Cleaning Up: Leadership in an Age of Climate Change

The Best Markets for Wind and Solar Are Not Where You Think | Ep216: Daniel Calderon

Episode Notes

In a world where 17% of all electricity is generated from wind and solar and where 93% of all new capacity added to the grid is from renewables, it can be easy to forget that countries got their first wind and solar resources within just the last few years.

And in fact, some countries are still waiting for their first.

Today on Cleaning Up, we’re joined by Daniel Calderon, Founder and Managing Partner of Alcazar Energy Partners. Daniel has made it a specialty of going into countries overlooked by others, building their first wind and solar farms, and as he explains, doing it profitably.

Leadership Circle:

Discover more:

Alcazar Energy Partners: https://alcazarenergy.com/
Episode 196 with Lucy Heintz: https://youtu.be/nhGDI_0QIHg
Episode 181 with Ethan Zindler: https://www.youtube.com/watch?v=Sf5_r3V3Vs8
Episode 204, the Sierra Leone special: https://www.youtube.com/watch?v=z-5QjSfy2SM

Episode Transcription

Daniel Calderon

In Spain, or here in the UK and in other countries, you are almost begging so they allow you to invest. In countries such as Jordan, Montenegro, Macedonia, the leadership of the country will welcome you because you're not just bringing foreign direct investment, you're helping their local currency. You're creating employment for them, that is important, and you're helping them to have megawatt hours at a lower cost than the average cost of power that they have. If you're making 5% in a project in Europe, you could be making 10% more, meaning 15% in a project in this market.

Michael Liebriech

Hello, I'm Michael Liebriech, and this is Cleaning Up. In a world where 17% of all electricity is generated from wind and solar and where 93% of all new capacity added to the grid is from renewables, it can be easy to forget that countries got their first wind and solar resources within just the last few years, and in fact, some countries are still waiting for their first. My guest today has made it a specialty of going into countries overlooked by others, building their first wind and solar farms, and as we shall hear, doing it profitably. Please welcome Daniel Calderon, Founder and Managing Partner of Alcazar Energy Partners, and a member of our Leadership Circle, to Cleaning Up.

Daniel, always a great pleasure to see you. Thank you so much for joining us here on Cleaning Up today.

Thank you for having us, Michael.

So let me start where we always start. Could you give us: name, rank, serial number, who are you and what does Alcazar Energy do?

Very happy to. So my name is Daniel Calderon. I'm originally from Columbia, and I'm the Co-founder and Managing Partner of Alcazar Energy Partners. So we're an investor in renewable energy infrastructure. We develop, build and operate solar and wind and other renewable energy technologies. We focus on some growth markets. What we do is we find growth markets that are ready to scale up, such as Macedonia, for example, Montenegro, Jordan, Egypt, and we grow through funds. So Alcazar Energy Partners 1 had an asset under management of about three quarters of a billion dollars. Equity was about 240 million, and the balance of that was project finance. And that vehicle became the largest private investor in renewable energy, at the time, in Jordan, for example. The largest solar investor in Egypt at the time. And it went through a very successful exit, and we went through a competitive auction and were able to give investors a return that put Alcazar Energy Partners in percentile 92 of all infrastructure funds worldwide in the last 10 years, as per Preqin. Then on the back of that, we went out and we raised Alcazar Energy Partners 2, which has an AUM of $1.3 billion. 490 of that is equity for more investments, and the balance of that is project finance.

Okay, so there's a lot there, because you've given us the business model, which is wind and solar in these early, developing renewables markets, and you named a few. But you also have made sure that we know it's very successful. The 92nd percentile of you mentioned Preqin. And for those not familiar, that's the kind of the Bible of performance in venture and private equity and so on. So now let's just back up a little bit, because you and I met, and I hate to think how many years ago it was, but it was early in my New Energy Finance.

2005, something like that.

It was 2005 or 6 and it was New Energy Finance, not even Bloomberg New Energy Finance at the time. And I remember setting up your account on the server, personally, with a password. I remember, and you were at GE Energy Financial Services. So how did you get from there? Because you could have done anything, you could have gone to any geography. You studied in the US and the UK, you could have done Latin America, you could have done the US, you could have done Europe, you could have done UK, but you've ended up doing this business based in?

We're based in Dubai. So we're domiciled in Luxembourg as a fund manager, but the team is based in Dubai, and we have offices in Montenegro, Macedonia, Cairo, Belgrade, etc.

