Carlos Vargas
IB Energy Executive Director
BBVA Bancomer
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View from the Top

Bank Embraces New Renewable Business Models

Wed, 02/24/2016 - 14:31

Q: In what ways has BBVA Bancomer’s support for the UN Global Compact, the UN’s Environmental Program, the Equator Principles, the Carbon Disclosure Project, and similar initiatives shaped the bank’s strategy?

A: These initiatives have shaped BBVA Bancomer’s strict policy and commitment to renewables and clean energy. For instance, we are in the process of acquiring a wind farm to supply energy for our new corporate building. We are aware of the government’s target of generating at least 35% of energy from clean sources, therefore our goal is to support both investors and off-takers and to contribute financially to these projects. We have a special division tasked with overviewing equipment, processes, permits, and other elements related to renewables. In order to ensure compliance with these procedures, we sometimes hire advisors who are specialized in environmental affairs. This is how we ensure that in each project with which we are involved, whether it is financing an off-taker or an investor, all principles and regulations have been complied with.

Q: How important are renewable energy projects in your portfolio, and what are the main risks you see in this field?

A: Renewables are an important part of our portfolio, although there are several factors that should be taken into account. The most important part of our portfolio is clean energy, such as natural gas and combined cycle plants. It is also worth mentioning the tendency of large consumers such as Bimbo, CEMEX, and Grupo Peñoles toward renewables and obtaining their electricity from wind farms. There are many factors that come into play when assessing risk. For instance, rights of way are crucial in Mexico. Secondly, technology is rapidly changing, and parties who are already comfortable using a determined technology have to adapt to new developments. Finally, we are accustomed to assigning EPC to a single company. However, investors are navigating through competitive conditions by recruiting different companies to take care of engineering, construction, and procurement separately. Mitigating risk through a combination of these factors becomes somewhat challenging. We understand the industry is changing, so we are trying to maintain our position in order to be prepared for future opportunities.

Q: What are the criteria you have for selecting your clients and for financing projects, and what are the requirements clients have to uphold in order for you to support them?

A: First of all, the sponsorship has to be proven and clients have to demonstrate expertise. Even if a developer is new and does not have a sufficient credit rating, it should have support from an investor with experience, proven technology, and the capacity to develop a project. The second element is the off-taker, which should have a solid credit profile, preferably with a credit rating. We prefer integrated EPC services; however, we are used to other construction models, since we understand the business and the way risk can be mitigated. Finally, permits and environmental assessments must be demonstrated. We understand that these are long-term investments, so we see no problem financing projects lasting 10-20 years. Financing a 20-year project can be complicated, but we have experience, both in Mexican pesos and US dollars. We are interested in collaborating with SMEs, and in terms.

We are interested in collaborating with SMEs, and in terms of our share of wallet, we are the most relevant bank in the Mexican energy sector, particularly regarding CFE and PEMEX. I would say we are an important player right now and we would like to maintain our position. BBVA will be there for large corporations, new entities, SMEs, and companies under the self-supply scheme, as we have the interest and the means. Participation in smaller projects is a key element, so we have to tackle this market and have a bigger participation than we have at the moment.

Q: How does the entrance of Chinese banks and trust funds affect the Mexican energy sector?

A: Chinese funds and banks are attracting a lot of attention, but even though they have a strong financial muscle, they are not aware of the full scope of changes taking place in Mexico, which gives banks like BBVA Bancomer an advantage. Japanese banks have a deeper knowledge of the Mexican market, the regulations, and risk mitigation, as well as offering competitive costs. In terms of our share of the market, we are the most relevant bank in the Mexican energy sector, particularly in terms of our relationships with CFE and PEMEX. We are an important player and we would like to maintain our market share.