Commercial Banks as Future Auction Players

Q: What is Citibanamex's added value in energy project financing?

A: Citi is a capital markets global leader, including project bonds, project financing, raising equity, taking projects to market and tax equity in locations where this practice can be used. Seeing Mexico's energy market evolution, based on PPAs and how off-takers have been signing them, longterm financing has been at the core of this new setting. Development and multilateral banks have played a huge part in the country’s first steps in energy project finance. These institutions then attract commercial banks, which in turn will attract institutional investors. Citi views energy project financing as capital market devout and we believe our global expertise can be used to create market maturity. If Mexico is to succeed in achieving a truly dynamic energy sector, capital markets need to be present. Private investors, pension funds and institutional investors putting their money in long-term financing schemes are of the essence.

Q: What is Citibanamex’s assessment of Mexico’s most attractive renewable energy source?

A: From a bank’s perspective, having diversified assets is always better. From a regulator’s perspective, the fact that all technologies compete in the long-term electricity auctions is good for the country and the energy mix. It pushes developers to really look for the most efficient technology. Pertaining to the merchant component of the PPAs closed during these recent auctions, wind power's larger variability in production makes it somewhat less attractive than solar, exclusively from a financing perspective. It is not the case that wind is better or worse — it has more to do with the particular PPA design and wind power's broader gap between production levels.

Q: What progress has Citibanamex made in its sustainability goals?

A: Citi has outlined a clear objective of reaching 100 percent sourcing from clean energy worldwide by 2020. Globally, Citi owns real estate in 94 countries, entailing a significant coordination effort to reach the overall goal. We have different options at hand: sign PPAs with renewable producers, choose distributed generation systems in certain strategic locations and buy clean certificates in the countries where the local regulatory framework makes this option available. In Mexico, 30 percent of our intake is already sourced by clean energy through a PPA with one IPP. We are undertaking strategic analyses of all our real estate to establish the best available option to source the remaining 70 percent.

Q: What are Citibanamex’s plans pertaining to DG?

A: Two primary aspects make up our plans: designing financing schemes for our clients to develop that business, and using it for our own consumption. Mexico is a great country in terms of solar resources and DG should be another aspect of the industry that at some point should go to capital markets. Our experience in the US suggests that after accumulating a satisfactory track record of individual DG PPAs, these can be boxed and marketed to monetize future cash flows. Mexico has yet to get there but is headed in the right direction. The technology, expertise and developer experience with DG is there and we are helping our clients with potential financing schemes and co-marketing strategies to reach the needed scale for the business.

Q: What are Citibanamex's expectations for 2018?

A: Citi will become increasingly active in its energy project finance business in Mexico. We looked closely at many auction-winning projects and are happy to see many of these projects will come to completion. Citi is working with Banobras on the design of financial structures that mitigate long-term risks, and we are also in discussions with IDB pertaining to structures that can help attract commercial banks. Partaking in some kind of partnership structure with development or multilateral banks to gain a foothold in auction projects is also among our shortterm objectives.