So how did you go from GE to that? But you're gonna have to do the somewhat shortened version, because I know it's been a great journey.

Yeah, so I spent a little bit less than 10 years with GE, and it was great working with them. I had about 10 different jobs between Asia, Europe and the Americas, and at the end I was working under, you may recall Andrew Marsden at GE Financial Services, big mentor. And in that job, we were trying to invest in renewable energy in Europe, renewable energy assets in Europe. And at the time, you were starting NEF, if I recall, and it became a database that we really could use to support whether it was what we were paying for transactions, or the cost of project finance. It became very helpful. And you had a conference, if you remember…

The summit, one of the very first summits…

And it was in one of those networking events that I met the people that eventually helped me to have my job at Masdar. So you could say you're the reason I quit GE

I don't know if I should sort of pat myself on the back or apologize. So what you're saying is it was a New Energy Finance Summit. Now, of course, the Bloomberg New Energy Finance Bloomberg Nef Summit. And you met somebody from Masdar, did you say?

Yeah, so that's where I met the people that eventually introduced me to see it, who was one of the founders, one of the people that started up Masdar. And he's the person who ended up convincing me to come and join his team in 2008.

Yeah, 2008 so it was definitely New Energy Finance. And Masdar, for those in the audience who don't know it, is the clean energy institution. It's an organization with many parts, certainly at the time, based in Abu Dhabi, and they were developing Masdar City, but they were also developing the World Future Energy summit. And then I got involved with some of what they do through what was then the Zayed Future Energy Prize. Now the Zaid Sustainability Prize, and I've just come from one of their events in London Climate Action Week. So they're woven through both of our stories.

Yeah, and His Excellency Dr Sultan and Mohammed Ramahi have grown that institution to be now a main player in the world of renewable energy. I had the opportunity to work there for about five years. It was really a great experience for me, because I had the chance to work on the initial strategy, really build the initial investment team, eventually became the head of investments there. And during my time there, we committed about $7 billion to large offshore wind, if you remember, here in the UK, London.

The London Array, that was you?

DC

Exactly. €1.5 billion euros went into solar in Spain. That was the first 24/7 storage tower. Gemasolar it was called, the first CSP plant with 24 hour storage capabilities, if I recall correctly.

Acronym alert: CSP?

Oh, sorry, concentrated solar power.

Concentrated solar power.

So really, they gave me an opportunity to help and to work on some projects that really taught me great experiences. And then a big learning opportunity was when Masdar developed the first wind farm in Jordan. That project really opened my eyes in many ways, because while in Spain or here in the UK, in other countries, you are almost begging so they allow you to invest here, and they almost tolerate your capital in exchange for energy security or something else, in countries such as Jordan, Montenegro, Macedonia, the leadership of the country will welcome you, because you're not just bringing foreign direct investment. You're helping their local currency. You're creating employment that is important for them, and you're helping them to have megawatt hours at a lower cost than the average cost of power that they have. So developing that first wind farm in Jordan was one of the reasons that really gave me the idea that having a focused developer for these growth countries would be a great idea.

I'm smiling as you say that they welcome you. I explained in the intro that you are also a member of our Leadership Circle for Cleaning Up, helping to guide all of this. And just as you were joining, you had an event for your investors, so the people who are the asset owners, who've given you the money to manage, and it was in North Macedonia. And you asked me to come and talk to your investors and network, which I did, and I was absolutely astonished, because shortly after I arrived there, a motorcade arrived with the prime minister.

That I think that's a great example, where the leadership of Macedonia were looking at, we have a ceremony coming up soon, because the construction permits for the first 400 megawatt wind farm of Macedonia, which is by far the largest wind farm in the country, will be ready, and we're going to start the early works. That's an example where the leadership of a country ensures that you have all the tools that you need at the Ministry of Energy or from an environmental perspective, to be able to go step by step through the permitting process. We bought that project a little bit over two years ago, and we're now getting to the construction permit stage a little bit ahead of time, which is quite unbelievable for a project of that magnitude. That project is in the order of half a billion dollars, and is going to be by quite some margin, the largest foreign direct investment into the country. And that's an example. Same thing in Montenegro, we're about to start construction of a 118 megawatt plant, which is also the largest wind farm in the country. And so in these countries, they need the foreign direct investment. These countries… Macedonia, for example, is substantially energy negative. When you look at the Western Balkans, the average cost of power of the Western Balkans was in the 140s in Europe. And not many people know Montenegro is very well connected with Italy, where the average cost of power is 135, aso in the first quarter. And a wind farm becomes economically viable somewhere in the 70s.

