EPC Diversifying into Infrastructure FinancingWed, 02/21/2018 - 12:00
Mexico’s energy sector is opening fast but the infrastructure gap could be a stumbling block that is difficult to overcome. Given the fact Mexico is one of the few countries transferring the investment responsibility to project developers, this makes it harder to make those projects economically viable, according to José Delgado, Project Development Director for SUNCO Capital. “Different countries have different strategies to tackle the infrastructure problem,” he says. “But a common issue is the lack of proper and well-defined investment projections, in addition to economic factors.”
Delgado says that CENACE’s plant requirements mean that, although projects are technologically viable, they are economically unviable due to the infrastructure investment burden placed on the shoulders of the private sector to connect them to the grid. According to Delgado, almost any country that sets new energy-generation goals suffers problems with infrastructure construction. “But this has been especially true for Mexico due to its old and obsolete infrastructure that does not meet the current reality, not to mention future growth prospects,” he says. “The availability of these resources is hard to predict and those grids are not prepared to handle unstable injections of energy.” For this reason, SUNCO has seized on the opportunity to set up an investment platform in Mexico. “SUNCO Capital is our investment vehicle, managing a US$20 million private equity fund,” he explains. The SUNCO Capital Development Fund focuses on greenfield, and therefore the most risky projects, with the aim of making them either bid-ready or ready to build.
Mexico will need 55.84GW of additional installed generation capacity, according to PRODESEN, to cover the energy needs of the country over the 2017-2031 period. Of that capacity, 63 percent will have to consist of clean technologies that will trade their energy on the CELs market, ultimately ensuring that the country reaches its goal of 35 percent of the national energy being consumed from clean sources.
SUNCO’s expertise traditionally lies in third-party EPC services and, as of May 2017, it had 320MW under development and a portfolio of different projects equal to approximately 800MW that it is launching in different regions of the country. Nevertheless, Delgado says the new CELs market will be extremely interesting and attractive for SUNCO and he believes it will complement the projects already underway. “It will be a stabilizing factor for projects and for financing models,” he says.
The CELs market is without a doubt one of the milestones ensuring the continuity of Mexico’s long-term vision for clean technologies. “The obligation of industrial players to cover their energy demand with a certain number of CELs opens up a new market and therefore new ways to generate business, both for the companies providing the CELs and for those that need them,” he explains.
But despite a steep learning curve, Delgado highlights the deep respect SUNCO has for the shifting Mexican market, the country’s idiosyncrasies and how the culture works. “We believe that to properly work in a country we must adapt to the country and not the other way around,” he says. According to Delgado, SUNCO is looking for strategic alliances with local developers or with companies that have a better understanding of the country. “Through these alliances SUNCO is able to offer its expertise in engineering, financing structure and most importantly the capital muscle to take the project forward. This is capital that many small companies lack.”
SUNCO has a vast global portfolio, and it is betting on the Mexican market. Delgado says the company is seeking to control US$5 billion in assets before 2022 on a global level, but it is in Mexico where SUNCO expects to find the largest volume of projects. “We believe our biggest growth will be found in Mexico.”
To make sure that happens, SUNCO wants to be considered a serious player that creates quality projects, and it seeks to do this through the next electricity auctions. “Part of our project portfolio is ready for the third long-term auction and we are also looking for partners with which we can generate projects to be included in the fourth auction,” he says.