Collaboration Strengthens Financial Muscle

Wed, 02/24/2016 - 14:22

The Mexican energy sector has been characterized by a chicken-egg situation. On one side, banks claim they have the resources and openness to finance renewable energy projects, yet unfortunately developers seldom knock on their doors. On the other, developers resent the fact that banks are reluctant to finance their projects due to risks involved and lack of knowledge regarding technologies used. Given the conditions of the wholesale market and the clean energy objectives, financing mechanisms have to be adjusted if more projects are to see the light of day. Fortunately, commercial banks seem more open to financing these enterprises. According to Miguel Ángel Laporta, HSBC’s Director of Corporate Sustainability for Mexico and Latin America, the Energy Reform is the reason commercial banks changed their attitude toward financing renewable energy projects. “I think that over the past year, the Energy Reform acted as a catalyst for the expansion of the market, and energy will become a prolific business within the next seven years. Now there is an open market and investors are more interested. ”

Due to the risk and capital involved in a renewable energy project, commercial and development banks will interact closely in order to provide the resources developers need. For instance, HSBC collaborated with NAFINSA to create the Impulso Energético fund for financing energy efficiency and energy generation projects. NAFINSA’s support has enabled HSBC to provide warranties, thus reducing interest rates. Similarly, Banobras encourages commercial banks to participate in infrastructure projects. Enrique Lara, Sub-director of Hydraulic, Social, and Environmental Infrastructure at Banobras, makes it clear that his bank’s objective is to collaborate with commercial banks and not to supplant them. “When we find bankable projects, we try to induce commercial banks into participating as well.” Lara mentions that, given a situation in which there are too many projects, Banobras would finance the first in every renewable source in order to provide a viable business model for the subsequent projects to follow through financing from interested commercial banks. The newly minted market rules have made it difficult for development banks to establish new financing conditions. Likewise, Laporta says the lack of clarity on future electricity tariffs is the reason why HSBC has not signed PPAs lately.

Undeterred, Banobras will continue encouraging commercial banks to partake in renewable energy projects. “We know the authorities are aware that renewable energy projects require clear rules in order to generate financing. Once these conditions are established, we will discuss new financing schemes,” says Lara