So let's just, let's just back up, because this is so interesting, I think for many of the listeners. You threw the numbers out: the 140 and the 135 and the 70. What's the unit here?

Okay, okay. So we're talking about euros per megawatt.

Euros per megawatt.

Exactly. So what you see is, in the Western Balkans, the cost of electricity during the first quarter of this year, as per Bloomberg, was in the order of €140 per megawatt.

And this is, to be clear, the wholesale power price. So it's not what the homeowner pays, and it's not even what the business pays, but it's the wholesale market. So they are actually paying more than that. You know on top of it, you've got the distribution charges, and the utility has to make a margin and so on. So that's pretty darn high. €140 is high.

Italy had €135 during the first quarter. And it doesn't make sense that you don't have a wind industry to speak of wind. Wind farms become economically viable somewhere in the €70s.

And what is the energy mix in the countries as you entered them, whether Jordan, Egypt, Montenegro, Macedonia, North Macedonia. What was the energy mix like? I mean, it's presumably just almost all fossi?l

There were some hydro. Today, Serbia, for example, is in the 60s percent in lignite dependency. So it's not just coal, it's lignite. Montenegro and Macedonia are 40 and 43% respectively. So they're still highly dependent on lignite. And what we expect to see is a similar journey to what we saw in Jordan. In Jordan, Masdar developed the first wind farm. And then we started Alcazar in 2014 and Alcazar developer Al Rajef, which was the second wind farm. And then Shobak. And then Jordan, very quickly, went to become one of the most successful investment destinations. In fact, BNEF gave Jordan an award as being the third most successful investment destination in 2018, after China and India. And so what you see is when, when countries figure out the regulation and the rules, and we figure out how to bring the project finance, then you see this noble effect, where these industries take off quite quickly.

So these are countries that are largely fossil powered, maybe a little bit of hydro? But they are, it sounds like they're all energy importers, right?

Exactly. So you're hitting a very important point. Not only the contractual risk we take in these countries is lower than the contractual risk investors take in Europe. Not only are the returns substantially higher than the returns that investors in similar projects have in Europe, but also something that this geopolitical environment has shown us in the last few years is that energy security is very important. Because if gas stops arriving to a country that is importing gas, you have a problem. And so everyone can benefit from the Western Balkans building a strong renewable energy portfolio and perhaps starting to export energy to Europe. Everyone can benefit from Egypt building a stronger, higher amount of wind farms, and therefore be able to export more energy and more gas into Europe. So geopolitically, everyone is interested in these countries not only having higher energy security, but a lower reliance on other people's energy.

So it is cheaper than their current energy prices, it's clean, and it's also diversifying and potentially turning an energy importer into at least an electricity exporter.

Potentially, yes.

And providing a better return than Europe.

That's right.

Okay. So what's not to like?

That is the point. We think it's an arbitrage. When investors come through our due diligence process. Of course, these countries are new countries: Montenegro, Macedonia, etc. But they realized that the contractual framework compares very well to Europe, the returns are better, and there are things like energy security that make your investment not just profitable, but it also makes a lot of sense.

You showed me a chart. I'm not sure which of those countries it was. In fact, you showed me charts for a couple of them, which was the generating capacity by type. And it's lots of fossil, and then there's a bit of hydro, and then you come in, and you were sort of pointing at it, and then suddenly, in the years afterwards, it goes to wind and solar, and the fossil starts to fall away, but your entry into the market is pretty much you are the first in, and you can really see what happens afterwards. You crowd in all the others. But which countries have you done that in?

So take a step back. That's a big part of the playbook at Alcazar. We try to find out what countries have a high dependency on fossil fuels, and as a result, an average cost of electricity that is much higher than what you can achieve with wind or solar. Which countries have a legal framework where you can actually deploy it, and which countries have the access to project finance? We work with people like EBRD or IFC to understand if the project finance frameworks are in place, and which countries have basically the ecosystem that will allow you to build it. And once you see that, then you go ahead, you develop the first asset and the second asset. And what you typically saw, so we came at the very beginning in Jordan, and we were some of the first investors in solar in Egypt. And what you saw in both cases is that then a snowball effect. Because people realize, ‘okay, this is a good business. You can make a good return. It's a bankable ecosystem.’ And then the industry grows. Jordan went to become 30% or so renewable energy. Egypt went on to have one of the second largest solar parks in the world, after India. And we expect that the Western Balkans will also become a very important place, because it's literally in the middle of Europe. It's between Italy, Hungary and Greece. It doesn't make sense that you don't have a developed renewable energy industry.

