Economic Recovery, Stable Growth Make Mexico Attractive

Q: How did the fluctuations in module prices affect your operations over the past year?

A: The situation has been favorable for us. The long-term levelized cost (LCOE) of energy that we use as a reference to understand where we are in market cycles and make investment decisions has been at historic lows in its CAPEX component. The industry in China, which is quite strong and commercially aggressive, could be pushing production without making a profit. This represents a risk and an opportunity for us, and we are trying to take advantage by launching as many projects as possible into the execution or construction phase but knowing that commercial conditions might swing without much notice.

LCOE also considers the cost of financing in the region, which has not improved. As a result of inflationary movements in most economies, caused in part by the pandemic, rates are relatively high. Several indicators suggest that inflation is starting to ease, which could lead to changes in monetary policy, but financing will probably take some time to adjust. Despite the challenges, Latin America is a must for global players. 

Q: What do X-Elio’s operations in Mexico mean for the company’s overall portfolio and strategy in the Americas?

A: Mexico continues to be one of the cornerstones of our operations in Latin America. And the region continues to show great promise. The issue is to move from promise to action and that requires improvements over both volume and returns. It is no secret that Mexico saw a slowdown in the development of centralized generation, during which we focused our resources on other countries in the region, such as Chile and Brazil. But we did not stop paying attention to Mexico, on the contrary, by witnessing the system being under stress, we understand it better than ever. That explains why we continued to make specific investments in the country. While limited, these investments have been highly focused on what the future of the market will be.

Q: How do trends in Mexico's energy industry, such as nearshoring, grid challenges, and the evolving investment landscape, impact X-Elio's operations and strategic planning?

A: The planning remains the same: We want to be present in the Mexican market when it reopens. Trends like nearshoring are good, but we see it more as an added advantage. Major economies in Latin America, including Mexico, are recovering and trending toward stable growth of about 2% in GDP. Some have recovered better from the pandemic than others, and some are falling a little short of expectations.

Mexico remains attractive but still has basic infrastructure issues related to water, gas, and energy, particularly renewable energy. Other concerns touch on issues of a social nature and, above all, security, closely followed by rule of law. Mexico has been trending downwards on these topics, making it a risk for those considering investing in the country at scale.

Q:  What concerns you the most about the energy proposals of the United States and Mexico?

A: In Mexico, the current government proposed a single flagship project for centralized renewable energy, which the elected government is expected to continue. Changes to regulatory and legal frameworks were suggested during the current administration but have not advanced. As we have learnt after the elections, it is likely that the president-elect will carry out another try at the reform and this time make radical changes. Under this landscape, the sector has been anxiously waiting for signs that the market will reopen, that has not changed. Yet, the “how” matters a lot.  On top of that, there is the concern around the election in the United States, which will definitely impact the way we see things by the end of the year. 

If the new government chooses to maintain CFE and PEMEX at the center of the energy sector, it must make them more efficient. Not having efficient energy generation, transmission, distribution, wholesale, and retail structures and procedures will not allow the government to lower the cost of energy for the consumer, one of the ultimate goals of the reform and many times overlooked. There is a strong lag in investments in the network and fixing that problem will take time. It does not matter who increases the supply, whether it is CFE or private companies. The point is that the supply grows to cover the demand at the lowest cost possible and at the necessary speed.

Q: What should be the priorities of all market participants in any scenario?

A: Caution should be the first priority. Companies must evaluate well where they will continue to invest. Transparency is essential and it is necessary to return to the market the tools that generated transparency. The market should reopen in an orderly fashion to avoid generating complexity for the network operator. This cannot be done by patching the regulations sporadically, but rather, with a comprehensive long-term plan that focuses on obtaining inexpensive, reliable, and renewable energy. However, viable and immediate solutions to the challenges at hand need to be defined and agreed upon by all stakeholders.

Finally, another important point is coordination. We saw constant, even transparent, coordination among associations and companies when policy and regulatory changes arose that affected the companies that were investing. We got together, talked, understood and faced problems, often in a coordinated manner. We need to go further. The associations must be solid counterweights to what is happening. They must be proactive and not just reactive.

Q: What were your main achievements last year, and what are your main expectations for 2024?

A: X-Elio boasts achievements in all the regions in which it operates. Regional diversification allows us to focus on certain places when the environment grows more complicated in others. When things get complicated in one region, we have the option of investing in another. One of X Elio’s greatest achievements has been to maintain this regional diversification with a strong push in each of the markets in which it is present.

In Latin America, an asset keeps operating in Mexico with good results and another two in Chile have slightly more complex results due to the situation in that market. We have promoted projects in Brazil and we are close to deciding on some investments in the country. Penetrating a market like Brazil is not easy, but it will offer us volume and an important growth opportunity. We also purchased a company in Germany that fully focuses on storage.

2024 was slower due to the elections. However, we have maintained the pace of our strategic plan, increasing our pipeline, talking to numerous players about possible alliances, and probing the commercial market. We think the opportunity in Latin America is quite large and we are very much engaged in taking part.

X-Elio specializes in the development, construction, financing, and operation of renewable and sustainable energy projects in the European Union, the United States, Latin America, Japan, and Australia. The firm has 17 years of experience with over 2.6GW built.