Developing Bankable Public Solutions a ChallengeWed, 02/22/2017 - 15:39
Q: How has the company dealt with financing, especially regarding the performance contracting model?
A: When Optima Energía was created, we learned from international experience about the advantages of developing this model, so we adapted it to the Mexican market and specifically to our clients’ needs. We quickly realized the complexity of getting funding as an ESCO due to the financial risk. Small companies are perceived as risky investments and the uncertainty about our process complicated the financing. We developed six projects with a Japanese financial institution. Even though it was expensive, we proved the model’s feasibility and provided a bankable solution for financial institutions to fund similar models. We developed 30 additional projects using commercial funding. Now we have moved into the public sector and work with municipal governments, where developing bankable solutions has proven to be more challenging than in the private sector. Mexican municipalities are not considered financially trusted entities so we had to create a solution that financial institutions would find comfortable.
Q: What was the solution and what opportunities has Optima Energía found in the public sector?
A: The greatest opportunity regarding energy efficiency lies in street-lighting systems. Municipalities can reduce at least 60 percent of their energy consumption by increasing street-lighting luminosity by 50 percent, which not only addresses energy efficiency but also enhances public security. We have developed energy-efficiency projects for the public lighting system of six cities with international development banks such as the InterAmerican Development Bank (IADB), the Overseas Private Investment Corporation (OPIC), the International Finance Corporation (IFC) as well as commercial local banks such as HSBC, Santander and BBVA. Development banks are now realizing the need to balance energy efficiency with renewable energy projects. Technical risks can be assumed by private companies through performance contracting thus local governments can adapt this technology broadly.
Q: How feasible are CELs, green bonds or carbon credits in the company’s business model?
A: Energy-efficiency initiatives have great potential in Mexico and we expect to develop numerous projects in this field in the short term. We would consider using new financing tools such as green bonds or carbon credits only if we have a large number of projects in place. We now have one credit line with a development bank for US$50 million and two with commercial banks valued in US$150 million and US$400 million, respectively, so we are financially solvent enough to address new business opportunities. The next stage for Optima Energía will be developing renewable-energy solutions for municipalities. The financial model for these projects can also use public-lighting rights (DAPs) taxes as a payment source, implementing solar or wind-energy projects to cover municipal demand. Developing smart cities will come after. We have not yet developed any project in these areas but we have presented some possible solutions to municipalities. We expect these projects in the future to be financed mostly by development banks.
Q: What lessons has the company learned and how have those shaped its strategy in Mexico?
A: The greatest challenge has been the transition from the private to the public sector. One of the main lessons we learned was to expand our indicators of success beyond energy savings and cost effectiveness. At first we used to replace existing lighting infrastructure with its energy-efficient equivalent, which delivers the same luminosity but uses less power. Then we realized it was not enough. We now use energy-efficient devices with higher luminosity levels, which provide less energy savings than before but increase satisfaction. People’s quality of life has drastically improved from this perspective because better lighting enhances security and boosts nocturnal activities. Nonetheless, we still care about balancing energy savings and luminosity levels to ensure the project is profitable