So the playbook is exactly to do that. To be first in. You must be doing quite a bit of market building. I mean the other laws in place. I mean, you could ask IFC, you can ask EBRD, but there's nothing like trying to actually build a project, I suspect, for finding out whether the power markets regulation works, or whether their debt providers are going to put some ridiculous risk premium on or whatever, so you must be doing quite a lot of pioneering work.

So yes, but that said, we have to recognize working closely with people like EBRD or IFC, you feel a little bit like a 007. Sometimes you land in some of these countries, and you'll get someone very experienced from EBRD, or IFC will come to see you and they’ll say, ‘Look, this is where the energy framework is today. These are the priorities at the Ministry of Energy. These are the priorities within the National Energy Company.’ And they explain to you a little bit where the thinking is of the leadership of the country. Then you go to your meetings, and you find out they were exactly right, because they have been there for several years that they know what they're telling you, and then you start meeting the local developers and these large multilaterals also help you to understand who are the right developers, because they have been in the country for a long time. Sometimes you do the work yourself. Sometimes they help you, and then you start bringing the pieces together. But what happens is the projects are never ready. You need to acquire these projects a couple of years, two, three years before you're able to build them. And then we bring the engineers.

I was going to ask you about that, because you used the word ‘buy’ when you talked about one of the countries, that you ‘bought’ the project. And so you are acquiring the project, right? Somebody has already done some of the work. So you don't just land like 007 and then make the project happen out of nothing. So somebody's already found a piece of land, they know where the grid connection is going to be, those sorts of things?

Exactly, so our originators, who typically do this work, they land and they will meet all the developers in the country. Typically, they're not that many. And ideally you have somebody who has been working for a few years and already has some of the land rights, and you have some of the permits and some of the interconnection rights, something that you can build on. But nevertheless, you will still need about two or three years after that before you can get to financial close.

So that's, as you call it, the playbook. And you've now done that in four countries, right?

Four countries, that's right. So four or five. We have done that quite substantially in Jordan. In Egypt. We have a 500 megawatts starting construction shortly also between Macedonia and Montenegro. We completed a large acquisition in Serbia as well, for about 960 megawatts of projects.

I want to hear about the countries that you tried to make it work and it didn't work. You don't have to name the countries if it's going to kind of reveal bad experiences. But does it always work?

Actually, the list of countries where we want to go, and we still don't have the resources to go, because we want to be focused and deliver on countries substantially, and then move on to the next one is quite long. So there are countries that we analyze and we decide to not go there, but there are other countries that are ready to be able to have this. There are other countries in North Africa, there are other countries in emerging Europe. There are other countries in Central Asia that have all the right building blocks and are ready to start. And we are in active conversations with developers. We're in active conversations with lenders. In those countries, it's just about where is the time for you to enter that country? Because when you come to one of these countries, you need to be able to come at scale. You need to be able to deploy $400-600 million to be able to have a scale that allows you to build a renewable energy portfolio.

So we had a guest on a previous episode, Lucy Heinz, who's with Actis, another of our Leadership Circle members. And we did quite a deep dive into risk and risk premiums. And what she was explaining was that, in fact, some of these global south countries, the growth economies, she called them, the perception is that they're incredibly risky, but the track record is that they tend not default, because they need the power. And there's the multilateral organizations around that you can kind of use to manage risk. It sounds like, although it's a different business model, because she's buying a much more developed, more mature platform and then growing it. And you're, you're going in and buying, really, just a few bits of paper from a local developer, and doing a lot of the development work. But would you agree with that kind of thesis, that these countries are not as risky as people think?

Yes, when our investors come to due diligence, the following surprises them, very, very much. When investors have been burned in emerging markets, it’s because of currencies, so all of our projects have a hard currency PPA, for 20 to 25 years.

PPA, acronym alert.

