José Zambrano
Director General
Galt Energy
/
View from the Top

Channel Partner Network Spreads Solar Benefits Countrywide

By Alejandro Ehrenberg | Mon, 07/20/2020 - 11:07

Q: How has the distributed generation industry developed in Mexico over the last five years and what has been solar energy’s role?

A: The last five years have seen the emergence of a new industry in Mexico. In 2015, Galt was new in the business. In many of the places where we were initially operating, CFE did not even know what an interconnection permit was. At present, we are an industry that generates a significant amount of electricity — above 1GW. As the market grows, companies within it grow as well. There are opportunities emerging all along the supply chain, from manufacturing to financing. Large industrial customers are committing to include distributed generation in their power consumption.

Solar is becoming increasingly popular. At the beginning, there were three barriers for solar in Mexico. The first was education. The common notion among the public was that solar was good for heating water and nothing else. Galt’s strategy for changing that perception was to target the residential segment first and to use that as an entry point for the commercial and industrial segments. Many of our clients in the latter sectors tried the systems in their homes first. The second barrier was lack of trust in the technology. To counter that, we have continuously built up our standard and refined our technology. Every single installation is a world of its own. It requires a strong team of technicians in constant training. The third barrier was affordability. If you know about the technology and you trust it but you cannot afford it, then something important is lacking. Financing is definitely important. It makes the market much larger than if you were to focus only on clients that pay with cash.

 

Q: What has been your experience in funding your project?

A: We have attracted some institutional funding, but distributed generation financing is a completely different thing from any other type of power generation. We are an asset class that makes traditional financiers a bit uncomfortable: they do not understand the risk map too well. We had to start like everyone else in the sector, raising capital from friends and family and acquiring debt. Eventually, we reached a point where institutional investors became interested. The first fund that came on board was Altum Capital. They invested US$2 million in debt in 2017. The collaboration has been so successful that they have opened another line for us worth US$7 million. This last funding allowed us to open other lines with other funds. In 2020 we’ve raised over $12M in debt and capital and we’re looking to raising an additional $15M in debt for 2021. Our goal is to land US$8 million this year and an additional US$15 million in 2021.

 

Q: What led you to establish a channel partner network?

A: We realized that a channel partner network would allow us to improve financing costs and distribute our portfolio in segments (residential, commercial, industrial) and geographically. We decided to finance other projects in addition to our own. We now have 10 solar developers that are using our financing to develop their projects. This initiative has dramatically enhanced our capacity to grow. An example of the benefits we have reaped is the geographical diversification of our portfolio. At present, through our own developer and our channel partner network we have operations in Nuevo Leon, Torreon, San Luis, Queretaro, La Paz, Guadalajara and Leon. In 2020, we opened in Culiacan, Hermosillo and Mazatlan and are looking towards the Yucatán Peninsula. We have seen with COVID-19 how this makes a difference. Some places have been affected differently than others and payments get delayed in certain areas first.

When choosing our partners, we are very selective. We are not a bank with practically unlimited funding: we have to be disciplined in controlling our pipeline. We work with market leaders in their own regions that have a lot of experience and a wide portfolio. They must have experience in the specific segment they want to work in. We look at everything, including soft issues, like their ability to communicate and how they fit with our values. There is always the issue that our financing arm works with them and our developer arm competes with them, but the market is large enough for everyone and we all benefit from the synergies achieved.  

 

Q: How can Mexico’s government and private energy generators work together to obtain the best results?

A: There is a misconception that the government is targeting private enterprise and renewables. The reality is that the social benefits of distributed energy are consistent with the government’s social agenda. SMEs and families see the most benefits from distributed generation. The government understands this and actually published its own energy transition plan in February focusing on distributed generation. The issue is related to the market’s maturity level. Every distributed generation market in the world that starts growing too much or too fast is capped by the authorities because of technical limitations. Eventually, new technology opens up new market possibilities even in solar-saturated areas. Baja California Sur is a case in point. Solar has grown there to a degree where it can affect the transmission lines. Thus, there are caps based on the circuit that you are installing. Galt has been operating there for five years and we learned to work within CFE’s limits. The government’s policy with regard to distributed generation relates more to the technical aspects. Baja California Sur is an example of how distributed generation could look in the rest of Mexico. It shows that cooperation is possible and that this is not a zero-sum game.

 

Q: What policy change could benefit distributed power generation in Mexico?

A: The industry opinion is that as long as you are not exporting you should not need a permit. We are building a 2MW project with a client whose demand is 20MW. It is so small that it does not affect CFE in any way. Granted, it is important to notify the authorities that you will do this because it will reduce demand a little during daytime, but it is not like you are building a 5MW system for a client with 2MW of demand and you will then export that extra 3MW. That is a different scenario that could damage the distribution lines. That is the rationale behind the government’s 500kW limit: above that you start generating more issues and CFE has to have control. The goal is to have CFE raise that limit and develop protocols to face the diversity of the industry appropriately. The only way to do this will be by means of social and political pressure. A good strategy is that the industry gives something in order to ask for something in return. It will perhaps come down to us making a short-term sacrifice to help CFE in order to get a long-term benefit for our industry.

Galt Energy specializes in solar energy, offering affordable and quality solar systems. All of its systems are custom-made and include energy advisory services, full engineering studies, guarantees, real-time remote monitoring and after-sales service.

Alejandro Ehrenberg Alejandro Ehrenberg Journalist and Industry Analyst