Banking Sector Embraces Clean PowerWed, 02/22/2017 - 13:40
A few decades ago investing in renewable energies was seen as an extravagant decision more suited to so-called tree-huggers or technology fans. But the global landscape has changed dramatically since then and investing in renewable energies is now viewed as sound business sense. And with commercial banks participating as clean energy purchasers, more businesses are expected to join the movement.
Citibanamex, the Mexican subsidiary of Citigroup, is among the financial institutions that are entering the renewable energy world as a purchaser and not only as a sponsor.
“Citibanamex has been increasing its participation as an off-taker because we have targets we would like to meet regarding sustainability,” says Salomon Amkie, Vice President Head of Power & Alternative Energy at Citibanamex. “We are following a strategy launched a couple of years ago. While we have lagged other banks in terms of financing renewable energy projects, we are now aggressively seeking to finance the new PPAs that have been awarded.”
He adds that the bank's experience is a key advantage. “We are leveraging Citi’s expertise as a large and global renewable energy project-financing player and trying to bring that to Mexico. Obviously, we already have a great footprint in the country with Banamex and we are trying to make the most of this as well.”
In addition to its financial expertise, Amkie believes Citibanamex is prepared to handle the technical challenges that imply selecting the best energy technologies, whether for financing or covering its own energy needs. “We are very well equipped to understand how technology impacts a project. We deal with a lot of these technology providers worldwide so we know them well. There is an alternative energy financing team in New York that is very well-versed on the subject of technology and how it impacts a project. We also rely on independent engineers who are experienced and knowledgeable and can advise us when we are considering financing these projects.”
The main challenge for Citibanamex and other off-takers is not likely to be related to technical issues but to the changing environment and the wide portfolio of options to choose from in the wake of Mexico’s Energy Reform. Companies operating here and willing to purchase clean energy now have the option of signing PPAs with legacy projects or private power producers, buying electricity from qualified suppliers, which include CFE Calificados, marketers or directly from the wholesale electricity market, which launched operations in January 2016.
“The wholesale electricity market is really just starting. We have these great PPAs at an incredibly competitive pricing that might not reflect the reality of the spot price. I think the biggest challenge is trying to determine what the actual prices are to define whether or not it is beneficial for Citibanamex as an off-taker to close a PPA for the long term or purchase energy directly in the market. As a suggestion for other off-takers, it is very important to see the sponsor and the asset that you are signing the PPA with and to think about the tenor of the PPA. I do not think it is the time to close anything beyond seven or eight years, due to the current dynamics of the industry,” says Amkie.
Besides its plans to buy clean energy and finance renewable energy projects, Citibanamex is helping off-takers improve their efficiency as part of the group’s Citi Global Climate Change Initiative. Citigroup has made a strong commitment to climate financing, starting in 2007 when it announced a US$50 billion investment in activities that mitigate climate change. Its latest initiative announced in early 2015 involves US$100 billion to be released over the next 10 years.“We discuss with SMEs how they can best save energy to help them find the optimum solution, be that energy efficiency, distributed generation or whatever it might be. We then offer to finance it. So far, it has been a very successful program. We intend this to be cost-efficient for the companies. I also think the risks are really minimal. What we have done is filter the suppliers that we recommend, so we know that these are great companies to work with and we seek to finance against those cost savings. It represents a net improvement for companies with barely any risk,” he says.