Yeah, it's a power purchase agreement, typically with a local government. And we're now also having some global institutions that have better credit ratings than some of the governments that we work with that also want power purchase agreements. And so you have a fixed price in dollars or euros for 20 to 25 years. You rarely have that when you invest. You don't have that when you invest in renewable energy projects in Europe. Then, because you have that contractual comfort, you can get 20-22, years of project finance at terrific terms, on a non-recourse basis. You don't have that when you invest in renewable energy.

Okay, but there is a risk transfer there, because whoever signs that PPA, be it the local government or a mining company, whoever it is with a good credit rating, they are going to pay you in dollars, but if the local currency collapses — I lived through a currency collapse, the Asian financial crisis — then they're bearing the risk. And if it's the local government standing behind the local utility, the utility will be selling electricity in the local currency, which may not then cover the dollar payments, the dollar revenue in your power purchase agreement.

Exactly. So there are two things that make us feel good when you have a sovereign guarantee. Two things make us feel good about it. We go and we buy political risk insurance for it. It's called PRI typically that is from an investment grade, someone like MIGA or a private investment grade provider.

So MIGA is part of the World Bank Group,

Part of the World Bank, and that's what they do. They provide this insurance product. But there are private providers and insurance that provide the same product. And it's a product whereby, God forbid, there's a government event, something happens to your plant at a high level, what you do is you get your money back and some returns. So that's one point that gives us comfort. But what gives us the most comfort is that across all of our projects, the cost of electricity at which the project sells, the electrons to the country is substantially lower than the average cost of power in the country. So in Egypt, we're profitable on wind farms at three cents. In the gas plants in Egypt, you incur multiple times that cost

Three cents — you've now switched units from that's $30 per megawatt hour.

That's right.

So you were saying that the electricity price could be 140 could be 120 and I don't know what it was in Egypt, but you're profitable at 30, and that's the best way to manage your risk, is to have a big buffer…

Exactly, so on one hand, you have this contractual comfort because you have a guarantee from an investment grade institution in the US or somewhere else, and that's terrific. But what really lets you sleep at night is that your product is the cheapest product in the list of energy providers. You have gas plants that are somewhere between the 70s or low hundreds, depending on who you ask what the price of gas is. But then, if you are at 30, you're substantially, substantially below. Similarly in the Balkans, we already covered it. You're somewhere in the 70s. But on average the wholesale markets in the country are almost double that. Then you're a cheaper option. Why would they not pay you?

Cleaning Up is supported by the Leadership Circle, and its founding members: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. If you've enjoyed this episode, please hit like, leave a comment, and also recommend it to friends, family, colleagues and absolutely everyone. To browse the archive of over 200 past episodes, and also to subscribe to our free newsletter, visit cleaningup.live. That's cleaningup.live.

I'm fascinated here, because if you go back to COP28 which was in Dubai with Dr. Sultan — whom we've already mentioned — as the president. One of the commitments in the closing communique was renewable energy to triple by 2030. And at the time, the International Energy Agency was saying, ‘well, even on existing policies, it's going to double.’ But a lot of people looked at that and said, ‘Oh, you know, the grid can't cope with it.’ How are we going to do that? And of course, they're thinking about the UK with already 40% renewable electricity, or Germany with, I don't know exactly, but a similar percentage. Or Denmark, which has already got, I don't know, 80% renewables. But I think what people miss is there's a whole load of countries where there's almost no or no renewables, even today. Not the OECD countries, but the countries that you're talking about. So there's a whole bunch. There's some very, very renewables intense grids. So Texas and Spain and Denmark, Germany, UK and so on. And then there's a whole bunch in the middle, Canada and China, and places like that. But you're right down at the end where these countries have got no renewables yet. Am I characterizing it right? Where the countries that you're looking at are just so early in that journey. But it makes so much sense.

There's an analysis from Bloomberg New Energy Finance, where they show you to be able to achieve Net-Zero 1.75, how much needs to be invested by 2040. And so they show you the journey of the last 10 years, from 2014 to 2024, in the advanced economies, and that includes China and India, is somewhere in the order of four point something trillion dollars have been invested. In the rest of the world, you're just above a trillion dollars. But between now and 2040, the developed world has to grow by three times to just above 13 trillion whereas the rest of the world has to grow by seven times. Now what happens is the growth markets have grown at a speed of 10% the last 10 years. Between now and 2040 they only have to grow at 8%. Now, that's top down analysis, which indicates that it's doable. When we look at it bottom up, we see now, literally, about $280 billion of opportunities just across our target markets, of countries that don't have much solar or wind to speak of, where that initial 10% 20% on the grid is a no brainer. Countries where you can do that investment and you are below grid parity, and you're being profitable and saving money in a local market. So why would those monies not be invested? That is the arbitrage we're talking about.

