Do Not Ride the Sector’s Wave of Negativity: X-ELIOBy Cas Biekmann | Fri, 10/02/2020 - 10:54
Q: How important is Mexico in X-ELIO’s global operations?
A: Mexico is definitely a big market for X-ELIO, especially for our growth strategy and presence around the world. We have landmark projects in Mexico, such as the company’s largest power plant worldwide. We have developed a deep understanding of the market and have invested in the country both monetarily and in portfolio capacity, adding up to 650MW spread across the territory. X-ELIO has worked shoulder to shoulder with a group of local and international Partners providing the Financing, from both the commercial and development atmospheres, such as the Inter-American Development Bank (IDB). However, the market has faced many challenges recently, prompting us to double-down our focus on Mexico, alas, with a rather different conversation tone with our Board of Directors.
Q: How has the change in the government’s approach toward the renewables sector affected X-ELIO’s current and future solar plans in Mexico?
A: It has had an impact on both. In terms of what we are still developing or recently made operational, we have faced a number of issues related to the government’s measures. Even though there has been some stress on our plans, we have been able to get through these challenges. All of market’s signals point toward further developments in this regard. Therefore, one cannot be oblivious to the fact that this will affect our pipeline of future projects. No matter where you stand regarding the government’s ideology, whenever I show up at important company meetings, I am always competing with around 10 other countries. It is difficult to win these comparisons if there is a great deal of noise around our work in Mexico. An important factor to highlight is that Mexico is a relevant market for solar. It has the right technical and financial fundamentals. At the same time, Mexico’s energy sector still has a long road ahead when it comes to maturity. The fact that this can be offset by the government’s position needs to be acknowledged properly.
Q: How does the company approach the development and sale of its assets?
A: We are flexible and look for the best opportunity for our investors. We are owned and backed by two of the biggest private equity funds in the world and as a result, we are always considering selling or buying a project when it makes sense financially. We do not stick to a specific trend in the market but always try to ride ahead of the wave and do what makes the most sense in terms of improving our returns.
Q: Is the company still planning on pursuing utility-scale projects or is it identifying opportunities in other segments?
A: So far, we have not changed our focus much. Due to the development stage of our portfolio in Mexico, our focus has switched from being a development-oriented organization toward being more commercially oriented. We need to adapt to a new world, as we came from one where four out of five projects originated from the energy tenders. Since tenders no longer take place, we have revisited our business development process and our risk management strategy.
Q: What sets X-ELIO apart in its social approach regarding communities and its projects?
A: We have always maintained the highest standards in terms of social responsibility, even more so after Brookfield came onboard. We are in the process of standardizing this approach across the world. Our projects have faced some challenges in the social environment, but we have always reached agreements that involved parties are comfortable with. In most of these circumstances, we have been accommodating to the community’s interests, although this is not always fully possible. We make great effort to understand the local needs of the communities. For example, we have built infrastructure for the community to use after we leave. We have constructed meeting centers and helped out when disaster struck. Most recent examples have ocurred during the current pandemic, when we made a large global donation and to the Red Cross specifically in Mexico.
Q: How is the company faring in the development of its landmark Xoxocotla and Perote II projects?
A: We are very close to finalizing Perote II. This is our only project that did not come out of the tender process. We are hoping to close the development and construction phase in both projects this year and achieve COD in 2020. There have been challenges in both projects. One of these has to do with an archeological site, the other with different permits that were inexplicably denied. However, this is part of the game and we are used to that. We are, therefore, happy to announce that both projects are close to being completed. Xoxocolta is already providing energy into the grid but we need to finalize all our plans to mark it as done.
Q: Does the company consider battery storage a viable addition to its Mexican solar projects?
A: X-ELIO has people looking for the next big thing in the energy sector. Battery storage has been on everyone’s radar for some time now, so we do have interest in coupling our development with this technology. However, to my knowledge it is not economically viable and scalable for us at the moment. Nonetheless, we are getting closer to this point. We are getting close to seeing it become viable, especially in markets that have restrictions or challenges in terms of infrastructure and intermittency. We do not have a team in this regard in Mexico but we do have meetings where progress on these topics is shared and discussed. The staff in Spain is showing strong interest in battery storage, and in other innovative initiatives.
Q: What are X-ELIO’s goals for 2020-21?
A: In Mexico, we need to achieve a couple of goals. First of all, we aim to fully bring Perote II, Xoxocotla and Terranova projects online. Furthermore, we need to find the right opportunities for the company and avoid falling into the mainstream of negativity regarding prospects due to the government’s shifting attitude toward the sector. We do not want to be among those who are looking to exit Mexico swiftly because the sector is in distress. On the contrary, we want to find opportunities to increase our investors’ returns. This could include growing or rotating our portfolio rather than finding pure exit plays. We need to be careful and not take the easiest way out and/or to forget what brought us here in the first place. We need to consider the opportunities for us to develop once again in the future, when the uncertainty cloud upon us dissipates.
X-ELIO develops and operates utility-scale PV plants. The company has participated in the development, construction, maintenance and operation of plants with a total built capacity of over 2GW in 5 continents. Five of its projects are located in Mexico.