Developing Competitive Projects from the Ground up

Although MWh+CEL package prices play a significant role in the investment decisions for the long-term electricity auctions, important peripheral factors should be considered to boost the chances of a project’s success, says Felipe Salazar, Country Manager Mexico of Alten Energías Renovables, a large independent PV power producer (IPP) with over 467MW of capacity commitments across Mexico and Sub-Saharan Africa.
“The first long-term electricity auction projects in the Yucatan Peninsula dealt with mangroves, pre-Columbian ruins, social impact issues, environmental compensation for land-use changes in forested land and rights of way to reach distant interconnection points, among other issues,” Salazar says, adding that these issues can complicate processes, increase time and costs and jeopardize financing.
Salazar believes Alten Energías Renovables’ focus on crucial aspects of the project from the very outset helped determine its success in the second long-term electricity auction. The company was awarded the Solem I and II projects in El Llano, Aguascalientes, with a total installed capacity of 348MW. “Locations with reliable energy evacuation infrastructure, on-hand energy consumption data that illustrates a steady increase, possible PPAs, proactive municipalities and local governments and locations close to power substations and interconnection points are a few of the aspects we specifically look for,” he says. That kind of detailed planning helped deliver the favorable outcome of Solem I and II, Salazar says. “The first long-term electricity auction awarded projects that in some cases did not even secure the terrain meant for the project, whereas our proposals had already concluded all permitting procedures and presented ironclad planning and cost structures free of additional expenditures,” he says.
Alten Energías Renovables also capitalized on its advantage as a flexible and vertically-structured company exclusively dedicated to PV projects, along with its first-mover status. “Alten always develops its projects from the ground up while other large companies purchase semi-developed projects,” he says. “Alten is involved in the project from terrain search and permitting procedures all the way to operation and maintenance.”
The company arrived in Mexico in June 2013, prior to the Energy Reform, and Salazar says that made a big difference in its fortunes. “We recognized early on the potential of the opportunities Mexico offered without ever imagining they would be as good as they are now,” says Salazar. “We would have missed this sizable window of opportunity if we had decided to enter later in the game.”
As a result of its early entry, Alten was part of the transition process, riding the learning curve along with CRE, CFE and CENACE. The company oversaw the transition of its projects from legacy contracts to the new generation and interconnection scheme, pioneering the first interconnected project with CFE Transmisión Occidente under the new Electricity Industry Law. “We ironed out the regulatory gaps present at that time, especially when drafting contract terms,” Salazar says. “It has become a much more seamless process since then.” He especially applauds the efforts of CENACE and CRE for their continuous transparency and ongoing work to establish streamlined processes, particularly in the long-term electricity auctions.
Solem I is set to come online by September 2018 and Solem II will be operational by June 2019 per Alten’s commitments to CFE Suministro Básico. The surplus production of both PV parks will be placed on the spot market to capitalize on the short-term opportunities it offers. Based on the results obtained during the third long-term electricity auction, Salazar anticipates new utility-scale projects will search for profitability through a mix of auction placement, market placement and PPAs, in a proportion suitable to the developers’ business plan. “The auction’s tight margins can be compensated with short-term sales in the spot market and PPAs for both mid and long-term transactions,” he says.
Mexico’s renewable energy industry push shows no sign of slowing but as sizable amounts of renewable GW come online, grid saturation is at the industry’s doorstep. “Interconnection points with evacuation capacity are becoming scarce,” says Salazar. “Investment in transmission infrastructure will increasingly play an important role so we can continue injecting renewable energy into the mix.”