It sounds so analytically simple. Nothing about what you do is simple, but in terms of just as a strategy. Just one thing you did there, you said that you divided the world into two. You said the advanced markets, and you said including China and India. And that is presumably advanced in terms of already doing lots of renewables. You're not redefining the developed world to include India? Although that presumably will happen very, very soon during that period anyway. But what that is saying, though, is that some of the countries that are not attracting or have not attracted renewable energy investment are pretty — I don't know how to put it — they're ripe for the picking. That's kind of what you're saying.

Exactly. I'm saying two things. One, they have grown at a faster pace than they need to grow between now and 2040, but I'm saying that the reason why that has been the case is quite apparent when you look at the specific deals, because the fact that they are so early on allows you to have a risk return balance that is very attractive to investors.

That's largely because the electricity prices are so high?

Exactly, the average cost of power in those countries is so high. So Jordan, for example, was in the 20s in terms of the cost of power, when the initial wind farms were builts. Today it is in the low teens.

And this is cents? So they were in the $200 per megawatt hour, just to stick to one unit for those who are not sort of fluent in the conversion. So they were at $200, and they’re now at 130. And your profit, or your projects, are profitable at $30 for solar, and $60-70 for wind and so on.

Right. The EU has the same situation. Western Balkans have the same situation. The point that is interesting is not just, you don't just have the PPA comfort, the offset comfort. You're also able to bring engineering, procurement and construction companies — EPC companies — that guarantee your construction. You cannot afford to get that very often in Europe, and you get the same companies to guarantee a minimum performance during the early years of operation. So you have a plant where the price of power is guaranteed. You have international insurance from an investment-grade insurance company, and you have someone like Siemens or Vestas guaranteeing your construction and your early days of operation. So what you're left with is a risk, is okay, is the wind going to blow and or the sun going to shine, and is the government going to honor the liabilities, a little bit like a bond, except you have political risk insurance, and then when you ask about the returns, you're making about 1,000 basis points more than you will be making a similar investment in Europe. So the difference in the risk free cost of capital…

A thousand… Let me just, sorry, let me just stop you there. For those who don't know basis points, that's 10%.

That's what I'm trying to say,

That’s 10% per year?

No, the average IRR during 20 something years, right? So my point is, because there is such a lack of investments, the difference in return between the two investments is not just the difference in the risk free rates between Germany and Egypt. The difference is much higher than that because there's an arbitrage, because there's no investment going in.

So just to understand the 1000 basis points, that's like half a percent per year over the 20 years? Or it sounds like a huge amount more.

What I'm saying is that if you're making 5% in a project in Europe, you could be making 10% more, meaning 15% in a project in this market.

Which is how you get to the top of the Preqin rankings. So here's a question that I'm struck by. We hear about, particularly Africa, not attracting the amount of investment in energy that it needs. And we're always told, I don't know the numbers exactly, but Africa, which has got 20% of the global population but gets 1% of the investment. So why does, let me phrase it as a slightly different question, not why you're not doing it there… But does this model work for — let's say Gabon and Ghana and Mozambique and Ethiopia. Can you roll this same model out? They also have very high electricity costs, right?

So the short answer is: not always. You need to make sure that there's a legal framework that you can enforce. You need to make sure that you can bring 20-year project finance from a legal perspective, you need to make sure that the renewable energy framework is in place. That means the leadership of the country has implemented these laws. A lot of work has to happen before we deem a country investable.

So there was something that I helped to create. Also another guest that we had on the show, Ethan Zindler, who was the head of America's for BloombergNEF. Well for NEF back in the day, even when you first subscribed. He then went on to be the climate counselor to Janet Yellen, at the Treasury, under the Biden administration. And Ethan really created, I sort of helped a bit, something called ClimateScope, and that was where NEF, BloombergNEF assessed a lot of countries. I don't know how many 60, 70, 90 countries, against these criterion. Do they have local capital formation? Do they have power market regulation? Do they allow IPPs — independent power producers — at all? So I guess my question to you is: did you ever use ClimateScope? Was it useful in that process of selecting markets?

