Felipe Salazar
Country Manager
Alten Renewable Energy
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View from the Top

Challenges Ahead for Auction Winners

Wed, 02/22/2017 - 12:30

Q: How has your perspective of the Mexican power market changed since the enactment of the Energy Reform?

A: It has been a painful yet rewarding process. It is painful because of all the confusion that results from the changes in any reform. During 2015, after the publication of all the guidelines and secondary laws, our initial perspective from 2013 started evolving. There is still secondary legislation pending that can create some uncertainty but Alten’s view is positive and has grown more positive since the results of the power auctions. It is a growing market and not easy to enter but the prospects have been so encouraging that from the first to the second power auction the number of awarded companies went from 11 to 26. There is a global hunger for development. The process has been extremely transparent with plenty of opportunities that will allow Mexico to become power-competitive and very open. The power market has always been dominated by the large companies, such as Gas Natural Fenosa, Iberdrola, Enel Green Power, AES and others, and in the power auctions the field has been much more diverse and supportive of medium-sized companies.

Q: What elements boosted your success in the second power auction with the 340MW project?

A: Unlike the first auction, in the second one the purchase bid was divided into three products: power, CELs and capacity. Our Aguascalientes project was highly competitive because of the time spent on its development prior to presenting it at the auction. Some projects presented at the power auction were incomplete, they lacked land ownership or building permits. One of the dangers of the Energy Reform are the low requisites it establishes. That can lead to highly competitive companies with a fully developed plan competing against companies that just present an idea but with no prior research on the land, permits, social assessment and building costs. The preparation spent developing the project set us apart from other companies that did not take such careful consideration before presenting their project. Since we understand the costs implied in the project we have a clearer idea of the offer we can present, contrary to other projects that calculated but did not properly define their costs.

Alten also presented a smaller-scale project of 150MW in the first power auction and was even chosen among the finalists but it did not win. For the second power auction we boosted our processes’ efficiency. We increased the volume to 340MW, got new supplier agreements and looked for better technical solutions, such as reducing domestic transmission losses, which was challenging given the size of the project.

Q: Why did Alten choose to develop the project in Aguascalientes?

A: The main elements that influenced the decision on the project’s location were feed-in infrastructure, the generation performance ratio and increasing demand. We are convinced of the competitiveness of the projects outside the power auctions and that is why we also develop in regions like Sonora. In the power auctions the competitiveness level is too high given the participants’ expertise, resources and capabilities.

Q: What challenges do you foresee in completing auction projects?

A: There are two main stages that will present challenges for Alten. The first is the signing of the contract. To get to that point we need to have everything in place, from the permits to the legal requirements. Another challenge for awarded projects will be for the banks to understand the schemes included in the power auctions. They need to understand concepts such as CELs, capacity and so on. We have succeeded in developing competitive, bankable projects but creating the best conditions to present a final offer has been a journey. We had to meet with many banks to negotiate financing terms and it was hard because banks sometimes lack the technical knowledge to analyze the implications of the project. We have everything in place to start building the park in May/June 2017 so by June/July 2018 the output will be delivered, on time.