in the US or in Europe is so crowded and returns are typically so low that I will go and seek some opportunities in Latin America, that might provide me an edge into long-term growth”.
JJ: In terms of moving to the third group of stakeholders, the policymakers at the World Bank or other similar international development organizations, what policies would you push in LatAm to make sure entrepreneurs can grow the renewable energy and the climate tech industries in the local economies or the regional economies?
Marcelo: Given that Latin America is still in a very emerging phase of renewable energy penetration, I think that the wisest move that international development organizations, such as the World Bank or others, could do in Latin America is provide loan guarantees to renewable energy assets. If you think about providing loan guarantees in one individual country in Latin America, that is of course very risky. That's one of the reasons why, other than doing business in Argentina, we are also doing business in Colombia because we need to diversify country risk because from one moment to the other valuations can change dramatically. If you think of providing loan guarantees to different Latin American countries all at the same time, you are basically de-risking your portfolio on something that has a well-defined direction. Those that do not see that very clear change are mostly policymakers who are still significantly influenced by the older economy, not just by the oil and gas sector, but in general the old economy.
If the World Bank and others would put together a fund to provide a market priced loan guarantee, they have a very special ability to enforce obligations on Latin America, and quite frankly on any country around the world. I think that will be a very smart move from international organizations.
JJ: I agree. For the audience that we have that are not in finance, just briefly explain what a loan guarantee is.
Marcelo: Typically, if you are a project developer in Colombia or Argentina, then you go to the bank and the bank would provide funding for 70% of the funding. That Is not currently happening in Argentina, but it happened in the timeframe between 2015-2017 that local banks provided long term loans to project developers. If there's a loan guarantee by the World Bank, that is backing that project and the project is paying for that loan guarantee, the bank would feel much more comfortable in providing funding because they know that at least they would get a significant portion of their money back in the worst case scenario: if the project does not pay, and of course if they need to take over the keys of the project and take over the equity. That provides a relatively stable long-term view on financing costs for which growth of renewable energy projects is completely critical.
JJ: I think another thing that you are essentially talking about here Marcelo, is that at least from the outset, there are some standard ways of financing these large infrastructure projects in renewable energy and climate tech space, but this is designed to be desired in terms of finding more innovative models in financing to help address some of the challenges but also capture some of the opportunities in in the emerging markets.
Marcelo: Absolutely, I think that everybody would make a very good business if that would actually happen.
JJ: Maybe we step back before I ask you more questions about that, and just talk about renewable energy itself. As you mentioned in your introduction, you took a class outside of business school to learn more about renewable energy and how it actually worked in theory, and perhaps in practice.
What advice would you give to people in school or even professionals who are looking to get into renewable energy climate tech? Is it too late? What sort of skills do you need to have? What sort of education? What are the pathways people to shift into this area?
Marcelo: The best advice that I could give to anybody that is interested in working in a company that has a meaningful and powerful mission is to seek out an entrepreneur that they admire and try to get to work in that company.
JJ: That's great advice.
Marcelo: As simple as that.
JJ: And for those to learn from the entrepreneur and see that external innovation work its magic internally.
Marcelo: Absolutely. I believe that there have already been some blockbuster successes, but we are still a very nascent industry of climate tech. Renewable energy is now more mature, but there's so much more room to grow. As I mentioned before, the commercial and industrial segment in Latin America is almost untapped, so there are so many opportunities in renewable energy and emerging opportunities in climate tech that I think there's room for everybody. Since 2010, when I started working in renewable energy, I love what I do, and challenges have a different flavor. If you are doing what you like, you are generally more creative to overcome these challenges if you are very passionate.
JJ: Right, I totally agree with you on that. In terms of the innovation ecosystem or entrepreneurship in renewable energy and climate tech in LatAm, how would you characterize that ecosystem? Obviously you're one key player in that, but how is the startup ecosystem or innovation ecosystem? If you had to pick one founder that that you admire, who would that be?
Marcelo: I think that's still in renewable energy. The market is too young to pick individuals and entrepreneurs, so that speaks about the enormous opportunities that we have in in Latin America. In the case of our company, we are not doing anything that is too different to what I did in the company that I worked for in between 2011-2015. We are basically doing plain vanilla solar utility scale projects mainly. We do some other work as well, we invest in some companies that we admire, but our core business is not too innovative. It is basically applying lessons from more mature markets to local markets here in Latin America.
Thinking about entrepreneurs that somebody could begin to look at and see what they have built, I think that one person that I definitely admire a lot who has not been in the climate tech space yet, but has been in the tech space is Marcos Galperin. He is the co-founder and CEO of MercadoLibre which was at one point the largest company in Latin America by market cap. I think that he did everything well, diversifying in different markets, very quick and fast growth and he is a very humble person despite the enormous change and the enormous opportunities that he brought to many entrepreneurs that are now able to sell their products and services online and before they did not have any access to markets.
JJ: That's a great example, and I love that. Marcelo, last question for you.
For people who are looking to learn more about renewable energy and climate tech in Latin America, or looking for opportunities to collaborate with you where can they learn more about your company and what you do right now?
Marcelo: I'd love to speak with anybody that might be interested in Latin America. I always learn a lot from conversations that I have with former colleagues that are working in other countries and new people that I constantly meet in conferences.
They can check our website: eternum.ar and they can write to me at marcelo.lando@eternum.ar.
JJ: Marcelo, thank you so much for spending time today on The Understory Podcast. We learned so much and we look to having you back sometime to talk more about renewable energy in Latin America.
Marcelo: That will be wonderful JJ. Thank you for the invitation and a pleasure to be here with you and your audience.
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