Very much so during the early days, we used it a lot. Now, of course, we have a database that we rely on that is strong. But during the early days, we used it a lot. Even today, when we go to new countries, they have it for a lot of countries that you wouldn't expect them to have all the information. And where I would divide those countries in two groups, we have the countries where we identify that the legal framework is there and the right building blocks are there for you to come and develop, and there are the countries where that is not the case. And that's where institutions like the EBRD, IFC, make a big difference. They tend to go there early and work with the leadership of those countries and show them what has happened in other countries and what they can implement to get there. But that's years before we are able to come to a country like that.

So exporting, I was going to call it it used to be called the Washington Consensus. I'm not sure it's called that anymore. You've been doing this at Alcazar Energy, which year did you found it?

So we started in 2014

2014. So 11 years, and I'm going to be honest, during that time, you've gone a little bit grayer, so have I. But I'm going to ask you, why the gray hair, Daniel? What are the things along that journey, 11 years, that did not go according to plan, where you actually were like, ‘Okay, we're gonna have to fix this.’ What's concerned you along that way?

Yeah, so today, we have about five gigawatts under development that we either own or are developing, and right now, the geopolitics are very momentous. That I tend to not lose sleep over because we cannot control that. But what makes me lose sleep is each of our projects — let's say in Macedonia, is a 500 megawatt, $500 million project, 400 megawatts. You probably have about 70 to 100 smaller projects within it. You're developing roads. You are acquiring land from different institutions. You are developing the engineering side, and all of these projects have to be managed by our employees in parallel, and they need to be finished by the time you do financial close. And so I really lose sleep with our CEO, who co-founded the business with me, Adriana, making sure that each of those leaders within Alcazar have the resources and the employees that they need to be able to get there at the same time. It is not good enough if you have delivered the project finance if the construction permit is not there, and even if you do get it, that's worthless if the environmental permits are not there. So you really need to make sure that all the initiatives from an execution is key, and that's why we were profitable in El casar one, and alkaline two compares very well to alkaline, or a little bit better. Is because we are really blessed to have a terrific team of people that make sure that these projects are developed on time and on budget.

And how big is your team? Because this is a very labor intensive model. It's very different from, you know, Lucy and Actis, because she's acquiring the platform, she doesn't have that team. The platform that she invests into and acquires has that team. You actually have a cast of how many people?

So we're gonna be almost 100 people by the end of next year. So where we are different from the normal funds is that if you come to our office, we do have eloquent people who work on the investment side and the project finance side, and we do the mathematics very well. But we also have the engineers and the solar experts and the wind experts and ESG experts, because that knowledge of renewable energy is not in the countries where you don't have renewable energy yet. So if you're a private equity fund investing in Germany, that knowledge is available. You can just bring technical advisors, ESG advisors, but if you want to bring those people to Macedonia… So what we do is we bring our own people, and we build teams locally, and we coach them and we mentor them. What is the right way to do the permits? Was the right way to do the road design and so on and so forth. Having that knowledge in house, in our experience has made a huge difference. It’s what allows you to be there on time and at the right cost and with the right quality.

So a team of 100 based where did you say?

I would say half of that is in Dubai, and the rest of that will be across Belgrade, Montenegro, Macedonia.

It's so fascinating because I've had guests on the show, but I've also met hundreds, possibly even thousands of people over the last 20-odd years that they're all investors in clean energy or in the transition. And I've also met amongst them, some of them who've got billions, and in some cases, I think the record is $1.6 trillion. And they have far fewer people, some of them, than you have. Literally, there'll be people managing tens of billions in portfolios, and there'll be seven or eight people, 10-12 people. It's quite a labor intensive model, right?

Correct. So if you ask me, what is the size of your investment team? That is less than 20 people, which is probably the same size that you would see in a similar team in Europe. The balance of that, we have a lot of people to look after engineering, and we have a lot of local ESG experts. We have local liaison officers. We go and work with the communities to find out what the community needs. So we sometimes start training programs before construction so they can take more of the construction jobs, and that's people intensive, and you need to do that. It's almost like we have two different institutions. One is a very financial institution, disciplined about finance and returns, etc. The next one is a large developer that goes there and develops the project with all the right rules that we need to have for the financing to be possible.

