Breaking The Utility‑Scale Glass CeilingMon, 02/25/2019 - 14:13
Q: How has X-ELIO’s Mexican project portfolio strengthened its go-to developer status?
A: X-ELIO arrived in Mexico in 2013, starting with small producer projects of up to 30MW and then making an incursion into bigger projects which are the focus of the company nowadays. X-Elio gained a significant push with three projects won during the second long-term electricity auction in 2016. Our successful participation was based on the know-how of developing large-scale PV projects in Mexico and the understanding of long-term electricity auction algorithm. This learning curve allowed us to win another project in the third long-term electricity auction with an installed capacity of 250MW in Bacabachi, Sonora. The project’s capacity is as large as the three PV projects we won in the second long-term electricity auction all combined. We were also able to close a fifth 100MW nameplate capacity project, signing a bilateral PPA with one of the biggest qualified supplier in the country.
Q: How have the lessons learned from X-ELIO’s auction participation improved its project development?
A: It is worth mentioning that the design and execution of the auctions has markedly improved from the first edition to the third, on all fronts, including preselection procedures, an increasingly user-friendly auction system platform and CENACE’s communication channels. The inclusion of a Clearing House was another step in the right direction. These steps forward were also taken in parallel by X-ELIO, optimizing our auction knowledge, algorithm and processes. An important optimization opportunity remains in the last-minute changes on electricity export limits. In past editions, those unplanned modifications overlapped delivered auction guarantees and prequalified offers, causing some projects to be ultimately rejected.
Q: How is X-ELIO adapting to the downward trend of long-term electricity auction package prices?
A: Prices reached during the third long-term electricity auction were unexpectedly aggressive. To put it in perspective, the three projects we won during the second auction achieved the second most competitive price offer at around US$29/MWh (blended price), while our third auction project was the most expensive with an all-in price offer close to US$24/MWh. While we polished certain inputs and integrated additional variables, our business model remains largely unchanged. Multiple factors can shed some light on this trend. EPC prices have progressively optimized. It is to be expected from an industry that, no more than five years ago, had only a few renewable MW under construction compared to the amount of GW under construction to date. Under a macroeconomic lens, Mexico’s long-term auction contracts under a US dollar-indexed price, coupled with the country’s sociopolitical stability, makes it highly attractive, provoking several renowned power producers to participate.
Q: Can green bonds provide a suitable source of financing for X-ELIO?
A: For the short term, we are focused on traditional project finance. Going forward, the downward trend in long-term electricity auction price packages directly impacts financing conditions, ratios and leverage so a project sponsor’s equity capacity will become increasingly crucial. Entering into new sources of financing is part of our future plans as soon as we consolidate a large portfolio of operational assets.
Q: How does X-ELIO ensure its Mexican project portfolio follows the highest standards?
A: X-ELIO has a lengthy trajectory in the sector, exclusively dedicated to developing PV systems. In Mexico, we replicate the strict quality standards we practice in other markets, such as Japan, Chile or Spain. We secured the relevant ISOs and place singular importance on every social and environmental aspect of our projects, following i.e. the Equator Principles and undertaking public consultancies with local communities. Parallel to the conditions that must be met for financing, we also comply with the best HQSE standards.