So until we started talking about your team size, I was thinking, ‘well, this is so simple.’ Maybe I'll go off and start a competitor, because the strategy is so clear and it can't be that hard. Now I'm thinking, I'm really glad I'm not doing that. This sounds like very hard work. Let's just conclude by talking about: you are where you are, you've got the funds under management that you've got. Where will you be in 10 years? Are you already thinking about the next countries? I mean, if somebody wants to make money, should they try and track which flight you're on and see where you're going next, or what are you going to be doing going forwards?

Today, Alcazar is a fund that develops. So today we're developing somewhere between 4 and 5 gigawatts of power. That means we not only know what we're going to be building this year and next year, but a few years after that, and our investors like that very much. So when you think about it, in the long term, we're going to have several vintages and perhaps strategies, and we want to become that institution that allows you to move money responsibly from OECD markets into renewable energy in emerging markets.

Just to be clear, your investors are not all multilaterals in the OECD markets. This is not just concessionary finance.

Of course, we have multilaterals, yeah, but we also have insurance companies from Europe. We have family offices from Europe and from the Middle East. Today, 80% of our investors are either double-A or triple-A, and they're a combination of commercial and of course, we have a lot of multilaterals as well.

Okay, so they like that you have a pipeline for the next few years. But my question was, 10 years?

Yeah, so in 10 years, we’re going to have a much larger pipeline. We know today a number of countries that have the right building blocks about where to go, and so some of them are in North Africa — Morocco just approved a medium-voltage law that we think is terrific. That could be an opportunity. Ukraine…

Medium voltage, in other words, wind farms and solar connected to the medium-voltage grid, not just to the transmission. So that opens up a lot of opportunities?

A whole new range of projects can go directly to consumers, which is the way a lot of PPAs work in Europe and in the US.

That presumably means you can connect projects to the distribution grid, not just to the transmission grid, and then sell directly to corporate clients. So PPAs with mining companies, or I don't know, AI, data centers maybe?

So you will get there step, step by step. So today, not in Morocco, but in the Western Balkans, for example, we received interest from a double digit number of private buyers of power, and some of those buyers are some of the largest technology companies in the world, with credit ratings that are higher than the credit ratings of some of the countries where we serve power. So what you're seeing is that not only the local countries want to buy your power because of CBAM and other reasons why they want to have…

Acronym alert. CBAM: that's the carbon border adjustment mechanism in the carbon markets.

That's correct. So this carbon border adjustment mechanism requires countries such as the Western Balkans to start paying a tax at the border from next year onwards, when they are exporting a product into Europe, measuring the amount of carbon content in the product. So that's catalyzing. That's an additional two reasons why they want faster renewable energy, and not only because of that reason, you get a lot of private buyers who receive double digit number of offers, and some of them are some of the largest technology companies in the world, with very high credit ratings as well.

Very good.

You have places like Ukraine where you can put, you can give a little bit of capital today to local developers, and more importantly, give them the knowledge as to how to develop, give them the engineering understanding, give them access to your suppliers, tell them the cost of project finance, and help them develop this idea. So hopefully, in the future, when there's no conflict, that infrastructure can be put in place quickly. And you have a number of countries across the Middle East, Central Asia, that are in the position where Jordan was 10 years ago. So we see our $280 billion of investment needed just across our current target countries, and we don't see anywhere near that between us and our competitors who are very few.

Well, that's a huge, huge figure. So even if you had only, well, I don't even want to say 10%, it would already be an enormous growth. So if you have 2% I think it's huge growth from where you are today.

The opportunity is very large. And I don't think there are many industries in the world that Bloomberg is telling you today are going to grow in the trillions, and where the entrepreneurs doing it are telling you, look, we can sell well below the average market price, and are we taking risks that are lower than the risk that similar investors are taking in Europe?

Very, very interesting. Thank you so much for coming in today and sharing some of the nuts and bolts and the mechanics of what you're actually doing. It's enormously impressive.

Thank you very much. You know, thank you for having us.

So that was Daniel Calderon, Founder and Managing Partner of Alcazar Energy Partners, and a member of our Leadership Circle. As always, we'll put a link in the show notes to resources that we mentioned during our conversation. So that's episode 196 with Lucy Heinz of Actis, and episode 181 with Ethan Zindler, former climate counselor to Janet Yellen at the Treasury but now back with BloombergNEF. And so all that remains is to thank our producer, Oscar Boyd, our video editor, Jamie Oliver and the rest of the team behind the scenes, please join us this time next week for another episode of Cleaning Up.